What is the Help to Buy scheme and why is it controversial?
While some people see Help to Buy as having provided a lifeline for aspiring first-time buyers, others have previously likened it to the “crack cocaine” of the building industry.
– What is Help to Buy?
Various schemes have run under the Help to Buy banner, including Isas and a UK-wide mortgage guarantee scheme which closed to new loans in 2016.
The scheme which the National Audit Office’s report focuses on is the Help to Buy equity loan scheme in England. By December 2018, the equity loan scheme had supported around 211,000 property purchases through loans totalling £11.7 billion.
– Why was Help to Buy introduced?
Introduced in 2013, it aimed to inject some life back into the property market and boost house building.
Some people, particularly those with small deposits, were struggling to get on to the housing ladder amid stricter lending rules following the financial crisis.
– How does the equity loan scheme work?
The scheme enables buyers to purchase a new-build property with a mortgage of 75% of the value of the property, leaving buyers needing to find a cash deposit of just 5%.
Home buyers receive an equity loan of up to 20% (40% in London since February 2016) of the market value of an eligible new-build property, interest-free for five years. The scheme is not means-tested and has been open to both first-time buyers and those who have owned a property previously.
Buyers can purchase properties valued up to £600,000. The current scheme will run to March 2021. A new scheme, to follow on immediately from the current scheme for two years to March 2023, will be restricted to first-time buyers and will introduce lower regional caps on the maximum property value, while remaining at £600,000 in London.
Homes England expects to have loaned around £29 billion by March 2023, supporting 462,000 property purchases.
– Has the scheme done much to help first-time buyers?
By the end of last year, 81% of Help to Buy equity loans in England had gone to first-time buyers. But critics of the scheme argue it has inflated house prices – meaning home buyers are saddled with bigger mortgages for longer.
Also, many lenders now offer innovative mortgages aimed at first-time buyers which are not part of Help to Buy – leading some to argue the scheme is no longer needed. Controversy was reignited earlier this year when Persimmon reported pre-tax profits surpassed £1 billion, as the company’s right to sell Help to Buy homes came under scrutiny.
Another housebuilder, Bellway, reported this week that demand has stayed strong over the start of the year due to high employment, low interest rates and the continued availability of Help to Buy.