The government’s Help to Buy scheme celebrated its first birthday yesterday and, by most measures, this first year has been a resounding success. Well over 17,000 households have bought homes under the scheme, with 88 per cent comprising first-time buyers. When Help to Buy was first announced naysayers said it would disproportionately help wealthy homebuyers in London and the South East. But, one year on, it’s clear that hasn’t come to pass, with over three quarters of the properties bought from outside of this affluent area. West Yorkshire currently tops the table of districts that have benefitted from Help to Buy.
Help to Buy comes in two forms – the equity loan and the mortgage guarantee. The equity loan enables buyers to put down a deposit of just 5 per cent on a property, which must be a new-build, with the government providing an equity loan of up to 20 per cent, with the remainder being made up with a normal mortgage. The mortgage guarantee, which was only launched in October, provides a government guarantee for lenders who offer mortgages to buyers who only have a small deposit. The mortgage guarantee is not limited to new-build purchases.
The government certainly sees Help to Buy as a success and is keen to build on its popularity. Chancellor George Osborne announced an extension to the equity loan element of the scheme until 2020 (in England) in last month’s Budget. Shares in many house-building companies, such as Persimmon, Bovis Homes and Taylor Wimpey rose sharply when the announcement was made. And yesterday the Ministry of Defence launched the Forces Help to Buy scheme, which offers regular service personnel loans of up to 50 per cent of salary towards the purchase of a home (this forms the first part of the New Employment Model for service personnel).
But critics of the wider scheme are not hard to find and they are not limited to the Opposition benches. Numerous economists have spoken out against Help to Buy, arguing that it acts as an artificial stimulus, pumping even more air into a property balloon that will inevitably burst. Critics include the International Monetary Fund, a former governor of the Bank of England (Lord King) and even the Mayor of London’s chief economic adviser, Gerard Lyons, who said it “beggars belief that anyone should be optimistic about what’s happening in the housing market at the moment.”
Even some house-builders are countenancing against ‘too much of a good thing’. Pete Redfern, Chief Executive of Taylor Wimpey, has advised that Help to Buy must have a time limit applied to ensure the scheme does not become a “genuine hazard” to the economy.
From an ideological perspective, Help to Buy follows the Conservative Party’s historic and ongoing desire to help people meet the aspiration of home-ownership. It has strong echoes of Right to Buy, which was one of the most popular measures introduced by the Thatcher administration through the Housing Act in 1980, and which remains in place today.
One year on, and despite the critics, the government sees Help to Buy as a powerful tool for helping the economic recovery, and the Conservatives within the coalition see it as a vote-winner appealing to traditional Tory values. Given the huge importance of the property market to the national economy and its fragile recovery we will all just have to hope that this balloon doesn’t burst before the next birthday.
David Madden is the Head of PLMR’s Planning Team and works on a range of client accounts and projects across the UK.