Report published 17 September 2019. Awaiting Government response.
Scope of the inquiry
Help to Buy: Equity Loan is a government scheme that was introduced to address a fall in property sales following the financial crash of 2008. It has two aims: first, to help prospective homeowners obtain mortgages and buy new-build properties, and second, to increase the rate of house building in England through increasing the demand for new-build properties.
How it works: Home buyers receive an equity loan of up to 20% of the market value of an eligible new-build property, interest free for five years. The value of the loan changes in proportion to changes in the property’s value. The loan must be paid back in full on sale of the property, within 25 years, or in line with the buyer’s main mortgage if this is extended beyond 25 years. Buyers can purchase a new-build property with a mortgage of 75% of the value of the property, with a value of up to £600,000.
The government’s independent evaluations of Help to Buy: Equity Loan show that the scheme has increased home ownership and housing supply. By December 2018, Homes England had made around 211,000 loans amounting to £11.7 billion. Between the start of the scheme in April 2013 and September 2018, 38% of all new-build property sales had been supported by loans through the scheme, which is around 4% of all housing purchases during this time.
The National Audit Office (NAO) has recently published a report which highlights that a proportion of participants could have afforded to buy the home without the government’s help. The Ministry of Housing, Communities and Local Government’s (the Department) independent research found that three-fifths of buyers could have bought a property without the support of Help to Buy. Based on this proportion, this suggests that around 65,000 households could have purchased a property they wanted without the scheme.
The NAO also found:
- The scheme has helped fewer people to buy new-build properties in areas where less housing is available for sale below £600,000.
- Some 4% of the 211,000 buyers who had used the scheme by December 2018 had household incomes over £100,000;
- Buyers who want to sell their property soon after they purchase it might find they are in negative equity.
- Buyers who used the scheme have paid less than 1% more than they might have paid for a similar new-build property bought without an equity loan.
- The scheme has supported five of the six largest developers in England to increase the overall number of properties they sell year on year, thereby contributing to increases in their annual profits.
By 2023, the net amount loaned through the scheme is forecast to peak at around £25bn in cash terms; the Department expects to recover its investment by 2031-32 and make a positive return overall. However, the NAO report highlights that the Department’s investment is exposed to significant market risk as it is sensitive to house-price changes and the timing of buyers repaying loans.
On Wed 26 June, the Public Accounts Committee will question officials from the Ministry of Housing, Communities and Local Government and Homes England on the Help to Buy: Equity Loan Scheme, examining the scheme’s aims, targets and execution. It may also use the session to question the Department on the impact of the scheme on the wider housing market and consider the future of the programme.