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Help to Buy or Help Yourself?

18th July 2019

The Help to Buy scheme, introduced in 2013, was designed to encourage developers to build more new properties and make it easier for first time buyers to afford their first step on the property ladder.

With the government effectively lending buyers up to 20% of the value of a property (in London this rises to 40%), it enables a property to be secured with just a 5% deposit and a mortgage for the remaining 75%.

However, as the scheme was intended as a stimulant for an ailing property market, there were few restrictions put on who qualified for the scheme. No income cap was put in place and there was no means testing, with the only strict rule being that the property had to be a new build.

Although Help to Buy was originally intended to run only until 2021 it has now been extended to at least 2023 – it has been slightly modified, so that from April 2021, it will only be available to first time buyers.

Extension offers more room

This extension is a reflection of both the success of the scheme, and of the way in which it has become a vital part of the UK housing market.

A National Audit Office report into the scheme published in June 2019 found that, by December 2018, it had helped 211,000 households purchase a new-build property, and that 81% of these were first-time buyers.

Other interesting figures in the report include the following:

  • 37% of buyers stated they could not have purchased their home without the scheme
  • 31% of buyers stated they could have bought a property they wanted without the scheme
  • 38% of new build properties sold between April 2013 and September 2018 were purchased with the support of the scheme.

Taken together, these figures present a picture of a scheme which has achieved much of what it set out to achieve, but not without a range of unintended consequences.

The fact that more than a third of all new-build properties sold during the time the scheme was running, for example, indicates that Help to Buy has become far more than simply a device to kick start an ailing sector.

The decision not to withdraw the scheme as originally intended makes obvious sense when you consider the hit that sales of new-builds would take if Help to Buy wasn’t operating.

The restriction to first time buyers should make relatively little difference bearing in mind the fact that 81% of those using the scheme to date have been first time buyers anyway, and the sector won’t be left having to make up the shortfall caused by a loss of 38% of purchases.

The report did find that 31% of buyers would have bought a property they wanted without Help to Buy anyway, but whether these would have been new build properties is another question entirely.

Taking advantage of the scheme

However, the scheme has attracted criticism following the reports revelation that 10% of the households making use of it had a combined income of more than £80,000, with 4% earning more than £100,000.

In short, not everyone using the scheme fit the stereotype of the struggling young family which has come to represent the intended market. This might be simply ignored in the face of all of those who wouldn’t otherwise have purchased a property at all, but there are other issues to consider.

The first of these is that it has helped to push the ‘new build premium’, up to between 15% and 20%, levels which haven’t been hit since the 2007 crash.

This not only suggests that developers are taking advantage of the scheme to push prices higher (against the background of a generally quiet housing market), it also ensures buyers immediately own a property worth less than they paid for it, given the annual increase in property prices is currently around 1.4%.

If other factors like Brexit, slow the rise in house prices further, it is clear those in new-build properties run the greatest risk of falling into negative equity.

Taken as a whole, Help to Buy has enabled plenty of people to buy properties that would otherwise have been out of their reach, but it has also helped plenty of others to spend more than they would have, whilst acting as an indirect subsidy for the construction industry.

Funding the building of new homes directly would, of course, overinflate supply and lead to a drop in prices, something no modern government has been able to consider.

Given the checks and balances required for any intervention in the housing market, the Help to Buy scheme can reasonably be declared an overall success, and has become a part of the market landscape to such a critical extent, it would be a surprise if it wasn’t extended beyond 2023.

If you’re considering buying a new build property and want advice on the Help to Buy scheme, talk to our experienced conveyancing team, who will help you make the right moves. Please contact David Alexander on 01543 267195 or email dalexander@ansonssolicitors.com