The Help to Buy Scheme, started in England in April 2013, attracts more criticism than praise. Many accuse it of causing a ‘housing bubble’, replacing the ‘bank of mum and dad’ with government funding, and focusing government money on private instead of much-needed social housing.
Most media coverage has been so skewed towards the scheme’s rights and wrongs that people don’t actually understand how it works. There are two schemes, both, confusingly, called Help to Buy. I call them Help to Buy 1 (H2B1) and Help to Buy 2 (H2B2).
In the first, a buyer applies to a local Help to Buy Agent to fund up to 20% of new build property costs. The buyer needs only a 5% deposit, and to secure a mortgage of 75%, to buy. The government pays up to 20% of new build costs into the developer’s bank account on completion.
The second scheme is very different. To purchase an existing house, I apply to a lender for the Help to Buy mortgage scheme. I can then buy a property with a 5% deposit and a 95% loan. The government offers no financial support, but guarantees the lender that on default of payments and property repossession, it will fund losses up to 15%.
So what is the real impact of these schemes and do we need it in Lincolnshire? In England, current estimates suggest that the H2B1 Scheme has sold 20,000 new builds over six months, and that the H2B2 Scheme, initiated in October 2013, enabled 6,000 over three months. That’s 5,500 properties per month sold via H2B.
Given we sell 70,000 to 90,000 properties monthly in England, the H2B scheme contributes around 6% volume per month, refuting political and PR claims that H2B schemes drive prices up. What the scheme has done is helped existing UK homeowners by bringing confidence back into the market, encouraging some price growth, but mostly reversing market falls.
The downside though is that it is, in some cases, replacing the “bank of mum and dad”, but this applies to whether or not people have access to family funding. Rumours suggest too that developers are using the first scheme to increase their profit margins, as although they aren’t raising prices, they have withdrawn normal incentives such as funding stamp duty, better interior specifications and even new cars.
From Lincolnshire’s perspective, situated on the borders of the East Midlands and Yorkshire and Humber, East Midlands has the highest take up rate. More H2B deals mean more sales of new and existing homes, more work for building sites, agents, conveyancers, removal companies and brokers or local lenders participating in the scheme. Of course, this means more jobs which is good news for Lincolnshire, as our claimant count is currently above the national average.
The scheme’s main drawback though is its failure to tackle our chief problem: a lack of affordable homes. These include shared-ownership properties, properties rented out at 80% of local market rent, and those rented and then bought later. In Lincolnshire this shortage is demonstrated by the 3,000 people waiting for a roof over their heads. Unfortunately this scheme does little to help them.