Cllr Hiten Ganatra is a Milton Keynes councillor and Managing Director of Visionary Finance.
Owning your own home is one of the most exciting dreams any young person can hold. For many aspiring first-time buyers without the bank of mum and dad, that dream is increasingly more difficult to achieve. If you are fresh out of University, in your first job with an average salary, and perhaps renting a flat or room and after your weekly shop and bills, you find it almost impossible to put away the savings you would need for a full deposit on a first home. Help to Buy has helped thousands in such a situation realise that the dream isn’t as far away as they thought.
There are currently three different types of Help to Buy schemes, the ISA, where if you save £200 you get a £50 bonus. Shared Ownership, where you buy a share of a property between 25 per cent – 75 per cent, and the main Equity Loan scheme, where the government lends you up to 20 per cent of the cost of your newly built home, so you only need a five per cent cash deposit and a 75 per cent mortgage to make up the rest.
Since its creation in 2013, the Help to Buy schemes together have helped over 350,000 people in the UK to cross the threshold and buy their own home. Furthermore, the schemes have supported individuals and families in all corners of the UK, with over 93 per cent of completions across the Help to Buy schemes taking place outside of London.
However, there is a growing school of thought that Help to Buy has run its course. Indeed, housebuilders and potential first-time buyers were steeling themselves for an end to the Help to Buy Equity Loan scheme in the Autumn Budget – but it wasn’t to be. In fact, the scheme was extended by two years to 2023.
Its critics argue it has done little but inflate the housing market further. I argue otherwise. We can’t ignore the positive impact the scheme has had.
The equity loan had two primary purposes. The first was, as the name suggests, to help people buy. The scheme has unquestionably succeeded in delivering this, 350,000 new home owners will tell you. The second was to help builders build. As Steve Turner, of the federation trade group, recently said, Help to Buy is meeting “all of its objectives.”
We can’t hide from the fact we have a shortage of homes. The consequences of the lack of supply and the increase of demand has had some significant consequences. For example, on average, house prices are now almost seven times people’s incomes. There are now more than nine million renters in private rented accommodation. And since 1999, house prices have risen across the country from 104 per cent in the North East, to an eye watering 222 per cent in London.
The Government has committed a total of at least £44 billion of capital funding, loans and guarantees to support the housing market through to 2022-23, which will help deliver 300,000 net additional homes a year on average by the mid-2020s. They’ve also launched Homes England, which will bring together planning expertise and land buying powers to acquire, prepare, and develop land in areas of high demand, with a focus on brownfield sites.
But the big boost on the ground for house builders has been Help to Buy. In the first year it was launched, housing starts in England rose by 15 per cent, from 28,630 to 32,890. Today one in three new build properties outside London are bought through a Help to Buy. Housebuilders have widely welcomed the role that Help to Buy has played in boosting supply. Stewart Baseley, the Home Builders Federation Executive Chairman, said in 2014 that “The Help to Buy Equity Loan scheme is supporting demand for new build homes – and if buyers can buy, builders can build.”
The critics of Help to Buy do have some valid concerns, but I don’t believe that the answer is to stop the scheme. And the rumours that surrounded that last Autumn Budget were concerning, not least for taxpayers who have millions invested in equity across the country. This is not a debate that will go away, and will undoubtedly rear its head again in the spring and again next autumn. My analysis: it would be a more sensible option to extend the scheme.
Figures show an unbalanced market. Average prices for new properties have grown 15 per cent faster than for older homes since Help to Buy was introduced. If property prices for new builds continue to grow, we know there is always a risk of negative equity issues in the future. Many Help to Buy owners have built up equity in their homes as prices have risen, but that is far from a given.
In recent years, a clear line has divided the property market into two groups, and the trend is likely to continue if the current norm continues. The second-hand market continues to be hampered by a lack of supply, with the number of properties on estate agents’ books hovering just above a record low.
Extending Help to Buy to second properties would see more stimulation in the whole market and unquestionably see a quick and notable rise in established properties selling. Importantly, though, developers would still have the guarantee of the Help to Buy scheme, albeit they would no longer have the monopoly on it. They would still have a scheme that guarantees sales and therefore guarantees more building. I suspect it would also mean new builds would likely have to be more competitive.
Rolling out Help to Buy to the second-hand property market would also mean first-time buyers aren’t compelled to buy a new build to get the support they need from the government. Giving them more flexibility. I believe it would see a far more balanced market in the medium-long term.
Help to Buy is one of the flagship successes of the Conservative Government and I believe it will continue. There are always risks, everything in the housing market has cause and effect. It is evidently a nervous period as we work through head winds such as the uncertainty of Brexit. But a bold move could provide fruitful results for the home owning aspirational class the government are desperate to tap into.