Help To Buy will have tied up some £29bn in cash terms by the time in concludes in 2023 – but the value of what it has achieved is uncertain when many of those helped could have bought anyway, a Commons report reveals.
The Public Accounts Committee (PAC) says Help To Buy has not made homes more affordable or addressed other pressing housing problems such as the planning system and homelessness.
In June, the National Audit Office released its own report into Help To Buy that found almost a third of buyers could have purchased a property they wanted without the help of the scheme.
PAC does acknowledge Help To Buy has increased the supply of new homes and boosted the house-building sector, saying MHCLG must now identify the “lessons that can be learned” from this and how these can be applied to future housing schemes.
MHCLG has a significant amount of capital invested in Help To Buy, with the total size of the loan book on Homes England’s balance sheet now equivalent to that of a medium-sized building society.
And MHCLG acknowledges that the scheme has only really benefited one section of society – those who are in a position to buy their own home in the first place.
But PAC chair Meg Hillier MP said Help To Buy exposes both the government and consumers to significant financial risks were house prices or interest rates to change, and that better consumer protection needs to be built into similar schemes in the future.
“Help To Buy has tied up a large sum of money, forecast to be nearly £29bn in cash terms by the time it concludes in 2023, making the value of what has been achieved uncertain,” said Hillier.
“While many people have been helped to buy properties, who would have not otherwise been able to, an even larger group of buyers did not need its financial support.”
“Help To Buy only benefits those in a position to buy their own house in the first place – it does not help make homes more affordable nor address other pressing housing problems in the sector such as the planning system or homelessness,” she said.
On an upbeat note, the report says that since the crisis in construction confidence following the financial crash of 2008, Help To Buy has as unlocked demand for new homes from potential buyers by giving them a government-backed loan to help them buy their own home, and therefore giving developers the confidence to increase their rate of building.
The report references small and medium-sized developers, of which around 1,600 have used the scheme to date, and a recent increase in the number of very small developers that are using the scheme – making Help To Buy more successful than related predecessors.
MHCLG evaluations show the scheme has increased housing supply by around 14%.
But where Help To Buy has helped many people to buy properties who otherwise would not have been able to, the report reinforces the perception of a large proportion of those who took part not needing its help.
The report cites stats that show by December 2018, the scheme had supported some 211,000 households to buy properties, through loans totalling £11.7bn – with some 37% of buyers saying they could not have bought a property at all without the support of the scheme.
To PAC, this implies that around three-fifths of buyers did not need the support of the scheme to buy a property, although some research suggests that even those who could afford to buy were not doing so because of wider economic uncertainty.
Around 20% of people who have used the scheme were not first-time buyers.
From 2021, MHCLG will restrict the scheme to first-time buyers, and is introducing lower regional price caps that will reduce the number of purchases through the scheme and should better focus the scheme on those who most need help.
PAC says regional price caps could mean the scheme may not work well in some areas within the regions and, while MHCLG has committed to monitoring the situation, having already set the caps, it seems unwilling to change them, creating a risk they may not work in the way intended.
Despite this, the report reveals MHCLG has not assessed the likely impact of the changes to the scheme from 2021.
MHCLG is now expected to report back to PAC next year on the impact it expects changes to the scheme to have from 2021 and how it will ensure that regional prices caps work effectively across regions.
PAC also identifies MHCLG as allowing the scheme to become a semi-permanent feature of the housing market – without thinking through the changes needed to improve the value to be achieved from the new scheme.
Where Help To Buy was intended as a short-term solution, additional funding for the scheme announced in 2017, when the housing market had improved, might not have been necessary or delivered enough value, the report says.
Planned changes to the new scheme from 2021 are acknowledged by PAC as reducing reach while weaning developers off.
But the report says MHCLG can go further and use the new scheme to address concerns about undesirable practices by some developers, particularly given recent concerns that developers are not fulfilling their commitments to fund infrastructure and build affordable housing.
Again, MHCLG is expected to report back to PAC next year on how it is working with developers to plan the new scheme from 2021, so that it addresses concerns about developers’ behaviour and achieves at least as much value.
The report identifies a lack of curiosity within MHCLG over why and how buyers redeeming their loans gives rise to uncertainty over whether the Department will make a return on its investment.
MHCLG currently forecasts that it will make a positive return in cash terms on its investment in Help To Buy, although it acknowledges that the housing market is unpredictable and that it may make a small loss once inflation is taken into account.
House prices are now static, or falling in some areas, following a period of price rises over the first five years of the scheme.
PAC says some 50% of buyers who bought in the first year of the scheme have redeemed their loans, a higher rate than MHCLG forecast.
The report references the essential need for a “good understanding” of how, when, and why buyers are redeeming their loans, and it makes accurate predictions about the amount and timing of the likely return.
“Yet the Department is unable to explain why redemptions to date have been higher than expected. This lack of understanding of the reasons for higher redemptions means the Department does not know how buyers may behave in future,” the report says.
By the end of this year, PAC expects the publishing of an analysis of the reasons for people redeeming to date.
In the MHCLG decision to keep equity loans as unregulated products, PAC sees insufficient protection for buyers – with some buyers not fully appreciating the potential impact of related interest payments on their finances.
To PAC, it is “surprising” that Help To Buy loans are not subject to regulation by the financial authorities, unlike mortgages where buyers are protected through regulation.
So far, buyers have not been paying more for Help To Buy properties than other new-builds.
However, the scheme is only available for new-build properties, which can cost up to 20% more than existing properties, and to PAC that raises the risks to the buyer.
The report says MHCLG “does not fully understand” the scale or effect on buyers of what effectively amounts to a new-build premium – including the potential impact for those who need to sell soon after purchase, when their property may be worth less than what they paid for it.
Again, by the end of this year, MHCLG is expected to explain to the committee how it intends to put in place better consumer protection arrangements for similar products in the future.
And, as part of its next evaluation, PAC wants MHCLG to examine the new-build premium, and the impact Help To Buy has had in relation to this.
Tellingly, the report reinforces perceptions of Help To Buy as not making homes more affordable for society in general or helping address other pressing problems in the housing sector.
PAC recognises MHCLG has other programmes to address these problems, but Help To Buy remains its largest initiative by value.
To PAC, the scheme is no longer as needed as it was when it was introduced in 2013, because mortgage availability has improved.
Despite this, MHCLG intends to continue committing considerable sums of money for another four years until the scheme ends in 2023, as it believes developers and lenders will need this time to adjust to a regime without the scheme’s support.
Another report back to PAC by the end of this is expected to see MHCLG set out how its different housing policies and initiatives work together to address the housing crisis.