The Help to Buy equity loan scheme is improving access to mortgage finance, but the scheme’s costs will be substantial.

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Help to Buy equity loans are making homes more affordable to buyers and improving access to mortgage finance, but the cost to the taxpayer, in present value terms, is uncertain at this stage and the DCLG cannot yet robustly quantify the economic benefits. The National Audit Office cannot say at this stage, therefore, whether the scheme will provide value for money.

The scheme was introduced in March 2013 as part of a package of measures to address some of the barriers to home ownership, such as the unaffordability of mortgage finance. Early demand for the scheme has been strong, with 12,875 buyers completing purchases through Help to Buy during its first nine months. The Department loaned £518 million to buyers for these purchases. So far, 89 per cent of Help to Buy equity loan sales have been to first-time buyers.

According to the NAO, the scheme appears to be helping buyers as intended, though the spending watchdog cannot say how many of those accessing the scheme would have bought a home anyway.

The scheme was successfully introduced in time to take advantage of the traditionally busier Easter and summer markets, using existing structures such as Help to Buy agents that were already in place. Because they introduced the scheme quickly, the Department and the Homes and Communities Agency had to address some issues after launch. Among these is the fact that some buyers – 205 at December 2013 – are purchasing homes with a deposit contribution of less than 5 per cent. The NAO recommends that the Department monitor the effectiveness of its actions to minimize the number of buyers accessing the scheme with a deposit of less than 5 per cent and take further action if required.

The DCLG expects to recoup its investment in cash terms after around 15 years, and to go on to recoup £4.8 billion – more than it is investing in the scheme. This depends, however, on when buyers redeem their equity loans and the value of the Department’s stake at the time. During this time, cash flow is likely to vary between years and the impact of this in some years could be unaffordable for the Department. Both the Department and the Agency have used their previous experience to develop a credit risk model to monitor this situation.

The Department estimates that the scheme’s cost in today’s terms is £494 million. For the economic benefits to exceed the costs, the Department calculates that over a quarter of sales under the scheme would have to lead to a new home being built. Assessing whether this happens is therefore crucial to deciding whether the scheme is value for money.

“The Help to Buy equity loan scheme is improving access to mortgage finance and for the most part is running smoothly. But the scheme’s costs, which come in large part from tying up £3.7 billion long-term in the housing market, will be substantial.If the Help to Buy equity loan scheme is to protect public value, the Department and the Agency need to quantify the scheme’s impact on construction and homebuyers, and manage as far as possible the risks to taxpayers’ money which is now exposed to the housing market.”

Amyas Morse, head of the National Audit Office

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