Help to Buy: It’s the end of an era

It is fair to say that Help to Buy has been something of a Marmite government scheme. Beloved by builders, who say it has increased supply of homes, its detractors claim it has driven up property prices.

Meeting Housing Demand, a House of Lords report released in January this year, concluded that Help to Buy “inflates prices by more than its subsidy value in areas where it is needed the most”.  Financial Times columnist Neil Collins called the scheme “Help to Buy Yachts for housebuilding executives” in a column in 2018. 

Whatever the view, the scheme, for which final applications had to be in by the end of last month – and which will have cost the government around £29bn when it ends in March next year – has increased supply and enjoyed a huge take-up among buyers, particularly those stepping onto the housing ladder for the first time.

The Home Builders Federation (HBF) says that it has generated about £60bn in economic activity. The number of homes built in England went up from 110,530 in the year to June 2013 – the year that Help to Buy was introduced – to 183,450 in the 12 months to June 2021, government figures show.

The Department for  Levelling Up, Housing and Communities (DLUHC) said the scheme has helped 369,000 households to buy their own home so far. 

Certainly, the equity loan scheme, which enables buyers to buy with a 5% deposit using an equity loan worth 20% of the price of a new build home (40% in London), has been popular with housebuilders. Help to Buy will account for around 20% of many housebuilders’ total sales this year [see table below].

And, while this is down from figures in excess of 30% and 40% in the past couple of years, mainly because of a tightening of restrictions in April last year [see timeline below], that is still a sizable chunk of property sold.

So, how do housebuilders plan to replace those house sales, if indeed they are going to do so?  And how is the change likely to impact them, at a time of high inflation and mortgage rate rises? 

Not a good time   

Neil Jefferson, managing director of the HBF, believes that Help to Buy has been one of “the most successful government home ownership interventions in history and handsomely delivered on all its pre-set objectives”. He argues that this is not the right time to pull the scheme. 

“For the first time in decades, there is now no government scheme in place to support first-time buyers to purchase new homes at a time when political and economic instability has seen mortgage availability challenged,” Jefferson explains. 

The National Federation of Builders (NFB) also does not believe this is a good time to end the scheme. Rico Wojtulewicz, its head of housing and planning policy, says: “We have lobbied the government to keep Help to Buy and reform it in a way to ensure it supports certain criteria, such as higher energy-efficient housing, on smaller plot sizes of houses only, or to help specific people who struggle the most to borrow, such as families needing bigger homes or single people.”

Brian Berry, chief executive of the Federation of Master Builders (FMB), believes “the ending of the Help to Buy scheme could exacerbate an already troubled market”.

The FMB would like to see the government bring forward a policy that would mitigate the loss of revenue from Help to Buy, by providing investment to planning authorities so schemes can be approved more quickly. 

“For the first time in decades there is now no government scheme in place to support first-time buyers to purchase new homes at a time where political and economic instability has seen mortgage availability challenged”

Neil Jefferson, HBF

Tony Williams, chief executive of the consultancy firm Building Value, believes it is a “really unfortunate time” to pull the scheme. “I was sceptical when it was launched but it has played a blinder,” he says, adding that it has been “a real fillip to industry.”

He thinks it would be a good idea for the government to “bring something else out to replace it”, although he admits that this might prove “politically difficult” at the moment. 

However, Neil Hudson, founder of Residential Analysts, thinks the scheme should have been abandoned years ago. “It’s never a good time,” he says. While it has done “a good job”, he adds: “The reality is, we should have stopped Help to Buy years ago because there was a danger the market became dependent on the scheme.”

Housebuilders should have been “weaned off it years ago” and Hudson believes the government should “be looking to see what it can instead do to maintain capacity in the housebuilding sector”.  

The fall-out 

But, if the government does not do anything to replace the money that Help to Buy would have brought in, analysts are sure that it will lead to a drop in the  number of homes built. While the higher mortgage rates and rising costs because of inflation pose a bigger problem, Help to Buy is definitely expected to exacerbate it. 

Berry says: “We have seen workloads among our housebuilding members drop as the year has progressed and members reported in our latest State of Trade survey that they have seen a drop-off in enquiries.” 

Lucian Cook, head of UK residential research at Savills, agrees. With the scheme being dropped at a “time of great uncertainty”, he now expects it to “contribute to a decline in housing delivery over the next 18 to 24 months”.  

Ross Smith, director at new-build sales and marketing business SiteSales, adds: “Without the Help to Buy scheme, volumes will inevitably drop unless extended or a combination of the government and housebuilders collaborate to create alternative buying options.”

Williams echoes this. “We are going to have dramatically falling numbers of buyers and cancellations,” he says. “[Build] volumes are going to fall significantly.” 

But the end of Help to Buy is not only going to affect housebuilders. There is also the social impact of wannabe buyers having to spend longer in rented housing to consider. This may not go unnoticed by new prime minister Rishi Sunak, who last week pledged to make “home ownership a reality for a new generation”.

A Royal Institution of Chartered Surveyors monthly residential survey this month pointed out that house price growth was “grinding to a halt” while the lettings market is growing. Williams said it will now be harder for a young couple to get a foot on the housing ladder. “People will be living at home for longer, or team up and you’ll get more than one person living in a house,” he suggests. And there will also be a greater reliance on the “bank of mum and dad”. 

Cullen agrees: “More people will have to stay in the rental sector and their ability to save for a deposit will be impaired.”

Wojtulewicz explains: “With fewer people being able to access mortgages, the housing crisis will no doubt worsen as people continue to pay more in rent, live with parents longer or in overcrowded homes.” 

However, the head of housing and planning policy at the NFB feels that any drop in purchases is likely to have a greater impact on larger builders with vacant stock than smaller builders who would “likely change their housing typology to attract different buyers”. 

What the builders have been doing 

So what are housebuilders planning? Wojtulewicz thinks SME builders are likely to have been “pivoting to smaller properties”.

But he suggests: “Big builders will certainly be analysing which regions hold better opportunities.”

Of course, builders are likely to have already been choosing to build homes in areas that would yield the greatest return since the Help to Buy restrictions came in last year, as they introduced regional purchase price caps [see timeline below].  

Hudson says builders have been “shifting their activity from markets and product types that were coming in above the regional price caps”. He explains they have been “shifting away from first-time buyers and selling to people moving on”. 

Indeed, builders themselves, who have known for a while that Help to Buy would end, say they have been preparing for the moment. Redrow’s Help to Buy sales this year were just 8.6% compared with 28% last year.

A spokesperson for the developer told Building’s sister title Housing Today: “We have successfully transitioned away from the scheme without any impact on our reservations.”

They added: “This reflects the strategic advantage of our award-winning Heritage Collection, which is predominately made up of three to four-bedroom detached homes with an average private sales price above the Help to Buy threshold.”

Help to Buy has made up about 20% of Persimmon’s total sales in the year to date. A spokesperson said: “We believe our unique value proposition will provide an enduring strength in an uncertain market. Our lower average selling price, combined with the cost advantage of new homes’ 30% energy efficiency premium above existing housing stock, will prove attractive.”

In Taylor Wimpey’s annual report for last year the firm said: “We have been preparing for this change [the end of Help to Buy] for some time, and this is reflected in our landbuying approach, site selection and in the design of our developments.

“For example, in certain areas, we have plotted sites to include a greater weighting of three-bedroom than four or five-bedroom homes reflecting expected market demand.”

Options, options 

There are, of course, other mortgage schemes available, even if they are not so generous. Taylor Wimpey also points out in its 2021 report that it will be using Deposit Unlock on a small number of its new-builds in England and Scotland.

This scheme, developed by housebuilders, provides “competitive rate mortgages” to customers with a 5% deposit. “[It] is expected to be appealing to customers when Help to Buy ends in England in March 2023,” the Taylor Wimpey report says. 

Wojtulewicz explains: “There are other products on the market trying to fill the gap left by Help to Buy.”  One of these, he says, is the Capita-backed market mortgage, “which provides a 95% mortgage, albeit at slightly higher rates.”

The DLUHC says it has “introduced a range of flexible home ownership schemes to help young people on to the housing ladder and we keep all options to increase home ownership under review”.

These schemes include shared ownership and its First Homes scheme, offering discounted homes to local first-time buyers. There have however been concerns in the past expressed that developers would not be keen to deliver First Homes.

A DLUHC spokesperson said: “Help to Buy has supported over 369,000 households into homeownership. It is just one of the many ways the government has made owning a home more achievable as we continue to help more first-time buyers.” 

Cook suggests that there may be an extension of the mortgage guarantee scheme, where lenders are encouraged to offer 95% mortgages through a government-backed guarantee. The scheme is due to end on 31 December this year.

Cullen also says there has been “more talk around the mortgage indemnity scheme”. He said the government could go back to this. “I would be surprised if the government doesn’t do something to support the market,” he adds. 

>> See also: Housebuilders say ‘bitterly disappointing’ autumn statement does nothing to help sector

Cook believes there will be a greater need for private rental stock in the market and, becasue there was a “strong wall of money” going towards built-to-rents, this sector may see a rise in growth. He pointed out, however, that BTR developers needed to “understand the returns” and it could cost more to build properties with guilt yields rising. 

Hudson also thinks housebuilders could turn to “private equity and other sources of equity to build in the build-to-rent market”. He says there would be “a lot of interest from big institutional investors” in this.

Whatever happens, people will miss Help to Buy. Wojtulewicz says: “Buyers still come in and ask whether they can access it, so it remains a well-known, enticing product.”

But there appears to be no political appetite to keep it going or replace it at present. Which means, while high mortgage rates and inflation costs are inevitably going to cause the greatest trouble, the end of Help to Buy is certainly going to contribute to a housing market downturn.