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18th Jul 2018
It is now over one year ago since HM government launched the 'Help to Buy' scheme, which aims to help both first-time buyers and those looking to move home, purchase residential property. In its first year, the scheme claimed that one fifth of all new homes built and sold over the same period were purchased with the help of the scheme, which by any measure, is an impressive statistic.
Rallying off it's early success, the initial 'Equity Loan' scheme, launched April 1st 2013, was extended in October 2013 in the form of the 'Mortgage Guarantee' scheme. This scheme operates through providing guarantees to mortgage lenders that lend to qualifying home-buyers. Under both schemes, the property value cannot exceed £600,000 and the buyer must be able to self-fund at least 5% of notional value of the deposit. Scotland and Wales operate schemes that are in principle similar, with property price caps of £400,000 and £300,000, respectively.
Despite a flush of impressive statistics on the impact of the first 12 months of running the scheme, key market commentators are highlighting that the government has yet to demonstrate that its flagship 'Help to Buy' policy is providing value for money. The argument presented by the Commons Public Accounts Committee (PAC) is that the mounting loan book to support the scheme creates a medium and long-term risk to the taxpayer in the shape of a £10bn portfolio of loans that carry with it a heavy administrative burden.
The governments defends its position by estimating that 25-50% of purchases through 'Help to Buy' have led to the construction of homes that would otherwise not have been built. It further believes that "it may be improving the confidence and appetite" of home-builders to scale up production.
The report concludes that to determine the schemes 'value for money', evaluation "needs to ask three things: whether more people purchased properties than would have done without the scheme; whether builders built more houses than they would have built otherwise; and what effect the scheme could be having on house prices'.
Proving the above either way will be a major challenge, not least because being able to accurately model forecasted property market dynamics without the scheme in place is extremely difficult. Beyond this, the PAC argument does not seem to place sufficient weight upon point three above. It is one thing helping current home buyers enter or climb the housing ladder, but if this is at the expense of dramatically inflating prices (to the extent that the next generation of first-time-buyers are presented with an even bigger home-buying problem) then the entire value of the scheme comes under great pressure.
Current university leavers could be some of the largest losers of the apparent "success" of the governments 'Help to Buy' scheme. Over the last three years, student tuition fees have increased the basic cost of a degree by £18,000. Over this period, the majority of universities have also experienced tremendous growth in student rental prices adding to a student's financial burden. To make matters worse, many are entering a job market that for graduates is no better than it was at the height of the financial crisis. For soon-to-be graduates, the icing on the cake is therefore 'Help to Buy'. For those lucky few who can afford to lay down a deposit and take on the financial burden of a mortgage straight out of university, they are going 'long' a property market that has increased in excess of 25% in as much time as it took them to earn their degree.
Perhaps the government should place specific focus on how a targeted scheme focusing on recent graduates could add value as opposed to helping existing home-owners climb the property ladder even further.
18th Jul 2018
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