'Help to Buy has been a disaster for the property market' - The Telegraph

The Government has spent years subsidising the cost of buying new build homes through its Help to Buy scheme, but homeowners have quickly discovered the true cost of relying on state support.

Help to Buy closed to new applications in October, but developers are calling for a new version of the scheme to be launched as part of the Budget. But while builders argue that this is a necessary lifeline, experts and MPs have criticised the scheme for reducing affordability by inflating house prices and putting first-time buyers at risk of negative equity.

Their calls have already been heeded in Wales, where it was confirmed this week that their version of the scheme would be extended until 2025.

Ahead of the Budget next week, the Home Builders Federation, a trade body, wrote to the Treasury calling for a new “targeted” scheme for first-time buyers that would significantly reduce the deposit they need to buy a new, energy efficient property. Peter Truscott, chief executive of developer Crest Nicholson, has also backed calls for fresh help.

But Lindsay Judge, of the Resolution Foundation think tank, says the Government’s own evaluations showed there were large numbers of people who bought properties under the scheme who could have bought properties without it.

“There’s a really big deadweight with the scheme,” she says. “Often what you get is people saying, ‘I could have bought a smaller property, or I could have bought a property in not such a nice area.’ So there’s a big question: is it a good use of public money?”

Mortgage rates have jumped in the past year, which is already warding off would-be first-time buyers who face higher repayments, especially if they cannot stump up larger deposits.

Help to Buy ‘inflated prices’

While builders and estate agents would like to see the scheme return, others say reintroducing it would be a disaster.

Paul Cheshire, a former government adviser and emeritus professor at the London School of Economics and Political Science, says developers were the only beneficiaries of the “appalling scheme”.

In most areas, the subsidy inflated the cost of new builds by more than its value, he says. This is because measures to increase demand only serve to push up prices when supply is limited.

Since the scheme was launched in 2013, prices for new builds have risen much faster than for resale homes, says Judge. The premium paid on new build homes has also risen since 2013, according to analyst TwentyCi.

Some users of the Help to Buy scheme also face the prospect of losing money when they sell their homes.

One in 11 homes (9pc) advertised as Help to Buy properties have been resold at a loss. The biggest risks for buyers were in the North East, where one in five (21pc) of these homes were loss-making, according to TwentyCi’s analysis of properties that were first purchased from 2016 onwards. The average drop in price was £24,076.

Buyers who bought properties under Help to Buy are now at greater risk of negative equity, especially as prices plunge across the market, says Cheshire.

Samuel Hughes, a housing expert at the Centre for Policy Studies think tank, says the poor resale value of the homes shows that while first-time buyers initially receive a boost to their purchasing power, it evaporates soon. “Although it does help them a bit to get on to the first rung of the housing ladder, the second rung is just as difficult as it would have been if Help to Buy hadn’t existed at all,” he says.

Critics say in the long run, this price inflation only makes it harder for aspiring homeowners to get on to the property ladder.

MPs reject builders’ pleas

Clive Betts, a Labour MP and chairman of the housing select committee, says the Help to Buy scheme was “like a drug”. “Once the market relies on it, then it’s really difficult to wind the scheme down,” he says.

He says the National Audit Office should have to analyse the inflationary impact of Help to Buy before the Government even considers introducing a similar scheme.

Ben Everitt, a Tory MP on the housing select committee, says the Government should reject such calls from developers. “The government should focus efforts on supply-side reform,” he says. “Demand-side reforms and interventions just tend to lead to unintended consequences in terms of worsening affordability.”

A spokesman for the Department for Levelling Up, Housing and Communities says: “We do not recognise these misleading figures – they paint an inaccurate picture of Help to Buy which has seen more than 375,000 people helped to buy their own home since its launch.

“Independent analysis, including from the National Audit Office, has found no evidence it has had a significant impact on house prices.”

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