The Help to Buy: Equity Loan scheme (the scheme) aims to support the delivery of the Ministry of Housing, Communities & Local Government’s (the Department’s) strategic objective to “deliver the homes the country needs”, through increasing home ownership and increasing housing supply. It is the Department’s largest housing initiative by value.
The government introduced the Help to Buy: Equity Loan scheme to address a fall in property sales following the financial crash of 2008 and the consequent tightening of regulations by the regulatory authorities over the availability of high loan‑to‑value and high loan-to-income mortgages. Through the scheme, home buyers receive an equity loan of up to 20% (40% in London since February 2016) of the market value of an eligible new‑build property, interest free for five years.
In our 2014 report The Help to Buy equity loan scheme, we examined the performance of the Department for Communities & Local Government (now the Ministry of Housing, Communities & Local Government) and the Homes and Communities Agency (now Homes England) in designing and implementing the scheme. We found that they had started the scheme well, early demand for the scheme was strong, and that the scheme was improving buyers’ access to mortgages.
Since our first report, the scheme has increased considerably in size and value. This report assesses how the scheme has performed against its objectives, how effectively the Department and Homes England have managed the Help to Buy: Equity Loan scheme to date, and how they are planning the future of the scheme and its end. This report does not examine whether quality standards for new-build properties are either adequate or have been met.
The Department’s independent evaluations of the Help to Buy: Equity Loan scheme show it has increased home ownership and housing supply. It seems likely to continue to do so as long as the scheme remains open, provided there is no significant change in the housing market. The scheme is therefore delivering value so far against its own objectives. The Department is currently forecasting a positive return on its investment and redemptions are running ahead of expectations.
Given that the government has entered the equity loan market place, it has put reasonable arrangements in place to benefit from increasing property prices. However, this is dependent on the performance of the housing market and property values can go down as well as up. At points when the market turns down (whether over the near, medium or longer term), the taxpayer could lose out significantly, as the government’s investment in housing capital would reduce in value. Furthermore, property owners could face the trap of negative equity, exacerbated by the new-build premium. The scheme also has an opportunity cost in tying up a great deal of financial capacity, and its broad participation criteria have allowed some people who did not need financial help to buy a property to benefit from the scheme.
The government has indicated that it will wean the property market off the scheme. It will need to ensure that developers continue to build new properties at the rates currently achieved, or better, if it is to meet its challenging ambition of creating 300,000 new homes per year of sufficient quality from the mid-2020s. The scheme may have achieved the short-term benefits it set out to, but its overall value for money will only be known when we can observe its longer-term effects on the property market and the net return, or cost, to the taxpayer when the very substantial portfolio of loans has been repaid.
“Help to Buy has increased home ownership and housing supply, particularly for first-time buyers. However, a proportion of participants could have afforded to buy a home without the government’s help. The scheme has also exposed the government to significant market risk if property values fall, as well as tying up a significant public financial capacity. “The government’s greatest challenge now is to wean the property market off the scheme with as little impact as possible on its ambition of creating 300,000 homes a year from the mid-2020s. Until we can observe its longer-term effects on the property market and whether the Department has recovered its substantial investment, we cannot say whether the scheme has delivered value for money.”
Gareth Davies, the head of the NAO