This eye-catching headline was placed above an article by Merryn Somerset Webb, editor-in-chief of MoneyWeek, in the Financial Times. She pointed out that Help to Buy (H2B) has been a huge boost to the housebuilding sector, as only new-build homes are eligible under this scheme, keeping it going through the years following the financial crisis.
Kate Davies, executive director of Intermediary Mortgage Lenders Association says Help to Buy is now “a cornerstone of the UK property market”.
Ms Somerset Webb points out that the main beneficiaries have been the big developers who have been provided with “an almost endless source of state financed, captured and slightly desperate buyers”. Jules Birch (Inside Housing), writing in similar vein, points out that housebuilding output has increased, but not ‘remotely as much as profits, bonuses and dividends’.
She comments that H2B hasn’t helped the smaller players much, as ‘hordes of them’ had already gone down with the market in 2008-9 and then records these relevant facts:
- Two hundred thousand people in the UK have now bought houses using former chancellor George Osborne’s Help to Buy equity loan scheme, paying the average 16% new-build premium.
- The taxpayer has lent those people £10bn, an average of £55,000 each . . . ‘a special kind of quantitative easing just for them’.
- The maximum you can borrow from the taxpayer is 20% of the purchase price cap of £600,000 in most of the UK and 40% of the cap in London — £120,000 and £240,000 respectively.
- Research suggests that Help to Buy purchasers pay 5 to 8% more than ordinary buyers of newbuilds, allowing the builders to increase their prices.
- 18% of Help to Buy house sales in early 2017 were leasehold properties with escalating ground rents.
- Half of Persimmon sales are H2B; their pre-tax profits have just passed £1bn.
Writing in the LSE journal, two senior Cambridge academics confirm that the main beneficiaries are large house-builders
In their report: Helping or Hindering? The latest on Help to Buy, they conclude that Help to Buy has had ‘regressive distributional consequences’. They quote ‘one executive’ in the FT who claimed that the scheme had allowed him to raise selling prices by 10%, which would almost double the profit margin for most builders. The market agreed: when rumours circulated on 4 August 2017 that H2B might be withdrawn, £1.3 billion was wiped off the stock market value of the five biggest builders within 90 minutes.
They also present some of the findings by Resolution Foundation research, which suggest that about 35% of H2B recipients could have bought a home without the subsidy:
“Those who have purchased a property with an HTB equity loan have an income significantly higher than the median – indeed, 40% of HTB loans have gone to those with annual incomes of £50,000-plus. Unsurprisingly, DCLG’s own assessment of the policy suggests that 35% of HTB recipients could have bought a home in the absence of the subsidy”.