Help to Buy – do the numbers add up?

Help to Buy – do the numbers add up?

On the back of fresh government figures, online estate agency Tepilo analyses the success or otherwise of the Help to Buy scheme.

In the past, we’ve analysed the impact of Help to Buy – the flagship housing scheme introduced by David Cameron and George Osborne in 2013 – and how much it has actually helped first-time buyers to get on the property ladder.

While the scheme, in all its various guises, has undoubtedly proved divisive and a hot topic of debate, new figures released by the government suggest that more than 285,000 people have used Help to Buy in one form or another to help them purchase a home.

What’s more, the Help to Buy ISA – launched in December 2015 to much fanfare – has apparently assisted over 960,000 prospective buyers to save towards their own home, a figure that has risen from more than 550,000 last July.

The actual usefulness and purpose of the Help to Buy ISA has been questioned by critics – and the small print suggests that the government bonus isn’t paid out until after a home has been purchased – but supporters say that it has helped first-time buyers who would otherwise find saving for a home impossible, pointing to the large numbers of people signing up as evidence of its success.

Of the 285,000 that have used one or more of the Help to Buy schemes to buy a home, 240,000 were first-time buyers – a clear indication that this particular demographic has been the main beneficiary of a scheme that was designed to increase home ownership levels among young people.

Supporters of the iniative would also point to the relative affordability of homes purchased under the scheme, with the average price of a Help to Buy home standing at £193,826 – below the cost of the average UK property. Meanwhile, more than 90% of completions using one or more of the schemes took place outside of the capital, warding off criticism that Help to Buy is too London-centric.

Breaking the figures down, the government states that more than 120,000 completions have now taken place through the equity loan scheme – this is where the government lends up to 20% of the cost of a newly built home, meaning buyers only need a 5% cash deposit and a 75% mortgage from a commercial lender to make up the rest.

The London Help to Buy scheme, by contrast, offers buyers in the capital with a 5% deposit an equity loan of up to 40% to help them purchase a home, with this specialised scheme a reflection of the different world that property prices in London operate in. Between February 2016 and March 2017 some 3,249 buyers used this scheme to assist their property purchase.

The Help to Buy ISA, meanwhile, has proved most useful to buyers in the South West, North West and Yorkshire and the Humber, with the highest number of completions using the ISA carried out in these regions. Overall, 62,528 completions across the UK using the ISA bonus have taken place since December 2015. As we said above, though, a scandal hit in August 2016 when an investigation carried out by the Daily Telegraph revealed that the ISA could not be used by first-time buyers to fund an initial deposit – which many believed was the whole point of the ISA in the first place. Instead, the government bonus on the savings accrued in the ISA is paid out on completion.

When first-time buyers are close to buying a home, they must instruct their solicitor or conveyancer to apply for the government bonus on their behalf. The government bonus is then added to the money being put towards a buyer’s first home. As the government’s page on the Help to Buy ISA states, “the bonus must be included with the funds consolidated at the completion of the property transaction. The bonus cannot be used for the deposit due at the exchange of contracts, to pay for solicitor’s, estate agent’s fees or any other indirect costs associated with buying a home”.

Opponents would therefore argue that the Help to Buy ISA isn’t proving very helpful at all for those first-time buyers struggling to raise the necessary deposit and that the marketing of the ISA has been misleading at best.

It’s certainly the case that all the different Help to Buy schemes on offer can become a bit confusing, muddled and complicated, with a lack of clarity over what each one does. The government has a number of other affordable housing schemes – including Shared Ownership (which also comes under the Help to Buy banner), the Lifetime ISA (introduced in April 2017 but struggling to get off the ground ever since), Right to Buy, Starter Homes and Armed Forces Help to Buy – which help to blur the lines and make things even more convoluted.

As well as the Help to Buy ISA and the Help to Buy equity loan, there was also the Help to Buy mortgage guarantee scheme – which was closed to new applicants on 31 December 2016, but is still open and functioning for those who were already on the scheme.

If all this is hurting your head slightly, you’re not alone. It’s therefore unsurprising that actual figures on affordable homes – and how many people have been helped to buy them – are hard to come by.

While the number of people signing up for the Help to Buy ISA is impressive, reaching nearly a million in 18 months, those who have actually used the ISA to fund a house purchase is much, much smaller, a very tiny percentage of that large overall figure.

Equally, some would argue that 285,000 is too small a number given the Help to Buy schemes have now been running for more than four years. And that home ownership levels – and the number of affordable homes available – are still too low for a country that we’re frequently being told is in the grips of a housing crisis.

Help to Buy alone was never going to solve the UK’s housing issues – and it would be churlish to suggest it has had no impact, with many first-time buyers clearly benefitting from the scheme. At the same time, a lack of clarity over the various schemes in place – and the relatively small number of people who have actually been helped onto the property ladder by the schemes – points to something altogether less successful.

The government is still seemingly sticking to its pledge to build one million new homes by 2020 and is still committed to helping aspiring homeowners to buy – the new Housing Minister Alok Sharma said recently that the proposals set out in the Housing White Paper will help those currently locked out of the market to “turn their home ownership dreams into reality”. However, the pressure on schemes such as Help to Buy, Shared Ownership and Right to Buy to provide these affordable homes could become too much.

As the last four years have proved, Help to Buy has had an impact but has also given its critics plenty of ammo to suggest its impact has been far too minimal in a country with a massive supply-demand imbalance and a whole chunk of people labelled under the banner of Generation Rent.