Help to buy value for money queried
%VIRTUAL-SkimlinksPromo%The Government has failed to demonstrate whether its £3.7 billion Help To Buy equity loan mortgage scheme is giving value for money, the spending watchdog has warned.
The scheme was launched in England last April with the aim of offering credit-worthy buyers with a deposit of at least 5% a helping hand onto the property ladder as well as increasing the housing supply by being targeted at new-build properties only.
But the National Audit Office (NAO) found there is no method in place to measure what the "joined up" impact of a string of recent Government's initiatives aiming to inject new life into the housing market will be.
Margaret Hodge, chairwoman of the Public Accounts Committee, said she is "shocked" that the Government is ploughing billions of pounds into the scheme without fully understanding its effects.
The NAO also found that in around one in 62 (1.6%) sales completed under the equity loan scheme last year, the home buyer actually had a deposit of less than 5% and in one case the buyer did not stump up any of their own cash for a deposit, potentially increasing the taxpayer's exposure if the property is later repossessed.
Amyas Morse, head of the NAO, said that Help To Buy is generally "running smoothly".
But he warned: "The scheme's costs, which come in large part from tying up £3.7 billion long-term in the housing market, will be substantial."
The Government expects to make equity loans to 74,000 households over three years - and the NAO found that based on "strong" early take-up, it is on target to do this. The Government expects to make back its investment in cash terms after 15 years and go on to recoup £4.8 billion.
But the NAO said the Department for Communities and Local Government (DCLG) cannot yet "robustly" quantify the benefits of the scheme.
It said: "The Department provided us with an overview of the range of different initiatives but cannot say how the impact of each scheme affects the others.
"There is, therefore, a risk that the Department does not understand the combined impact of its initiatives or their effects, positive or negative, on one another."
The report said the Department cannot say firmly how many of the people accessing the scheme would have bought a home anyway, or how many extra homes will be built as a result.
It said: "For these reasons, we cannot yet say whether the scheme will provide value for money."
The NAO's probe covers the first part of the Government's flagship Help To Buy programme which was launched in England last spring and not the second UK-wide phase which kicked off last October.
Under the first phase of Help To Buy, the Government offers buyers of a new-build homes an equity loan of up to 20% of the purchase price, in addition to the buyer's own deposit, which is normally required to be at least 5%.
The borrower then takes out a mortgage on the remaining 75% of the property's value.
The equity loan is interest-free for the first five years and borrowers taking part must pay the Government back after 25 years, or when the mortgage is paid back, for example if the home is sold.
The cash amount the borrower will eventually pay back also hinges on the wider performance of the housing market. If the value of the property increases, the value of the equity loan will also grow in proportion with the rising house price and the reverse is also true.
Some 12,875 buyers completed purchases through Help to Buy during its first nine months, with £518 million worth of Government loans handed out.
But in 205 cases last year, representing 1.6% of the completions so far, the buyer's contribution was a deposit of less than 5%.
One borrower got through the scheme despite not putting any of their own cash into a deposit. The NAO said mortgage lenders may still give applicants with sub-5% deposits the go-ahead because they still have the Government's 20% equity loan as a fall-back.
It said the Government is "aware of this issue" and is committed to monitoring the impact but has not yet resolved it.
The NAO said the £3.7 billion budget is "much larger" than previous similar schemes and its immediate predecessor, FirstBuy had a budget of just £250 million.
It also pointed to a "relatively high" cap on the value of a property that can be bought under Help To Buy, at £600,000.
For the economic benefits of the scheme to outweigh the costs, the Government calculates that over one quarter of sales under the initiative would have to lead to a new home being built.
So far, 89% of Help To Buy equity loan sales have gone to people taking their first step on the property ladder and take-up is particularly strong in the Midlands, the North East and Yorkshire and the Humber.
The DCLG will appear before the Public Accounts Committee next month.
Ms Hodge said: "I am shocked that the Department for Communities and Local Government is investing up to £3.7 billion without a clear understanding of how Help to Buy will impact the property market.
"The Department needs to get a handle on whether home buyers would have made purchases, and developers built the houses, anyway.
"It is simply unacceptable that there is not a coherent plan to evaluate Help to Buy or to even understand its impact on other housing initiatives.
"Also, you have to ask why the Department thinks that providing loans to people who are buying homes worth £600,000 is actually benefiting those most in need."
Under the scheme, agents are paid a fee to carry out affordability assessments on those applying for the scheme and administer sales.
The fee, which had been £1,000 per completed case for previous similar schemes, was negotiated down to £600, but because of the quick speed in getting Help To Buy up and running this reduction was not sorted out until after the launch, the report said.
By the time the reduced fee kicked in last July, £600,000 more had been spent on agents' fees than if they had been set at £600 per completed case from the outset.
Some sales of Help To Buy properties are clustered in particular postcodes, which could also pose a greater risk if house prices fall in these areas.
Housing Minister Kris Hopkins said: "The Help to Buy Equity Loan will help 74,000 hard-working households buy a home without costing taxpayers a penny.
"The £3.7 billion programme is already delivering significant economic benefits across the country, and is expected to generate repayments of £4.8 billion over its lifetime.
"Over 25,000 people have reserved a new build home in just 10 months, with 89% of sales to first time buyers. More homes are being built as a direct result of the programme, with housing starts up by 23% in 2013, the highest level since 2007.
"The surge in housebuilding is creating jobs, and orders for construction materials are growing at the fastest rate for 10 years, providing a boost to thousands of small businesses that supply developers, from timber traders to tile makers."
Stewart Baseley, executive chairman of the Home Builders Federation, said a "large proportion" of the recent upturn seen in housebuilding activity is directly due to the Help To Buy equity loan scheme.
He said: "If people can buy, builders will build. Help To Buy is allowing people who can afford to buy a home to do so, meaning builders can get on with building the homes the country needs.
"In the nine months after the scheme was launched last April, the number of private starts were up 29% on the same period in 2012. Our own Housing Pipeline report shows that 174,471 planning permissions were granted in England in 2013, the highest annual figure since 2007.
"As a result of this increase in activity, the industry is recruiting a significant number of people and training more apprentices."
Labour housing spokeswoman Emma Reynolds said: "Any help for first-time buyers struggling to get on the property ladder is to be welcomed. But rising demand for housing must be matched with rising supply to bring the cost of housing within the reach of low and middle-income earners."
"It is disappointing that the National Audit Office is unable to say how many new homes will be built as a result of this scheme because of the Government's failure to make an evaluation or collect information.
"The report also says the Government has made no assessment of how many people would have bought anyway without the scheme. For such a significant investment, it is shocking that so little assessment has been made of the impact."
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