I have my concerns about Help to Buy.
It’s true, as Ministers argue, that many parts of the country outside the South East wouldn’t recognise the claims that a housing bubble is inflating. But that doesn’t change the fact that in London in particular house prices are swelling unnaturally swiftly.
It’s also true that we Conservatives ought to be worried by the insurmountable barriers many people face when trying to buy a house. We are – indeed Homes is one of the three pillars of ConservativeHome’s current campaign. But I’d prefer to see us solving the supply problem rather than underwriting inflated mortgages.
The Prime Minister is trying to put our minds at rest today, as the figures are released for the first month of the policy.
In his Sun article he makes the case that this is a vote-winning policy – not too subtly illustrated by twin pictures, one of him meeting a Help to Buy couple and one of Mrs Thatcher meeting a Right to Buy family. It’s an explicitly personal, aspirational message rather than an economic one.
It’s a fair point, so far as the politics goes. He could add to it, at the risk of seeming excessively vote-hungry, that plenty of those who own property might not mind a bit of artificial price inflation, either.
But a vote-winning idea isn’t necessarily a wise one.
Indeed, an unwise policy that wins votes in the short term (just in time for May 2015, to pick a date at random) might also lose votes in the longer term, if it treats only symptoms rather than underlying problems or, worse, causes a bubble which one day pops.
After only a month it’s too soon to tell if the facts bear out the fears over the policy.
But we can look at the data released today to get a flavour of how it is working in practice.
First, prices. The average loan guaranteed so far is for a little over £153,000.
Reassuringly, that’s a long way below the average house price, and well below the cap of £600,000 built into the scheme.
Judging from that figure, many of the people getting assistance are indeed starting out at the bottom ring of the market – despite fears of wealthy homeowners using the high cap to upgrade to expensive properties.
Which brings us to the second aspect – who are the Help to Buyers?
Again, the data is fairly useful. Three quarters of those involved in the scheme so far are first-time buyers.
As the target market, that’s a good thing within the objectives of the policy – though of course it means 25 per cent of those getting taxpayers’ help have already been able to buy and are now using it to get an upgrade.
A better-targeted policy would be restricted to avoid that spillover.
Third we have the question of the scale of the impact.
The Government data doesn’t estimate the market impact or distortion involved. We do have some information coming out of the housing firms themselves, though.
The housebuilder Redrow, whose AGM is conveniently also today, reports that 35 per cent of new sales are facilitated by Help to Buy. We don’t know how typical their experience is, but that is a really sizeable market impact.
Fourth, and finally, what is the regional spread of Help to Buy mortgages? Is the money pouring into the already costly markets in the South East and London?
Here is the regional breakdown of applications to RBS only:
Yorkshire and Humberside 8.1%
North West 14.8%
East Midlands 8.3%
West Midlands 7.5%
East Anglia 2.8%
South East 21.2%
Greater London 7.7%
South West 8.5%
As you can see, the applications are quite widely spread, but London and the South East are very much dominant.
28.9 per cent of applications come from those two areas alone. That’s more Help to Buy activity than the East Midlands, West Midlands, Yorkshire and Humberside and East Anglia put together.
There are undoubtedly people in the richer parts of the country who can’t afford to get on the housing ladder – but that’s because they are the most expensive areas already. It’s therefore hard to argue it is the best place for this money.
All in all, the figures are better than they might be, but they are far from perfect.
A quarter of the applicants aren’t first time buyers. More than a quarter are in the parts of the country most at risk of a housing bubble. Both statistics represent a large amount of money going to places and applicants it ought not to.
Fundamentally, the housing supply problem is still there, and the risks of underwriting have not gone away. The Number 10 press release proudly reports an increase in 95 per cent mortgages – with seemingly no consideration of the possibility that these had started to disappear from the market for a reason, after a crash caused by excessively leveraged assets.
The intention of the policy remains confused, which makes its success harder to guage.
If it is to help first-time buyers, why offer it to home owners? If it is to stimulate more sluggish regional housing markets, why make it available in London and the South East? If it is to aid house-builders, why not restrict access to new-builds? If it is to do all these things at once, can it really do any of them successfully?