“Help to Buy will build on the popularity and success of the FirstBuy and NewBuy schemes…”
– Department for Communities and Local Government, 20 March 2013
Home is where the heart is, they say. Or at least George Osborne would like us to think so.
As he spoke at the House of Commons today, he unveiled what he’d probably like to become the scheme this budget becomes renown for: help to buy.
By now, most people have probably been given a fairly exhaustive account of the headline figures – £3.5bn funding for affordable mortgages, £1bn to build new homes for affordable and private rent, and raising the discount available to Right to Buy from £75,000 to £100,000.
But one of the schemes which has attracted the most attention was the help to buy scheme, under which homeowners will be eligible to receive a 20 per cent equity loan that will help them buy a new build property.
Another part of the same scheme will be a mortgage guarantee, where the government will underwrite mortgages.
But are the plans destined to become the great success they’re made out to be? Based on previous rates, FactCheck isn’t so sure.
A quick recap of the previous two schemes that will be scrapped in favour of the new one.
First was FirstBuy – an equity loan of up to 20 per cent of the full purchase price of a new build property for first time buyers. Launched by then housing minister Grant Shapps in June 2011, the scheme was presented as a “much needed shot in the arm to the housing market and the construction industry”.
Conditions were that the maximum full purchase price was £280,000, and the buyer had to be able to cover five per cent of the deposit, and be able to pay 80 per cent of the value of the property being purchased.
FirstBuy was launched across two rounds. In Round 1, announced in the 2011 Budget, £180m was allocated to help up to 10,500 first time buyers into a home by 31 March, 2013.
There was then Round 2, in September 2012, when a further £280m was put up to help up to 16,500 more first time buyers into a home, by 31 March 2014.
Which means that in total, since being set up, the government has allocated £460m for 27,000 buyers to get their first new build homes by this time next year.
The money is administered by the Homes and Communities Agency, who work with house builders, and the agency collects figures on how many completions have been made.
The figures show that in 2011/12, there were 2,994 FirstBuy completions.
It does seem to be gaining in popularity, however, as a further 3,499 FirstBuy completions were made during six months to September 2012.
Which means that in total, there have been 6,493 completions of FirstBuy, for latest figures available. That means the government is only a quarter of the distance of where it wanted to be for this project, although recent rates have been much higher and success may yet be in the offing.
Then we’ve got NewBuy, a government backed mortgage indemnity scheme under which buyers can secure a new build home with a five per cent deposit, enabling buyers to get a 95 per cent mortgage for homes with a value up to £500,000.
That was launched in March 2012, also by Mr Shapps, with the intention of assisting 100,000 homeowners.
Again, however, take up hasn’t met ambition. There are just 1,522 actual completions under the NewBuy Guarantee scheme in England.
There are many more reservations for places on the scheme – the Department for Communities and Local Government were told last week by the Home Builders’ Federation that there were still 3,700 applications awaiting completion.
The Home Builders’ Federation told us that around 95 per cent of reservations are completed, so we can expect around 3,515 of them to happen.
So that would mean that so far, the scheme might have secured 5,037 homes. In the first year, a success rate of five per cent compared to the target, in other words.
Based on evidence we’ve got from the two schemes help to buy is based on, it’s rather early to be declaring them a success that have inspired a flagship new scheme.
Against its target of helping 100,000 homeowners, NewBuy has only reached a success rate of five per cent so far.
The other scheme, FirstBuy, has had a success rate of 24 per cent compared with its target.
It is still early days, and the schemes may yet take off. There are also less caveats for help to buy, for example the purchase price of the property can be as much as £600,000.
The problem is that we don’t understand why the government should say they’re building on successes of their other “popular” schemes, when the facts just don’t back that up.
Housing market analysts also say that, like its 30-year-old older brother with a very similar name, Right to Buy, it’s a scheme that sounds like it’s a good idea – for those taking part in it.
But, according to those analysts the new scheme, like Right to Buy, doesn’t do very much for the housing market as a whole.
Graeme Cooke, research director at the Institute for Public Policy Research think tank, said that help to buy will effectively distort the housing market.
Rather than plough capital investment into building new affordable homes, the government has opted to make it easier for those who can’t afford a home to buy an existing home, thereby increasing pressure on the market and inflating prices.
“If you’re an individual and can’t afford to buy a home, or to move, then the scheme is great,” Mr Cooke said. The problem is that demand will continue to outstrip supply.
The scheme could even “create another housing bubble”, according to the Royal Institute of Chartered Surveyors.
An inflated housing bubble, however, will depend on take up. At current rates, this doesn’t yet appear to be much of a worry.