Help to buy – who will it help?

The flavour of today’s Budget was very much helping Britain to be an ‘aspiration nation’. A cornerstone of which was about helping people achieve ‘that most human of aspirations’: owning a home.

That came with a major policy announcement: the Help to Buy scheme – a morphing and extending of existing schemes to boost ownership, NewBuy and FirstBuy.

So who does Help to Buy help then?

Help to Buy equity loan

Formerly known as FirstBuy, the Government gives a 5 year 20% interest free loan to all buyers (previously it was just first time buyers) of new build homes, who then only have to put up a 5% deposit. This means that they only have to borrow 75% of the property’s value through a mortgage.

Our calculations – based on local house prices and local wages for two earner households – suggest that it would bring the average local home within reach of the average two earner household in 46% of areas in the country. While it wouldn’t make a big difference in more than half the country’s housing market, it would still be a big improvement for some.

But in reality, it may be just a lucky few who would benefit: the Government estimates it will help 76,000 buyers over three years, so just over 25,000 a year. Let’s not forget there are nine million private renters in Britain – and 60% of them would like to buy but can’t afford to in their local area – that’s about 5.4 million people!

Help to Buy mortgage guarantee

Previously known as NewBuy and only available on new build homes, this allows buyers to take out a 95% mortgage on any home worth up to £600,000, but the Government underwrites 15% of the mortgage to take on some of the lender’s risk.

The trouble is, while this makes it easier to get a deposit, you’d be borrowing 95% of already very high house prices, which are way out of kilter with what ordinary people earn. Our calculations – again based on local house prices and local double income households – suggests that the Help to Buy mortgage guarantee would bring the average local home within reach of the average double income household in only 16% of the country.

The £12bn in the mortgage guarantee fund could help up to 660,000 people over three years, so 220,000 a year. But are there that many people who could afford to take out a mortgage on it?

Help to Buy will certainly help some people to buy, but for most people struggling on average incomes, high house prices will still lock them out of that dream of owning a home. Which is probably why the original schemes have not had a huge amount of success so far (FirstBuy has helped about 6,200 homes get built; fewer than 2,000 have bought through NewBuy).

It’s clear that if government wants to get Britain back on track to be a nation of homeowners, it’s going to have to focus some serious effort on building homes that are affordable to people in low and middle income groups across the country, and invest money directly in building more homes  – as mooted by the CBI. Otherwise, this is certainly not the second coming of Thatcher’s Right to Buy revolution.

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One Comment
  1. All accommodation in much of the UK costs far too much. Houses do not cost huge sums to build.
    If we built, on very nice green belt sites, say eg. 80sq m houses on 450sq m plots, and controlled who got to buy them, then we could potentially cause existing house prices to drop by a half – making the whole housing stock more affordable. Developers could be constrained on pricing because they are getting green belt land, and something liike a punitive differential stamp duty (coupled perhaps by removal of PD rights) could deter speculation by buyers.
    No home-owner is going to love this scheme – but there is a massive plus in terms of communal well-being.

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