ESPN Flash Report

The “Help to Buy”

scheme provides buyers

of new homes with

loans of 20% of the

purchase price, to

improve affordability

and to encourage

building after the 2008

financial crisis. It has

resulted in modest

increases in building

and has prevented the

home ownership rate

falling. However, most

recipients could have

bought without support.

It has led to higher

prices for new homes

and higher profits for

builders, and has tied

up government

borrowing capacity that

could have been used

for more efficient or

targeted schemes.

LEGAL NOTICE

This document has been

prepared for the European

Commission. However, it

reflects the views only of the

authors, and the Commission

cannot be held responsible for

any use which may be made of

the information contained

therein.

United Kingdom: The “Help to Buy” scheme maintained the

home ownership rate at the cost of high prices and higher

profits for builders

ESPN Flash Report 2020/48

Description

The “Help to Buy” scheme was

introduced in England in 2013. It was

intended as a temporary response to

tight credit and a slowdown in building

after the 2008 financial crisis, but home

builders and middle-income buyers have

come to rely on it. In 2015, the scheme

was extended to 2021, and in 2018 it

was extended again to 2023.

People buying a home priced up to

£600,000 (€675,000) can receive a

government loan of up to 20% of the

price (40% in London since 2016), to

bridge the gap between price, deposit

and mortgage. Loans are interest-free

for 5 years. When the home is sold, the

owners must pay 20% of the selling

value to the government. The aim was

to help homebuyers get mortgages to

buy new homes and to increase the rate

of house building. There were no

objectives for the number or quality of

homes to be bought or the type of

people to be helped. Wales and Scotland

have similar schemes, but in Wales the

price cap is £300,000 (€338,000), and in

Scotland it is £200,000 (€225,000).

By late 2019, 250,000 households in

England had received Help to Buy loans.

The median price of the home bought

was slightly above the national average

and grew from £184,000 (€207,000) to

£290,000 (€327,000) between 2013 and

2019. In financial terms, Help to Buy is

the largest housing policy of the 2010s.

The total value of loans to date is

£14.3bn (€16.1bn), and these loans

have helped buy £65.7bn-worth

(€74.0bn) of housing.

By 2018, higher loan-to-value

mortgages were becoming available.

The Ministry of Housing decided that

Help To Buy in England would have lower

price caps from 2021, and would end in

2023.

Outlook and

commentary

Over 2013/14-2018/19, a net total of

1,178,000 dwellings were added to the

housing stock in England, and the

average annual building rate was higher

than before the 2008 crisis. Help to Buy

supported 21% of these net additions.

Without it, building rates would have

been lower than before the crisis.

Over 2013-19, the number of home-

owning households in England grew by

590,000. Help to Buy purchases made

up 42% of the increase. Different studies

have produced slightly different figures,

but about 40% of Help to Buy users said

they could not have bought without help.

The home ownership rate was steady at

63.2% of households between 2013 and

2019, so without the Help to Buy it

would have been 0.4 percentage point

lower.

81% of people using the scheme were

first-time buyers. 25% were Black and

Minority Ethnicity, compared with 15%

of buyers overall. 62% were under 34,

BECKY TUNSTALL – EUROPEAN SOCIAL POLICY NETWORK JULY 2020

Further reading

Government information aimed

at buyers:

https://www.helptobuy.gov.uk

(England)

https://www.mygov.scot/help-to-

buy/how-it-works (Scotland)

General evaluations:

Finlay, S, Williams, P and Whitehead,

C and LSE (2016). Evaluation of the

Help to Buy Equity Loan Scheme,

London: CLG

https://www.gov.uk/government/pu

blications/evaluation-of-the-help-to-

buy-equity-loan-scheme

Whitehead, C, Williams, P, Ipsos

MORI and the LSE (2018).

Evaluation of the Help to Buy Equity

Loan Scheme 2017, London: MHCLG

https://www.gov.uk/government/pu

blications/evaluation-of-the-help-to-

buy-equity-loan-scheme

National Audit Office (NAO) (2019).

Help to Buy: Equity Loan scheme –

progress review London: NAO

https://www.nao.org.uk/wp-

content/uploads/2019/06/Help-to-

Buy-Equity-Loan-scheme-progress-

review.pdf

House of Commons Public Accounts

Committee (2019). Help to Buy:

Equity loan scheme, HC 2046,

London: House of Commons

https://publications.parliament.uk/p

a/cm201719/cmselect/cmpubacc/20

46/2046.pdf

Evaluations focusing on specific

issues:

Meeks, JG and Meeks, B (2019).

Who is helped by Help to Buy?

http://eprints.lse.ac.uk/88461/1/poli

ticsandpolicy-who-is-helped-by-help-

to.pdf

Carozzi, F, Hilberand, C and Yu, X

(2018). The economic impacts of

Help to Buy

https://www.ucl.ac.uk/bartlett/const

ruction/sites/bartlett/files/affhoupap

er_carozzi-hilber-yu.pdf

Author

Becky Tunstall (University of York)

the age group with the biggest

recent falls in home ownership.

However, about 60% of recipients

said that they would have been

able to buy without the scheme,

and some were homeowners

already. Help To Buy helped these

people buy sooner, bigger or

better. Most buyers who used the

scheme had above-average

incomes: their median household

income grew from £40,000

(€45,000) to £54,000 (€61,000)

between 2013 and 2019. The

biggest absolute financial benefits

went to people buying the most

expensive homes.

There is no evidence that Help to

Buy improved affordability. Help to

Buy sales have usually been 4% or

less of total sales. However, the

scheme supported 38% of all

newbuild transactions between

2013 and 2018. It has led to

slightly higher prices for new

homes, which generally attract a

premium in any case. Help to Buy

also steered buyers towards new

homes. More than half of buyers

said they would not have bought

new build without it. New-build

sales grew from 9% to 12% of the

total over 2014-17. Thus Help to

Buy may have resulted in buyers

paying more than they would have

without the scheme. Help to Buy

has been dominated by the largest

house building companies, and has

contributed to increases in their

profits over the 2010s (NAO,

2019).

The House of Commons Public

Accounts Committee said that,

after 6 years and £14.3bn

(€16.2bn) in loans, the value of

Help to Buy was “uncertain”. In

2018, buyers had repaid 11% of

the total loaned, but 5% of buyers

were in interest arrears. The final

outcome for government depends

on future house prices which are

uncertain. There is an opportunity

cost, as government borrowing

capacity could have been used for

new affordable housing or other

policies.

The House of Commons Public

Accounts Committee warned that

the end of the scheme may lead to

a fall in building. It is possible that

the effects of COVID-19 and Brexit

on building will lead to a rethink.

The Flash Reports are produced by the European Social Policy Network (ESPN) established in 2014 to provide the European

Commission with independent information, analysis and expertise on social policies in 35 European countries. The topics covered

are identified by ESPN experts in the light of significant developments in their countries, or in some cases suggested by the

Commission or the Flash Reports’ editorial team (Eric Marlier and Slavina Spasova). The ESPN is managed by LISER (Luxembourg

Institute of Socio-Economic Research), APPLICA and the OSE (European Social Observatory). More information on the ESPN:

http://ec.europa.eu/social/main.jsp?catId=1135&langId=en.

Quoting this report: Tunstall, B. (2020). United Kingdom: The “Help to Buy” scheme maintained the home ownership rate at the

cost of high prices and higher profits for builders, ESPN Flash Report 2020/48, European Social Policy Network (ESPN), Brussels:

European Commission.