Is The End Of Help To Buy Going To Crash The Housing Market?

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Help to Buy has been one of the most extraordinary phenomena to emerge from the UK housing market over the past 50 years, comparable in its impact on how people buy homes only with Margaret Thatcher’s Right to Buy initiative during the early 1980s.

Property developers and builders have a lot to thank Help to Buy for. Since the scheme began in 2013 it has helped home buyers purchase 170,000 new-build properties, four out of five of which were first time buyers.

Also, new build homes now account for 15% of all mortgaged property purchases in the UK, almost double that of the long-term average prior to Help to Buy.

And Persimmon, which has been in the eye of the storm in recent months over excessive executive pay, revealed that it made a profit of £1.1 billion last year based on selling nearly half of the 16,449 homes it built through Help to Buy.

Despite this, the Home Builders Federation (HBF) claims the scheme has not been the preserve of the large builders, and that the ‘vast majority’ of the developers registered with it are SMEs.

“Help to Buy has been very successful in helping first-time buyers to bridge the deposit gap and get on the housing ladder,” David O’Leary, Policy Director at the HBF told Dealmakerz.


Help to Buy at a glance

  • The scheme has helped 170,000 people buy new homes since it was introduced in 2013.
  • It accounts for 40-50% of all sites sales for many developers including, most recently, Persimmon.
  • Land prices are predicted to decrease during the run up to the scheme’s demise in 2023 as developers adjust their models.

“It has done this while supporting demand for new builds and driving supply and economic activity, which is exactly what it was set up to do. It is a major reason why housing supply is up 78% in the past five years.

“However, the industry acknowledges that scheme cannot go on for ever. We are working with lenders and industry partners to explore alternative options to replace the positive mortgage environment for creditworthy households that Help to Buy has created.”

O’Leary is referring to the end of Help to Buy, which the government recently announced will be phased out between 2021 and 2023, bringing an end to a ten-year government intervention in the new homes market.

For developers the scheme has been a lifeline in recent years as government tax policies have all but killed the investor market, particularly in London, and first time buyers have taken their place as the dominant purchasing type within many schemes.

Among the builders that Dealmakerz has spoken to this year, many have admitted that Help to Buy regularly drives 40% of all purchases within developments, a figure which can rise to 60% at some sites.

The government’s decision to end Help to Buy is not a surprise. It has ploughed over £10 billion into the different versions of the scheme, although the HBF reckons its equity share Help to Buy scheme, in which the government participates in a property’s rise in value, has seen it make £935 million so far.

“The government recognises that the high proportion of Help to Buy purchasers within developments at the moment is not sustainable, but like anyone coming off a stimulus, cold turkey is a pretty miserable experience.”

– Henry Pryor

But the scheme has many detractors who claim that it is a back-door subsidy for developers and their shareholders; entices first time buyers to buy new-build properties at a considerable ‘premium’; and helps maintain the UK’s often high house prices, making it more expensive for those purchasing properties outside the scheme.

“Help to Buy is enabling more people to get on the property ladder with a lower deposit and gives them the opportunity to live where they actually want to live,” argues Victoria Farrar, Associate Director for Cushman & Wakefield.

“So even if the stats [from the housing market] state that you are paying on average 12% more for your home, this is probably a risk that most buyers are willing to take.”

Help to Buy premium rising

Home moving services firm ReallyMoving.com this week released data based on 44,000 home moves that revealed how the average ‘Help to Buy’ premium has risen steeply in recent months from 7% in August last year to 12% in February this year.

Rob Houghton, its CEO, says: “Help to Buy is indeed helping first time buyers get onto the housing ladder, but these figures suggest that they may be paying more than the property is worth in order to get the help they need to raise a deposit.

“This could be either because developers are charging a premium or because first time buyers are encouraged to buy a more expensive property because the scheme gives them greater spending power.”

‘Crack cocaine’

Industry pundit Henry Pryor, who once famously called Help to Buy the ‘crack cocaine’ of the new homes industry, remains unconvinced by the scheme’s long-term benefits.

He admits that it “did the job that George Osborne and others hoped it would including persuading banks back to their tellers to start lending money again and giving house builders the confidence to pull the tarpaulins off their various mothballed sites that had stalled since the credit crunch”, he says.

“But it’s a policy that has been allowed to go on far too long and although I’m aware that there are many within the new homes industry who disagree with me on this but I’m utterly convinced it has corrupted the market, distorted prices and laid-down the foundations of a legacy that will come to haunt us potentially as badly as PPI.

“I think people who bought via Help to Buy will be complaining about many of the issued created by it for at least the next decade.

“The government recognises that the high proportion of Help to Buy purchasers within developments at the moment is not sustainable, but like anyone coming off a stimulus, cold turkey is a pretty miserable experience.”

Land prices

The effect of being unplugged from Help to Buy will be to weaken land prices, most commentators agree, something that Knight Frank noted last year when the changes were announced.

“Timing is playing a part in the market,” said its Head of Residential Development Land, Justin Gaze.

“Sites which can be delivered up to 2021, and which will benefit from Help to Buy, are most attractive. Beyond this timeframe, policy uncertainty is causing a level of hesitance.”

Pryor agrees: “Finding a way to make the industry less reliant on government intervention is not rocket science – developers need to adjust their equations and pay less for the land, and I think we’ve already begun to see that,” he says.

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