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Help to Buy to be Scrapped?

18/09/18
Posted by: Christopher Ruddick

TDM wrote about the Help to Buy scheme in a previous blog just over a year ago – Help to Buy: Damaging the House Building Industry?

In that year the scheme has continued to be used by many buyers and major house builders with little change, beyond the Government continuing to pump money into the scheme (£10 billion additional Government funding) that effectively will see the scheme go until the original completion of 2021.

However, there has been one major change – the level of vocal criticism to the scheme.

These critics have highlighted similar points to what TDM highlighted in our previous blog that there is a section of the house building industry being the major national house builders “hooked” on Help to Buy.

Such is the problem that just over a year ago TDM highlighted that a number of the major house builders were approaching in some cases 50% of new homes using the scheme. To that list we can now add Redrow who have been found to have new homes reservations utilising Help to Buy in 40% of cases.

It would seem fair therefore to say that the national house builders at least have become hooked on Help to Buy to help increase the level of reservations and completions. The obvious other factor is that indirectly the Government is bluntly lining the pockets of these major national house builders.

Other issues that critics have highlighted is that whilst the Government wants more homeowners Help to Buy has actually increased the average price of the very homes they want to buy. Homeless charity, Shelter, following analysis has stated that the increase has been on average by £8,250.

The Government response to this has simply been to say that Help to Buy has not significantly boosted the prices of houses for potential homeowners. Whilst based on Shelter’s averages does not show significant increase in the house price it is already on a house price which has been significantly increased in previous years. Ultimately these “small” increases could be the difference, for example of a first-time buyer being able to afford a home and become a homeowner and not.

Shelter’s research in this area showed that 4.4 million private renters were priced out of the market in 2015, no doubt since this analysis the problem has only got worse and prevented many more from accessing a home of their own.

Mentioning first time buyers brings on another issue of the scheme is that 32,000 homes since 2013 have not been first time buyers, but people upgrading their home who have used previous house funds to boost their deposit, alongside a mortgage, and then had it topped up by Help to Buy. To make this issue even worse is that because Help to Buy has no income restrictions that 6,717 buyers have in fact had six figure incomes, but still decided to use the scheme (albeit with the restriction that is can only be used on a home up to the value of £600,000).

Moving beyond the critics of the scheme we can come into another set of potential issues of the Help to Buy scheme in that how much active enforcement of the restrictions of using Help to Buy is done?

The Government has not produced any evidence or media publications to highlight whether there is any active enforcement of the scheme’s use. So effectively there could be a number of homeowners subletting or letting out these properties when they are not supposed to and creaming of funds for their own lifestyle.

So, with no enforcement (or at least following extensive research for this blog) there appears nothing proactive how much are the Government, banks and other interested parties loosing out on? Well bluntly no one knows.

Ultimately then are the Government going to scrap Help to Buy despite all these negatives?

Bluntly, it seems unlikely that the scheme will end prior to the 2021 deadline.

In fact, there has been rumblings that despite the current 2021 deadline for the scheme, that it could be a modified version and see it “effectively” extended again all the way to 2023. The reason behind this is the Government clearly want the support from the major industry players and abruptly ending the scheme will lose that support.

Equally it would lose the major players significant quantities of unit sales because they are so hooked on the usage of a scheme that helps make them profitable and new homes easier to sell.

Maybe the question at play is whether any scheme that effectively supports the housing industry should have ever started as it seems to have very few positive aspects. All it seems to have achieved is damage the ability of potential homeowners from getting a property, and got an industry addicted to Government funding. Additionally, if given the right circumstances, then it is fairly clear the industry will hold the Government to ransom regarding ongoing extensions and funding of any future scheme.