Report
by the Comptroller
and Auditor General
Ministry of Housing, Communities & Local Government
Help to Buy: Equity Loan
scheme – progress review
HC 2216 SESSION 2017–2019 13 JUNE 2019
A picture of the National Audit Office logo
Our vision is to help the nation spend wisely.
Our public audit perspective helps Parliament hold
government to account and improve publicservices.
The National Audit Office (NAO) helps Parliament hold government to account
for theway it spends public money. It is independent of government and the civil
service. The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer
of the House of Commons and leads the NAO. The C&AG certifies the accounts of
all government departments and many other public sector bodies. He has statutory
authority to examine and report to Parliament on whether government isdelivering
value for money on behalf of the public, concluding on whether resources have
been used efficiently, effectively and with economy. The NAO identifies ways
that government can make better use of public money to improve people’s lives.
Itmeasures this impact annually. In 2018 the NAO’s work led to a positive financial
impact through reduced costs, improved service delivery, or other benefits to
citizens, of £539 million.
Report by the Comptroller and Auditor General
Ordered by the House of Commons
to be printed on 11 June 2019
This report has been prepared under Section 6 of the
National Audit Act 1983 for presentation to the House of
Commons in accordance with Section 9 of the Act
Gareth Davies
Comptroller and Auditor General
National Audit Office
10 June 2019
HC 2216 | £10.00
Ministry of Housing, Communities & Local Government
Help to Buy: Equity Loan
scheme – progress review
This report assesses whether the Help to Buy:
EquityLoan scheme has been value for money to date,
and whether it is likely to be so in the future.
© National Audit Office 2019
The material featured in this document is subject to
National Audit Office (NAO) copyright. The material
may be copied or reproduced for non-commercial
purposes only, namely reproduction for research,
private study or for limited internal circulation within
an organisation for the purpose of review.
Copying for non-commercial purposes is subject
to the material being accompanied by a sufficient
acknowledgement, reproduced accurately, and not
being used in a misleading context. To reproduce
NAO copyright material for any other use, you must
contact [email protected]. Please tell us who you
are, the organisation you represent (if any) and how
and why you wish to use our material. Please include
your full contact details: name, address, telephone
number and email.
Please note that the material featured in this
document may not be reproduced for commercial
gain without the NAO’s express and direct
permission and that the NAO reserves its right to
pursue copyright infringement proceedings against
individuals or companies who reproduce material for
commercial gain without our permission.
Links to external websites were valid at the time of
publication of this report. The National Audit Office
isnot responsible for the future validity of the links.
006336 06/19 NAO
The National Audit Office study team
consisted of:
Andy Whittingham, Alison Taylor,
OliverSheppard and John Anderson,
under the direction of Aileen Murphie.
This report can be found on the
National Audit Office website at
www.nao.org.uk
For further information about the
National Audit Office please contact:
National Audit Office
Press Office
157–197 Buckingham Palace Road
Victoria
London
SW1W 9SP
Tel: 020 7798 7400
Enquiries: www.nao.org.uk/contact-us
Website: www.nao.org.uk
Twitter: @NAOorguk
Contents
Key facts 4
Summary 5
Part One
About the Help to Buy:
EquityLoanscheme 14
Par t Two
The impact of the scheme 22
Part Three
Managing the Department’s
investment 37
Part Four
The future of the scheme 42
Appendix One
Our audit approach 47
Appendix Two
Our evidence base 49
Appendix Three
Regression analysis 51
If you are reading this document with a screen reader you may wish to use the bookmarks option to navigate through the parts.
4 Key facts Help to Buy: Equity Loan scheme – progress review
Key facts
211,000
equity loans made to
buyers in England by
December 2018
£11.7bn
loaned in total in England
by December 2018
14.5%
is the Ministry of
Housing, Communities
& Local Government’s
(theDepartment’s) estimate
of the increase in new-build
housing supply in England
as a result of the scheme
352,000
is the Department’s forecast of the number of home purchases
to be supported by Help to Buy equity loans in England by
March2021
37%
is the proportion of buyers in England who said they could not have
bought without the support of the scheme (measured between
June 2015 and March 2017)
31%
is the proportion of buyers in England who said they could have
bought a property they wanted without the support of the scheme
(measured between June 2015 and March 2017)
38%
is the proportion of new-build properties which have been sold with
the scheme in England between April 2013 and September 2018
4%
is the proportion of all property sales which have been sold with the
scheme in England between April 2013 and September 2018
81%
is the proportion of Help to Buy loans provided to fi rst-time buyers
in England, at December 2018
5%
is the proportion of buyers in arrears who bought in the fi rst
elevenmonths of the scheme in England, at February 2019
2031-32
is the year by which the Department estimates it will have
recoupedits investment in full
Help to Buy: Equity Loan scheme – progress review Summary 5
Summary
Our report
1 The Help to Buy: Equity Loan scheme (the scheme) aims to support the delivery
of the Ministry of Housing, Communities & Local Government’s (the Department’s)
strategic objective to “deliver the homes the country needs”, through increasing
homeownership and increasing housing supply. It is the Department’s largest
housing initiative by value.
2 The government introduced the Help to Buy: Equity Loan scheme to address
a fallin property sales following the financial crash of 2008 and the consequent
tighteningof regulations by the regulatory authorities over the availability of high
loan-to-value and high loan-to-income mortgages. The scheme has two principal
aims:to help prospective homeowners obtain mortgages and buy new-build
properties;and, through the increased demand for new-build properties, to
increasetherate ofhousebuildinginEngland.
3 Homes England, an executive non-departmental public body sponsored by
the Department, launched the scheme in April 2013 on behalf of the Department.
Thecurrent scheme will run to March 2021. Through the scheme, home buyers receive
an equity loan of up to 20% (40% in London since February 2016) of the market value of
an eligible new-build property, interest free for five years. The value of the loan changes
in proportion to changes in the property’s value. The loan must be paid back in full on
sale of the property, within 25 years, or in line with the buyer’s main mortgage if this
is extended beyond 25 years. Thescheme enables buyers to purchase a new-build
property with a mortgage of 75% of the value of the property. The scheme, which
is not means-tested, is open to both first-time buyers and those who have owned a
propertypreviously. Buyers can purchase properties valued up to £600,000.
4 The scheme is demand-led, meaning all eligible applications would be accepted,
with funding provided to meet demand. The scheme does not therefore have
targets either for the number of households supported to buy or for the additional
number of new homes built. The Department expects the scheme to support around
352,000property purchases by March 2021, via loans totalling around £22 billion in
cash terms. A new scheme, to follow on immediately from the current scheme for
twoyears to March2023, will be restricted to first-time buyers and will introduce lower
regional caps on the maximum property value, while remaining at £600,000 in London.
HomesEngland expect to have loaned around £29 billion in total in cash terms by
March2023, supporting 462,000property purchases.
6 Summary Help to Buy: Equity Loan scheme – progress review
Scope of our report
5 This report follows up on our March 2014 report The Help to Buy equity loan
scheme. Itcontinues a series of reports we have published on housing in England,
which have included Housing in England: overview (January 2017), Homelessness
(September 2017) and Planning for new homes (February 2019).
6 In our 2014 report, we examined the performance of the Department for
Communities & Local Government (now the Ministry of Housing, Communities & Local
Government) and the Homes and Communities Agency (now Homes England) in
designing and implementing the scheme. We found that they had started the scheme
well, early demand for the scheme was strong, and that the scheme was improving
buyers’ access to mortgages.
7 Since our first report, the scheme has increased considerably in size and value.
This report assesses how the scheme has performed against its objectives, how
effectively the Department and Homes England have managed the Help to Buy: Equity
Loan scheme to date, and how they are planning the future of the scheme and its end.
This report does not examine whether quality standards for new-build properties are
either adequate or have been met.
Key findings
The scheme’s performance
8 The Department’s independent evaluations of the Help to Buy: Equity
Loan scheme show it has increased home ownership and housing supply.
HomesEngland had made around 211,000 loans by December 2018, amounting
to £11.7billion. TheDepartment commissioned two independent evaluations of
the scheme, which included sample surveys of households that had bought using
the scheme, and interviews with developers and lenders. Around two-fifths of
householdssaid they would not have been able to buy any property without the support
of the scheme. The Department did not set quantified objectives for the scheme,
butexpected that between 25% and 50% of sales would result in new homesbeing
built. Thesecondevaluation, covering loans made between June 2015 and March2017,
concluded that the rate of building had increased by 14.5% because of thescheme
(paragraphs1.3and2.2 to 2.6).
Help to Buy: Equity Loan scheme – progress review Summary 7
9 The scheme has helped increase the number of new-build properties being
sold. Between the start of the scheme and September 2018, 38% of all new-build
property sales have been supported by loans through the scheme, equating to
around 4% of all housing purchases. Since the scheme was introduced in 2013, the
number of new-build property sales has increased from 61,357 per year in 2012-13 to
104,245peryear in 2017-18. Sales of new-build properties have also increased from
around 9% of all property sales in 2014 to over 12% in 2017. From 2013, the scheme
contributed to a general increase in transactions throughout the housing market and
planning system, although the Department acknowledges that the rate of transactions
was picking up before the start of the scheme and the housing market is sensitive to
arange of economic factors (paragraph 2.7).
10 The scheme has helped fewer people to buy new-build properties in areas
where less housing is available for sale below £600,000. Excluding London,
between the start of the scheme and December 2015, the proportion of new-build
properties bought with the support of the scheme ranged from 29% in the south east
to 42% in the north east. Over the same period the proportion was only 12% in London,
where the ratio of median house prices to median earnings is greatest (lessaffordable
areas as defined by the Office for National Statistics) and where there are fewer
new-build properties below the cap. In February 2016, the government decided
that it needed to improve the take up of the scheme in London, while accepting the
variation across other regions of England. It increased the maximum loan in London
to 40% of the property value. The change improved the scheme’s take-up in London,
to 26% of new-build sales between January 2016 and September 2018, although this
is still lower than the rest of England (46% of new-build sales over the same period)
(paragraphs2.8to2.9).
8 Summary Help to Buy: Equity Loan scheme – progress review
Buyers
11 The Department’s second evaluation found that around three-fifths of buyers
could have bought a property without the support of Help to Buy. The Department
intentionally set broad eligibility criteria for the scheme to enable as many households as
possible to benefit, not just first-time buyers. There are no limits on household income
and no restrictions on the number of scheme beneficiaries. As at December 2018 around
81% of all buyers supported by the scheme have been first-time buyers. TheDepartment’s
second evaluation, covering loans made between June 2015 and March2017, found that:
•
37% of buyers stated that they could not have bought without the support of the
scheme. We estimate this to be around 78,000 additional sales of new-build properties
since the scheme started.
•
63% of first-time buyers were aged 34 and under.
However, the evaluation also found that:
•
19% of buyers have previously owned a property and are using the scheme to buy,
on average, more expensive properties than first-time buyers using the scheme. We
estimate that thisequates to nearly 40,000 households (paragraphs 2.5 and 2.10 to 2.12).
•
31% of buyers could have purchased a property they wanted without the scheme.
Extrapolating this proportion over the whole of the scheme suggests that around
65,000 households could have purchased a property they wanted without the scheme.
12 Some 4% of the 211,000 buyers who had used the scheme by December 2018
had household incomes over £100,000. The proportion has increased each year, from
3%in 2013 to 5% in 2018. Over the whole scheme, 10% of buyers had household incomes
over £80,000 (or over £90,000 in London), the thresholds above which they would not be
eligible for the Department’s shared ownership housing scheme (also designed to help
with home ownership). TheDepartment regards these transactions as an acceptable
consequence of designing the scheme to be widely available. The Department also intended
to keep the scheme simple to administer andeasy for applicants to access (paragraph 2.14).
Help to Buy properties
13 The scheme has enabled buyers to purchase properties with more bedrooms,
or to buy a property more quickly, than they would otherwise have been able to.
Buyers have been able to borrow more through taking out both a mortgage and an
equity loan than they could have borrowed through a mortgage alone. Around four-fifths
of buyers reported, through the evaluations, that the scheme had enabled them to buy a
property sooner. Buyers took out mortgages and equity loans that together were typically
around four and a half times their annual income (increasing to over six times in London).
In contrast, first-time buyers generally took out mortgages that were three and a half times
their annual income over the same period. The increased spending power of buyers using
the scheme has contributed towards developers building properties with more bedrooms.
Though not a stated objective, the Department regards the scheme’s support to buyers
to move up the property ladder more quickly as a positive outcome, as it brings more
properties onto the market for other buyers (paragraphs 2.5, 2.12 and 2.13).
Help to Buy: Equity Loan scheme – progress review Summary 9
14 Buyers who want to sell their property soon after they purchase it might find
they are in negative equity. New-build properties typically cost around 15%–20%more
than an equivalent ‘second-hand’ property, termed the ‘new-build premium’, which
reflects that these properties have yet to be lived in. The new-build premium fell away
following the financial crash of 2008 but has since recovered to pre-crash levels, as
wider economic and housing market conditions have changed, and sales of new-build
properties have increased (paragraphs 2.15 and 2.16).
15 Our analysis indicates that buyers who used the scheme have paid less
than 1% more than they might have paid for a similar new-build property bought
without an equity loan. By comparing prices paid for similar new-build properties in
the same area with and without the scheme, we estimate that buyers supported by the
scheme have paid less than 1% more. Our estimate is significantly less than others in
the public domain, which range between 5% and 20%. We found that these estimates
do not compare similar properties and so do not accurately assess any additional
premium paid by those using the scheme on top of the new-build premium. We have
not, however, quantified other financial incentives that buyers of properties without the
scheme might receive. Incentives on properties sold with the support of the scheme
are restricted to 5% of the total purchase price, but there is no restriction on incentives
onnew-build sales generally (paragraphs 2.17 and 2.18).
Developers
16 The scheme has supported five of the six largest developers in England
to increase the overall number of properties they sell year on year, thereby
contributing to increases in their annual profits. Five of the six developers in England
that build most properties account for over half of all loans through the scheme. Theysell
a greater proportion of properties with the support of the scheme than other developers.
Between 36% and 48% of properties sold by these five were sold with the support of
the scheme in 2018. The profits of all five developers have increased since the start of
the scheme. Over the same period, total combined housing completions for these five
developers have increased by over a half. It is not possible to determine what proportion
of a developer’s profits directly relates to sales through the scheme because this
information is not publicly available (paragraphs 2.19 to 2.21).
17 Some small and medium-sized developers have required more help than
anticipated from Help to Buy agents to engage with the scheme. The Department
designed the scheme so that it is easier for smaller firms to access. More small and
medium-sized developers have joined the scheme than joined previous schemes with
similar aims. By December 2018, 2,000 developers were registered with the scheme,
the majority of whom are small and medium-sized developers. However, some small
and medium-sized developers have struggled with the administration required to join
thescheme and sell properties with its support (paragraphs 2.19 and 2.20).
10 Summary Help to Buy: Equity Loan scheme – progress review
The government’s investment in the scheme
18 By 2023, the government will have invested up to £29 billion in the scheme,
tying up cash which cannot be used elsewhere. Homes England had loaned around
£11.7 billion by December 2018 and estimates it will have loaned around £22 billion in
cash terms by the close of the current scheme in 2021, rising to around £29 billion in
cash terms by the close of the new scheme in 2023. Factoring in the estimated rate of
redemptions, the net amount loaned is forecast to peak at around £25 billion in 2023
in cash terms. There is an opportunity cost in tying up this money in the scheme for a
considerable period, rendering it unavailable for other housing schemes or departmental
priorities (paragraphs 3.2 to 3.5).
19 The Department expects to recover its investment in the medium term and
make a positive return overall, although it recognises the investment is exposed to
significant market risk. By December 2018, Homes England had received £1.3billion
in redemptions, around 11% of the amount loaned. Based on current estimates of
the long-term performance of the housing market, Homes England expects total
redemptions to equal the amount loaned by 2031-32, and to have made a positive
returnon investment by the time all loans are repaid by 2048. However, both the
payback period and the return on investment are sensitive to house price changes and
the timing of buyers repaying loans. Recent housing market data indicate that house
price growth is slowing down, and that there has been a recent fall in prices in some
regions, notablyLondon (paragraphs 3.6 to 3.11).
Interest repayments
20 Homes England has recognised the need to improve processes for
recovering interest. The first homeowners in the scheme started paying interest in
May2018, fiveyears after the first loans were issued. At December 2018, around 7%
ofhomeownersusing the scheme were paying interest; most homeowners are still within
the five-year interest-free period. At February 2019 around 5% of homeowners were
in arrears, and the proportion of interest due that had not been received was around
4%. In almost all cases, homeowners have fallen into arrears because processes to
collect interest were not set up when the loan was issued, and they have not responded
to contact from Target (theorganisation administering the loans on behalf of Homes
England). FromSeptember2016, Homes England has required all homeowners to
set up a direct debit on issue of the loan, in anticipation of the interest payments.
In May2019, the Department approved animproved interest-recoupment policy
(paragraphs 3.12, 3.13and 3.17).
Help to Buy: Equity Loan scheme – progress review Summary 11
Contract management
21 Target was not prepared for the volume and complexity of queries from
homeowners once they started redeeming their loans and paying interest.
InMay2018, Target faced an expected increase in enquiries as the first homeowners to
have bought with the support of the scheme came to the end of the interest-free period.
Target had planned on the basis of Homes England’s forecast, but the overall number of
telephone queries received was over 75% higher than the forecast for the previous year.
In addition, the queries received were more complex than predicted, requiring more and
longer interactions with customers. Target experienced problems in dealing with this
higher-than-expected level of engagement. Homes England and Target worked together
to address this, for example Target tripled the number of staff dedicated to administering
the scheme to 75. Homes England is undertaking a digital transformation programme
to speed up and streamline the administration of the scheme and to improve the
experience for buyers (paragraphs 3.14 and 3.16).
22 Homes England’s oversight of its mortgage administrator Target and the Help
to Buy agents needs to improve. In February 2019, Homes England’s internal auditor
gave only a limited assurance opinion for Target’s administration of the HelptoBuy
portfolio due to control weaknesses in several areas of Target’s operations, making a
number of recommendations for further improvement. A second internal audit report,
in March 2019, identified problems with the arrangements at the HelptoBuy agents
for securing documentation to support loans, and Homes England’s limited oversight
of information security arrangements at the agents. Homes England has accepted the
recommendations of the internal audit report and has a number of actions in place to
strengthen its monitoring and oversight for these keycontracts (paragraphs3.15and3.16).
The future of the scheme
23 In October 2018, the Autumn Budget included an announcement that, from
April2021, the new scheme would be targeted towards those who need more
helpinto home ownership. The new scheme will be restricted to first-time buyers.
Outside of London, lower regional limits on the maximum purchase price will restrict
thescheme to buyers purchasing cheaper properties, who are likely to be people
on lower incomes. TheDepartment also intends these changes to reduce overall
demand for the scheme in its finaltwo years, preparing the housing sector for its
end(paragraphs4.4 to 4.10).
12 Summary Help to Buy: Equity Loan scheme – progress review
24 The Department accepts there is less need for the scheme now that higher
loan-to-value mortgages are more available, and plans to end the scheme in
2023. The scheme was introduced in 2013 to address the difficulties that buyers were
experiencing with the availability of high loan-to-value mortgages. Lenders are now
offering high loan-to-value mortgages more widely, but eligibility is more restricted than
before the financial crash of 2008. The Department believes the scheme is therefore
still needed. It has announced the end of the scheme, giving developers and lenders
four and a half years to devise other ways for buyers to raise the necessary finance
to purchase new-build properties. Nevertheless, there is concern across the housing
sector that the end of the scheme will still result in a drop in new developments and
sales (paragraphs 4.2 to 4.4, and 4.11).
Conclusion on value for money
25 The Department’s independent evaluations of the Help to Buy: Equity Loan scheme
show it has increased home ownership and housing supply. It seems likely to continue
to do so as long as the scheme remains open, provided there is no significant change
in the housing market. The scheme is therefore delivering value so far against its own
objectives. The Department is currently forecasting a positive return on its investment
and redemptions are running ahead of expectations.
26 Given that the government has entered the equity loan market place, it has put
reasonable arrangements in place to benefit from increasing property prices. However, this
is dependent on the performance of the housing market and property values can go down
as well as up. At points when the market turns down (whether over the near, medium or
longer term), the taxpayer could lose out significantly, as the government’s investment
in housing capital would reduce in value. Furthermore, property owners could face the
trap of negative equity, exacerbated by the new-build premium. Thescheme also has an
opportunity cost in tying up a great deal of financial capacity, and its broad participation
criteria have allowed some people who did not needfinancialhelpto buy a property to
benefit from the scheme.
27 The government has indicated that it will wean the property market off the
scheme.It will need to ensure that developers continue to build new properties at the
rates currently achieved, or better, if it is to meet its challenging ambition of creating
300,000 new homes per year of sufficient quality from the mid-2020s. The scheme
may have achieved the short-term benefits it set out to, but its overall value for money
will only be known when we can observe its longer-term effects on the property market
and the net return, or cost, to the taxpayer when the very substantial portfolio of loans
hasbeenrepaid.
Help to Buy: Equity Loan scheme – progress review Summary 13
Recommendations
28 The Department’s greatest challenge is to wind down the scheme to minimise
negative effects on the housing market. It should also seek to maximise, as far as it can,
the return on its investment. Our recommendations aim to support the Department to
achieve these goals.
a Housing market conditions have changed since the start of the scheme.
TheDepartment should assess the existing scheme against current market
conditions and determine whether any changes to how it operates and criteria
foreligibility would increase its impact.
b The Department should consider further changes to the new scheme from 2021
to achieve other housing policy goals, for example to enact the government’s
commitment to addressing the practice of developers selling new houses
asleasehold.
c The Department should plan a further evaluation of the scheme, either soon
toinform the new scheme from 2021, or after the end of the current scheme
to inform potential new initiatives to support home ownership and housing
supplyafter 2023.
d The Department should support Homes England to take appropriate enforcement
action to recover money due from homeowners who have fallen into arrears.
e Homes England should continue to improve its oversight of the Help to Buy agents
and its mortgage administrator Target.
f The Department should review the information given by the Help to Buy agents and
developers to potential buyers, to confirm that it fully explains the financial risks of
buying a new-build property through the scheme.
g The Department has not undertaken a detailed assessment of the impact of the
scheme on the wider housing market. It should expand the scope of its next
evaluation to examine such wider effects, including a potential influence on the
new-build premium, and identify lessons learned for any future interventions.
14 Part One Help to Buy: Equity Loan scheme – progress review
Part One
About the Help to Buy: Equity Loan scheme
Background
1.1 The Ministry of Housing, Communities & Local Government (the Department)
aims to support the building of a million new homes in England between April 2015 and
December 2020, and thereafter deliver 300,000 new homes per year by the mid-2020s.
1.2 Housebuilding declined sharply after the financial crash in 2008. The number of
new homes built in England fell from a peak of 160,000 in 2007 to 65,000 in 2009,
before slowly rising again. In response to the financial crash, the regulatory authorities
tightened the rules on mortgage lending to curtail mortgages where the loan exceeds
90% of the property value and is greater than three and a half times the borrower’s
income (two and three-quarter times for joint borrowers). For example, the proportion
of 95% mortgages dropped from a peak of around 6% in 2007 to less than 1% in 2009.
However, this meant some prospective homeowners were not able to obtain mortgages
and buy properties as they needed larger deposits. The government introduced the
Help to Buy: Equity Loan scheme (the scheme) in 2013 to enable more people to obtain
mortgages and buy new-build properties, thereby stimulating developers to build more
properties to meet the increased demand.
The Help to Buy: Equity Loan scheme
1.3 The scheme is demand-led and does not have targets either for the number of
households supported to buy or for the additional number of new homes built. It was
introduced in April 2013 with an initial budget of £3.5 billion to March 2016 (Figure 1).
The Department’s objectives for the scheme, as set out in the business case, were to:
•
support creditworthy, but deposit-constrained, households to buy a
new-buildproperty;
•
increase the supply of new housing; and
•
contribute to economic growth through the achievement of the first two objectives.
Help to Buy: Equity Loan scheme – progress review Part One 15
Figure 1 shows Help to Buy: Equity Loan scheme timeline
Figure 1
Help to Buy: Equity Loan scheme timeline
The scheme started in April 2013 and by December 2018 Homes England had loaned a total of £11.7 billion, supporting nearly
211,000 participants into homeownership
£11.7 billion
Amount loaned as
at December 2018
1 Apr 2013
Scheme opens
to public
Feb 2016
London equity share
increased from 20% to 40%
Nov 2015
Scheme further
extended to 2021
Oct 2018
Revised scheme
announced 2021–2023
Current
scheme ends
March2021
Revised
scheme ends
March2023
2048
All loans repaid
Sep 2016
£1 monthly management
fee brought in
£10 billion
additional
funding
announced in
October 2017
£8.6 billion
allocated
in Autumn
Statement 2015
up to2020-21
£3.5 billion
allocated for
2013-14 to
2015-16
£7.2 billion
additional funding
announced in
October 2018 for
2021-22 to 2022-23
£29 billion
Total amount the Ministry of Housing,
Communities & Local Government
has committed to the scheme
up to March 2023, to build up to
470,000homes
Source: National Audit Offi ce
Key milestones
Funding commitments
Scheme extensions
Policy changes
Total loaned
2013 2015 2016 2017 2018 2019 2020 2021 2022 2023 2048
Spring 2014
Scheme extended
to2020
2014
16 Part One Help to Buy: Equity Loan scheme – progress review
1.4 The Department designed the scheme to be straightforward to administer,
simple to understand, and easy for applicants to access. For example, the scheme is
not means-tested and is open to both first-time buyers and those who have owned
aproperty previously.
1.5 Demand for the scheme greatly exceeded initial expectations. The government
met demand by investing more money than originally planned in the scheme.
In2017-18, theDepartment invested £3.3 billion through the scheme, around 29%
oftheDepartment’stotal annual expenditure.
How the scheme works
1.6 The scheme is administered by Homes England, an executive non-departmental
public body sponsored by the Department, on behalf of the Department (Figure2).
The process of buying a new-build property through the scheme differs from a
traditional purchase (Figure 3 on pages 18 and 19). Under the scheme, Homes
England offers the buyer of a new-build property, costing up to £600,000, an equity
loan of up to 20% (40% in London since February 2016) of the purchase price.
Theloan supplements the buyer’s deposit, which the scheme requires to be at least
5% of the property price. The buyer obtains a repayment mortgage of, typically,
75%of the property’s value. Mortgages that are 75% or less of a property’s value
typically have alower interest rate and are more affordable.
1.7 The value of the loan changes to remain proportional to the property’s value.
Iftheproperty’s value increases, the value of the equity loan will increase in proportion.
When the buyer redeems the loan, either when they sell the property, remortgage or
choose to repay part or all of the loan, they will pay back more than they borrowed if
the property has increased in value. Conversely, if the property value falls, buyers will
pay back less than they borrowed. Buyers outside of London may repay either 50% or
100% of the current value of the equity loan at any time after the first year of owning their
home. InLondon, buyers can repay in up to four instalments, each at least 10% of the
home’s current market value, at any time after the first year. The loan must be paid back
in full on sale of the property, within 25 years, or in line with the buyer’s main mortgage
if this is extended beyond 25 years. The Department expects that most buyers will
redeem the equity loan early in the 25-year loan period to reduce the risk that they will
pay back significantly more than they borrowed if they keep the loan for longer. If a home
is repossessed, the mortgage lender gets their money back first because they are the
firstcharge on the property; the equity loan is the second charge.
Help to Buy: Equity Loan scheme – progress review Part One 17
Figure 2 shows Roles and responsibilities for the Help to Buy: Equity Loan
Figure 2
Roles and responsibilities for the Help to Buy: Equity Loan
Source: Adapted from Comptroller and Auditor General,
The Help to Buy equity loan scheme, Session 2013-14, HC 1099, National Audit Offi ce, March 2014
The Department is responsible for the Help to Buy scheme, with Homes England and its agents, developers and
buyers playing important roles
Policy
Buyers
Funding and
commissioning
Service
providers
Register
Help to Buy
loan paid
directly
Issue
transaction
approvals
Receive
£315per
completed
sale
Loan
repayments
and interest
fees
Provide
information
on completed
sales
Register via
agent
Purchase
property
through a
registered
builder
Submit
application
Perform
affordability
checks
Repay
loans and
interest fees
Help to Buy agents
There are 7 regionally
based companies.
Perform the
affordability checks on
potential buyers and
process applications.
Mortgage
administrator – Target
Administers the loans
on behalf of Homes
England. Manages
redemptions and
interest fees.
Larger developers
Build new homes
Direct potential
purchasers toHelp
to Buy agents.
Smaller developers
Build new homes
Homes England
Responsible for delivering the scheme. Registers and contracts with house builders and
Help to Buy agents.
Makes the equity loan to the purchaser on the advice of the Help to Buy agent.
Buyers of new-build properties up to £600,000. Buyers provide a 5% deposit.
Help to Buy
loan paid
directly
Ministry of Housing, Communities & Local Government
Responsible for setting policy, funding and oversight of the scheme.
18 Part One Help to Buy: Equity Loan scheme – progress review
Figure 3 shows Help to Buy customer experience in England
Notes
1 Customer must not own a property at the point of fi nalising the equity loan. This is set to change to only fi rst-time buyers in 2021.
2 In London, customers can repay in up to four instalments, each at least 10% of the home’s current market value, at any time after the fi rst year.
Source: National Audit Office
Figure 3
Help to Buy customer experience in England
Prospective homeowners looking to use the equity loan have an additional application stage when purchasing their home
Customer finds a new-build property
1
and submits
reservation and property information forms to the
regional agent with the support of an independent
financial advisor.
Customers can apply for a 20% equity loan outside
of London towards a new-build property worth
up to £600,000 (40% equity loan in London).
Newregional prices will apply from April 2021.
Customer declined Help to Buy equity loan after
financial assessment by agent.
On selling the property, the customer repays the same
percentage value of the property as was loaned.
Alternatively, they can pay back the loan in full or in
two instalments at any time after the first year.
2
The loan must be repaid in full within 25 years or
in line with the buyer’s main mortgage if this is
extended beyond 25 years.
The customer begins paying equity loan interest
payments after 5 years, starting at 1.75% of the
equity loan and rising annually by Retail Price Index
+ 1%. Regardless of house price movements, the
interest fee repayments remain fixed to the original
equity loan price. In addition, the customer pays a
£1 monthly management fee from the first month.
These payments do not count towards repaying
theequity loan capital.
Authority to proceed issued by agent. The customer
can now submit a mortgage application and their
solicitor begins the normal conveyancing process.
Buyer provides deposit –
at least 5%.
Exchange and
completepurchase.
Pre-application Application
Purchase Post-purchase
FOR
SALE
SOLD
Help to Buy: Equity Loan scheme – progress review Part One 19
Figure 3 shows Help to Buy customer experience in England
Notes
1 Customer must not own a property at the point of fi nalising the equity loan. This is set to change to only fi rst-time buyers in 2021.
2 In London, customers can repay in up to four instalments, each at least 10% of the home’s current market value, at any time after the fi rst year.
Source: National Audit Office
Figure 3
Help to Buy customer experience in England
Prospective homeowners looking to use the equity loan have an additional application stage when purchasing their home
Customer finds a new-build property
1
and submits
reservation and property information forms to the
regional agent with the support of an independent
financial advisor.
Customers can apply for a 20% equity loan outside
of London towards a new-build property worth
up to £600,000 (40% equity loan in London).
Newregional prices will apply from April 2021.
Customer declined Help to Buy equity loan after
financial assessment by agent.
On selling the property, the customer repays the same
percentage value of the property as was loaned.
Alternatively, they can pay back the loan in full or in
two instalments at any time after the first year.
2
The loan must be repaid in full within 25 years or
in line with the buyer’s main mortgage if this is
extended beyond 25 years.
The customer begins paying equity loan interest
payments after 5 years, starting at 1.75% of the
equity loan and rising annually by Retail Price Index
+ 1%. Regardless of house price movements, the
interest fee repayments remain fixed to the original
equity loan price. In addition, the customer pays a
£1 monthly management fee from the first month.
These payments do not count towards repaying
theequity loan capital.
Authority to proceed issued by agent. The customer
can now submit a mortgage application and their
solicitor begins the normal conveyancing process.
Buyer provides deposit –
at least 5%.
Exchange and
completepurchase.
Pre-application Application
Purchase Post-purchase
FOR
SALE
SOLD
20 Part One Help to Buy: Equity Loan scheme – progress review
Figure 4 Shows Illustrative annual interest payments for buyers using the scheme
1.8 The equity loan is interest-free for five years. From the start of year six,
HomesEngland charges buyers interest, initially at 1.75% of the original equity
loan’s value. Theinterest rate rises annually by 1% above the Retail Prices Index,
which equates to 1.82% in year seven based on current forecasts.
1
The buyer also
pays a management fee of £1 per month from the first year of homeownership.
Theinterestandmanagement fee payments do not count towards repaying the
equityloan capital(Figure 4).
1 As at April 2019, long-term Retail Prices Index is calculated as 3%.
Figure 4
Illustrative annual interest payments for buyers using the scheme
Buyers using the scheme begin to pay interest after the fi fth year of homeownership, starting at a
rate of 1.75% in year six and increasing by 1% above the Retail Prices Index each year after that
Property price
Year 6 Year 7 Year 8 Year 9 Year 10
£200,000
England (excluding London) £700 £728 £756 £788 £820
London £1,400 £1,456 £1,512 £1,576 £1,640
£300,000
England (excluding London) £1,050 £1,092 £1,134 £1,182 £1,230
London £2,10 0 £2,184 £2,268 £2,364 £2,460
£400,000
England (excluding London) £1,400 £1,456 £1,512 £1,576 £1,640
London £2,800 £2,912 £3,024 £ 3,152 £3,280
£500,000
England (excluding London) £1,750 £1,820 £1,890 £1,970 £2,050
London £3,500 £3,640 £3,780 £3,940 £4,10 0
£600,000
England (excluding London) £2,10 0 £2,184 £2,268 £2,364 £2,460
London £4,200 £4,368 £4,536 £4,728 £4,920
Interest rate 1.75% 1.82% 1.89% 1.97% 2.05%
Notes
1
A long-term Retail Prices Index estimate of 3% is used here.
2
The £1 monthly management fee is excluded from the calculation.
3
The calculation uses an equity loan proportion of 20% for England (excluding London) and 40% for London.
Source: National Audit Offi ce
Help to Buy: Equity Loan scheme – progress review Part One 21
The future of the scheme
1.9 The Department forecasts that around 352,000 homeowners will have bought with
the support of the scheme by March 2021, with a total investment of around £22 billion
in cash terms. In October 2018, the government announced that a new scheme would
run from April 2021 to March 2023. The government will make available an additional
£7.2 billion, which it forecasts will support a further 110,000 households. This will take
the overall budget for the scheme to around £29 billion in cash terms. The Department
forecasts that this will support a total of around 462,000 households by 2023.
1.10 The new scheme will introduce restrictions to eligibility. Whereas former
homeowners can participate in the current scheme, only first-time buyers will be able
to take part in the new scheme. The Department will introduce regional caps on the
maximum property price, set at one and a half times the current average first-time buyer
purchase price for that region, with a maximum of £600,000 in London.
1.11 The scheme will end in March 2023 and the Department currently has no plans
to replace it. The Department told us that signalling the end of the scheme gives
developers enough time to plan for a regime without the scheme, to avoid a sudden
drop in new-build sales, and consequent reduction in housebuilding.
22 Par t Two Help to Buy: Equity Loan scheme – progress review
Part Two
The impact of the scheme
2.1 This part of the report examines how the Help to Buy: Equity Loan scheme
(thescheme) has performed against its objectives, and who has benefited from it.
Italsolooks at the other consequences of the scheme, including for developers, and
thepotential impact of the scheme on new-build house prices.
Progress of the scheme
2.2 When it set up the scheme, the Department for Communities and Local
Government (now the Ministry of Housing, Communities & Local Government)
(theDepartment) anticipated that it would support 74,000 property purchases across
thethree years 2013-14 to 2015-16, at an investment of £3.5 billion. The Department
initially expected that between 25% and 50% of sales would result in new homes
being built. From the outset, the scheme was more popular with potential buyers
thananticipated, supporting 81,000 property purchases over the first three years.
TheDepartment increased its investment in the scheme to meet demand. Based on
recent performance, it now expects the current scheme to support around 352,000
buyers by March 2021 and tohave invested just over £22 billion in cash terms.
2.3 As at December 2018, the scheme had supported around 211,000 property
purchases through loans totalling £11.7 billion (Figure 5). Outside London, participants
have typically bought properties with three or more bedrooms, and 11% of all sales
supported by the scheme have been flats. In London, participants have typically bought
properties with two beds, and 84% of sales have been flats. Almost all participants
outside London have taken out the full equity loan share of 20%, which has averaged
nearly £55,000 since the scheme started.
2
In 2018, over three-quarters of participants in
London took out the full equity loan share of 40%. Most properties (57%) have been sold
at £250,000 or under, although this proportion varies by region with the overall profile
and mix of transactions.
2 £55,000 includes properties in London. Excluding London, the average equity loan nationally was around £48,500 as at
December 2018.
Help to Buy: Equity Loan scheme – progress review Par t Two 23
Figure 5 shows Total and forecast Help to Buy sales in England, 2013-14 to 2020-21
Achievement against the scheme’s aims
2.4 The scheme has two principal aims: to help prospective homeowners obtain
mortgages and buy new-build properties; and, through the increased demand for
new-build properties, to increase the rate of house building in England. The scheme has
no targets. The Department has commissioned two independent evaluations to assess
the additionality of the scheme: that is, the number of new-build sales and the number
of new properties built that would not have been built if the scheme did not exist.
Thefirst evaluation, published in February 2016, examined the scheme’s performance
toJanuary2015 and concluded that:
•
43% of buyers would not have been able to afford the same or similar property in
the new-build or existing markets without the scheme’s assistance; and
•
assuming these purchases are of properties that would not otherwise have been
built, the scheme resulted in 14% more new-build properties being built.
Figu
re 5
To
tal and forecast Help to Buy sales in England, 2013-14 to 2020-21
Completions (000)
The scheme has been used to support nearly 211,000 sales. Homes England for
ecasts that around
352,000 sales will have been made with support fr
om the scheme by April 2021
Help to Buy completions
Help to Buy completions – forecast
No
tes
1
Based on Homes England’s forecast as at December 2018.
2
Completion figures may not sum to exactly 211,000 due to time lags in updating forecasts for actual sales.
Sour
ce: National Audit Office analysis of data from Homes England
2013-14 2014-15 2015-16
2016-17 2017-18 2018-19 2019-20 2020-21
0
10
20
30
40
50
60
70
19.6
27.7
33.7
39.8
47.5
62.1
64.3
41.0
16.1
24 Par t Two Help to Buy: Equity Loan scheme – progress review
2.5 The second evaluation, published in October 2018, examined the additionality of
the scheme between June 2015 and March 2017. It drew on a broader evidence base,
including a larger sample of buyers and a greater number of developers, compared with
the first evaluation. It concluded that:
•
37% of buyers could not have bought a property without the scheme, which
we estimate to be around 78,000 additional sales. This is the proportion of
homeowners who could not have bought without the scheme as a proportion of
total Help to Buy sales as at December 2018;
•
the scheme had resulted in 14.5% more new properties being built;
3
and
•
the scheme had enabled 79% of buyers to buy a property sooner than they would
otherwise have been able.
The buyers’ responses reflect their recollection of the situation at the time they bought.
They do not account for the possibility of the buyers’ circumstances changing to
enablethem to buy a similar property in the future.
2.6 Evaluating the impact of the scheme is difficult because there is not a group of
potential buyers for whom the scheme was not available, against whom the impact of
the scheme can be compared. We therefore examined the methods used to gather
evidence to evaluate the additionality of the scheme. We found that the methodology
of the evaluations, which were undertaken by experts in the fields of housing and
evaluation, was reasonable given the nature and design of the scheme, and the inherent
limitations of relying on responses in surveys to estimate additional house building.
Toassess the number of buyers who could not have bought without the support of the
scheme, the second evaluation surveyed a sample of 1,500 households that bought a
property through the scheme, using a series of questions. The evaluations assessed
the impact of the scheme and did not look at those people who did not go ahead or
were rejected from the scheme. Stakeholders from the housing sector stated to us in
interviews that they regarded the evaluations as comprehensive and robust, and the
calculation of additionality was reasonable.
3 The second evaluation calculated additionality differently to the first evaluation, including a further sub-question to
assess participants’ ability to buy a smaller property than the one they bought.
Help to Buy: Equity Loan scheme – progress review Par t Two 25
Figure 6 shows New-build and existing-build property sales in England, 2000 to 2017
2.7 Since the scheme started, new-build sales have increased from 61,357 in 2012-13
to 104,245 in 2017-18. Over the period April 2013 to September 2018, 38%of new-build
purchases have been supported by the scheme, equating to around 4% of all housing
purchases. New-build sales as a proportion of total property sales has increased
from around 9% in 2014, the first full year of the scheme, to more than 12%in2017.
Totalproperty sales have levelled off during this time, following a sharp increase
in2013 (Figure6).
4
Bodiesrepresenting developers and lenders told us the scheme
had helped increase public confidence in housebuilding and house buying generally,
andthat the scheme had raised the profile of new-build properties with those looking to
buy. HomesEngland told us the scheme has given local authorities greater confidence
that planning consents they grant will be built out by developers, although we have
notbeenable to assess this effect.
4 These data are based on Land Registry transactions and underestimate the actual number of new-build sales because
Land Registry data do not identify new-build sales within developments of five or less properties. Land Registry data
uploads are also subject to long delays. At April 2019, Land Registry data indicated that new-build sales represented
12.5% of total sales over 2018.
Figu
re 6
Ne
w-build and existing-build property sales in England, 2000 to 2017
Property sales
No
te
1
Data accessed in April 2019. Office for National Statistics data for new-build sales and existing-build property sales originate from
the Land Registry which is subject to long delays.
Sour
ce: National Audit Office analysis of Office for National Statistics data on new-build sales and existing dwelling sales
The pr
oportion of new-build property sales has increased since the scheme began in 2013
0
200,000
400,000
600,000
800,000
1,000,00
0
1,200,00
0
1,400,00
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total property sales
Existing-build property sales
New-build property sales
26 Par t Two Help to Buy: Equity Loan scheme – progress review
Impact of the scheme
2.8 At local authority level, areas where housing is less affordable have experienced
lower proportions of sales supported by the scheme (Figure 7 and Figure 8 on
page28).
5
Local authorities of lower affordability generally have higher proportions of
properties for sale at prices above the maximum of £600,000 allowed by the scheme.
In 2017, 68% of properties in London sold for £600,000 or less, compared with 97%
for the rest of England. The Department set a relatively high cap on property prices
at £600,000 so that almost all new-build properties would be eligible for the scheme.
Across England, in 2013, over 96% of all new-build properties sold for £600,000 or less.
Regional variation in sales supported by the scheme
2.9 London has experienced the lowest take up of the scheme. Following the increase
in the maximum loan allowed in London in February 2016, from 20% to 40% of the
sale price, the proportion of new-build homes sold with the support of the scheme
increased, from around 12% to 26%. However, the proportion of homes bought through
the scheme in London is still lower than in the rest of England. Between the start of the
scheme and December 2015, excluding London, the take up of the scheme was 34%,
and ranged from 29% of new-build sales in south-east England to 42% in north-east
England. Between January 2016 and September 2018, this increased to 46%, and
ranged from 42% in south-west England to 51% in the East Midlands.
6
Potential
homeowners in London face generally higher sale prices than the rest of England.
The average price in London in 2018 was over £450,000, 66% more than the average
purchase price across the rest of England (around £272,000). This price equates to an
equity loan of over £180,000 should the buyer take out the full 40%. After five years, a
typical London buyer will pay nearly £3,000 in interest annually, compared with under
£1,000 outside London.
5 Less affordable areas as defined by the Office for National Statistics, where the ratio of median house price to
medianearnings is higher.
6 Proportion of new-builds sold with the scheme based on data as at September 2018.
Help to Buy: Equity Loan scheme – progress review Par t Two 27
Figure 7 shows Help to Buy sales as a proportion of total new-build sales, April 2013 to September 2018
Figure 7
Help to Buy sales as a proportion of total new-build sales, April 2013 to September 2018
Notes
1
New-build sales data between April 2013 and March 2018 taken from Offi ce for National Statistics (ONS) new-build sales dataset. New-build sales data
between April 2018 and September 2018 taken from Land Registry price-paid data. This is to account for the ONS new-build sales dataset which is
reported as rolling year.
2
Land Registry data accessed in April 2019.
3
All new-build properties are included in this analysis. Removal of non-qualifying property, ie property valued over £600,000, would increase the
HelptoBuy proportion, particularly in London.
4
Isles of Scilly excluded as no properties have been sold there using the scheme.
Source: National Audit Offi ce analysis of data from Homes England, Land Registry price-paid data, and Offi ce for National Statistics data on new-build sales
Proportion of Help to Buy properties
to new-build completions
Over 60% new-build properties
soldwith Help to Buy
45%–59% new-build properties
soldwith Help to Buy
30%–44% new-build properties
soldwithHelp to Buy
15%–29% new-build properties
soldwithHelp to Buy
Less than 15% new-build properties
sold with Help to Buy
Regions
London
There is wide variation in the take up of Help to Buy as a proportion of all new-build sales across England
28 Par t Two Help to Buy: Equity Loan scheme – progress review
Figure 8 shows Median property prices and proportion of Help to Buy sales for local authorities in England, 2013 to 2018
No
tes
1
Sales data as at September 2018.
2
Isles of Scilly excluded as no properties have been sold there using the scheme.
Sour
ce: National Audit Office analysis of data from Homes England, Office for National Statistics on affordability, and Ministry of Housing,
C
ommunities & Local Government data on new-build sales
Figu
re 8
Median pr
operty prices and proportion of Help to Buy sales for local authorities
in Englan
d, 2013 to 2018
Median house price (£)
Local authorities with mor
e expensive properties have generally experienced a lower proportion of Help to Buy sales
Proportion of new-build sales sold with Help to Buy (%)
0
200,000
400,000
600,000
800,000
1,
000,000
1,
200,000
1,
400,000
1,
600,000
010203040506070809
01
00
Help to Buy: Equity Loan scheme – progress review Par t Two 29
Figure 9 shows First-time buyer loans in England, 2000 to 2017
First-time buyers
2.10 As at December 2018, 81% of all buyers supported by the scheme have been
first-time buyers. First-time buyers using the scheme have larger household incomes
than the typical first-time buyer in each region and nationally (median income of
£48,000in England in 2017 for those using the scheme, compared with £42,400 for
all first-time buyers).
7
Some 61% of first-time buyers using the scheme bought with a
5% deposit. The proportion of first-time buyers across the whole housing market has
increased from a low of under 30% in 2003 and 2004, to make up nearly half of the
totalmarket in 2017 (Figure 9).
7 This is a comparison between Help to Buy data and UK Finance data on lending to first-time buyers. UK Finance data
do not exclude those first-time buyers purchasing an existing-build property.
Figu
re 9
Firs
t-time buyer loans in England, 2000 to 2017
Pr
oportion of total loans (%)
Sour
ce: National Audit Office analysis of data from UK Finance
First-time buyers now make up nearly half of all mortgage loans
0
10
20
30
40
50
80
90
70
60
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Proportion of loans which are for first-time buyers
30 Part Two Help to Buy: Equity Loan scheme – progress review
Diversity
2.11 Although not an objective of the scheme, it has been taken up by a higher
proportion of black, Asian and minority ethnic (BAME) buyers compared with
first-timebuyers generally. The Department’s second evaluation found that a quarter
of first-time buyers who have bought with the support of the scheme are from BAME
backgrounds. This is compared with less than a fifth (15%) of allfirst-time buyers from
BAME backgrounds nationally. The evaluation also found that 63% of first-time buyers
usingthescheme were aged 34 and under.
Other consequences of the scheme
Scheme participants
2.12 As at December 2018, 19% of buyers were people who had previously owned
a property, equating to nearly 40,000 households. Of these former homeowners,
39%have bought with a deposit of more than 10% of the property value, compared
with 17% of first-time buyers. On average, former homeowners have larger households
than first-time buyers, have larger household incomes and purchase more expensive
properties with more bedrooms through the scheme with a larger deposit. The second
scheme evaluation found that 31% of homeowners could have bought a property they
wanted without the support of the scheme.
2.13 Scheme participants have generally bought more expensive properties than
the typical first-time buyer, using the equity loan to support the purchase (Figure10).
Thisdifference is greater in regions of greater affordability. Buyers took out mortgages
and equity loans that together were typically around four and a half times their
annual income (increasing to over six times in London). In contrast, first-time buyers
generally took out mortgages that were three and a half times their annual income.
The HomeBuilders Federation told us that developers have responded by building
more properties of all types. Properties built with three or more bedrooms have
becomeanincreasingly common feature of the market (Figure 11 on page 32).
Help to Buy: Equity Loan scheme – progress review Par t Two 31
Figure 10 shows Average price paid for a new-build property by first-time buyers with and without support from the Help to Buy: Equity Loan scheme in England, 2018
Average price paid
by first-time buyers
for new-build
properties
157,558 241,584 419,980 109,644 133,959 259,036 208,751 160,086 135,963
Average price paid
by first-time buyers
for new-build
properties using
the Help to Buy
scheme
235,470 299,682 449,443 182,445 215,351 338,395 263,301 233,13 5 201,971
Note
1
Ministry of Housing, Communities & Local Government data for all fi rst-time buyers are taken as an annual average of each month’s average purchase price.
Source: National Audit Offi ce analysis of Help to Buy data from Homes England and the Ministry of Housing, Communities & Local Government data on fi rst-time buyers
Figu
re 10
A
verage price paid for a new-build property by first-time buyers with and without support from the
Help
to Buy: Equity Loan scheme in England, 2018
Price paid (£)
Scheme participants ar
e buying more expensive properties, on average, than those not using the scheme
0
150,000
250,000
300,000
350,000
400,000
450,000
500,000
200,000
100,000
50,000
Yorkshire
and The
Humber
West
Midlands
South
West
South
East
North
West
North
East
LondonEast
England
East
Midlands
32 Par t Two Help to Buy: Equity Loan scheme – progress review
Figure 11 shows Number of bedrooms in new-build properties in England, 2010-11 to 2017-18
Figu
re 11
Number
of bedrooms in new-build properties in England,
20
10-11 to 2017-18
Pr
oportion of properties built (%)
Pr
operties with three or more bedrooms make up a greater proportion of the new-build
market year on year since 2011-12
1 bedroom
2 bedrooms
3 bedrooms
4 or more bedrooms
No
te
1
Figures may not sum due to rounding.
Sour
ce: National Audit Office analysis of the Ministry of Housing, Communities & Local Government’s data on
house
building: new dwellings
0
10
20
40
60
80
10
0
90
70
50
30
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
33
7
27
34
32
8
27
30
8
28
34
33
28
7
31
34
25
6
33
36
24
6
35
35
23
6
35
36
22
6
36
36
Help to Buy: Equity Loan scheme – progress review Par t Two 33
2.14 The Department is aware that some scheme participants have not needed an
equity loan to buy their property. It accepts that this is a consequence of the scheme
being demand-led and with no restrictions on eligibility based on household income.
As at December 2018, a total of 4% of the 211,000 scheme participants had household
incomes over £100,000, a proportion that has increased each year from 3% in 2013 to
5% in 2018. In 2018, around 2% of scheme participants had incomes in the upper tenth
percentile of household incomes nationally.
8
Ten per cent of scheme participants had
household incomes over £80,000 (or over £90,000 in London), the income threshold set
for another of the Department’s schemes to support Home Ownership.
9
The Department
told us that allowing unrestricted access to the scheme has made it simple to administer
and has maximised the number of participants, thereby adding to the increased
confidence the scheme has instilled throughout the housing market.
New-build premium
2.15 New-build properties typically sell at a higher price than existing properties with
similar characteristics, reflecting the fact that they have yet to be lived in. This ‘new-build
premium’ has typically averaged around 20% over time. It dropped to around 15% after
the financial crash of 2008, began to rise again from 2010 and has since risen to around
20%.
10
The scale of the new-build premium varies for property type and regionally, for
example in London new-build properties typically sell with only a small, if any, new-build
premium. Buyers who want to sell their property soon after they have bought it might
find they are in negative equity for a period of time, depending on the scale of the
premium at the time of purchase and the subsequent change in house prices locally.
2.16 We did not find a relationship when we compared the size of the new-build
premium of similar properties within a postcode district with the proportion of
propertiesbought with the support of the scheme. However, the scheme has
contributed to increased sales of new-build properties. Between the beginning of the
scheme and December 2018, prices paid for new-build properties increased by 41%
in England, compared with a 38% increase for existing properties. The increase in the
new-build premium since 2010 is likely a response to changes in wider economic and
housing market conditions, which the scheme has contributed to since 2013.
8 Upper tenth percentile household income here classed as Office for National Statistics’ estimate of UK all households’
gross income in 2017-18, calculated at £124,725.
9 These household incomes are the current (as at April 2019) household income caps for the Department’s Shared
Ownership scheme.
10 New-build premium calculated as new-build property purchase prices compared with existing builds nationally,
usingUK House Price Index. This calculation does not control for the mix of property sold.
34 Par t Two Help to Buy: Equity Loan scheme – progress review
Help to Buy premium
2.17 Analysis by other commentators has found that buyers of Help to Buy properties
pay an additional premium, on top of the new-build premium, quoting figures of between
a 5% and 20% premium.
11
These figures originate from four different pieces of research
that compare the average price of properties bought with the support of the scheme
with those bought without. We found that the research did not directly compare
like-for-like properties and therefore the differences found will in part reflect differences
in the average size or other characteristics of properties bought with and without the
scheme. For this report, we compared prices paid by buyers of similar properties
(sametype of property, similar size of property by square metre, same postcode,
andbought within the same month) and found that the difference between buyers
whobought with and without the support of the scheme was less than 1%.
2.18 We have not been able to quantify other potential incentives for buyers of
new-buildproperties, such as a developer supplying white goods or paying solicitors’
fees. Thescheme restricts incentives to 5% of the purchase price, whereas there are
no restrictions on incentives to those buying without the scheme. Scheme participants
canalso achieve savings elsewhere, for example:
•
lower interest rates on lower loan-to-value mortgages;
•
savings from rent foregone by buying a property sooner; and
•
no interest paid on the equity loan for five years.
Developers’ engagement with the scheme
2.19 By December 2018, over 2,000 developers had registered with the scheme.
Fivedevelopers account for over half of all properties sold with the support of the
scheme. More small and medium-sized developers have joined the scheme than
joinedprevious schemes with similar aims. The Department designed Help to Buy so
that it was more accessible to smaller developers, as there are no criteria over who can
apply for funding, and there is no requirement to compete with other firms to develop
sites. The 2017 independent evaluation found that around four-fifths of the developers
registered with the scheme had made 10 or fewer transactions. The Department’s
evaluation also included a survey of small and medium-sized developers, which found
that fewer than 20% of the 65respondents were registered with the scheme. The main
reason given for not registering was that they were not planning to build properties
that would be eligible for Help to Buy loans. Administrative costs were not cited as a
major constraint to joining the scheme. However, a group of small and medium-sized
developers told us that there is a large amount of paperwork involved in registering
with the scheme, which some found difficulttodo because of the amount of time
andeffortrequired.
11 Research by property quotes and home-moving company Reallymoving quoted a premium of 12% (www.reallymoving.
com/news/april-2019/help-to-buy-premium-12-percent); research by property sales portal Okaylah quoted a premium
of more than 20% (www.propertyindustryeye.com/by-a-quarter-if-they-use-help-to-buy); The Times quoted a premium
of 15% per square metre between comparable properties that are and are not eligible (www.thetimes.co.uk/article/
help-to-buy-boom-could-leave-a-generation-in-negative-equity-ddtb68skb); Stockdale research in 2017, stating that
there is potentially a premium of up to 5%, is not available online.
Help to Buy: Equity Loan scheme – progress review Par t Two 35
Figure 12 shows Proportion of Help to Buy sales by developer in England, 2013 to 2018
2.20 Developers interviewed through the Department’s evaluation said that they found
the scheme hard to use if they were doing so irregularly. One Help to Buy agent told
us that they spend more time supporting smaller developers, for example supporting
them to apply to register with the scheme and subsequently processing loans.
The Department’s evaluation found that larger developers were better equipped to
resource the scheme’s administration. For example, larger developers can manage
their own equity loan payments, whereas smaller developers are more likely to rely
onaHelptoBuy agent for support.
2.21 Of the six developers in England that build most properties, five sell a greater
combined total of properties with the support of the scheme than the remaining
developers on the scheme (Figure 12). In 2018, these five sold between 36% and
48%of their properties with the support of the scheme.
12
The sixth developer from
these top six tends to build high-value properties that sell for more than the upper price
limit of the scheme and therefore sells fewer properties with the support of the scheme.
Thescheme has supported these five to increase the overall number of properties they
sell year on year, thereby contributing to the increases in their annual profits and share
price (Figure 13 overleaf), a consequence of the scheme that has been extensively
commented upon in the media. Since the start of the scheme, total combined
housingcompletions for these five developers has increased by over a half.
12 Data as declared by developers in their annual reports. These data include all activity, which includes activity in both
Wales and Scotland for most of the top five developers.
Figure 12
Proportion of Help to Buy sales by developer in England, 2013 to 2018
Persimmon, 14.8%
Barratt, 13.3%
Taylor Wimpey, 11.9%
Bellway, 6.7%
Redrow, 3.7%
Remaining developers, 49.6%
Note
1 Top five developers as defined by the number of properties sold that used the equity loan scheme.
Source: National Audit Office analysis of data from Homes England
The top five developers selling pr
operties with the Help to Buy scheme make up just over half of all sales
36 Par t Two Help to Buy: Equity Loan scheme – progress review
Figure 13 shows Homebuilder share prices since 2008-09
Figure 13
Homebuilder share prices since 2008-09
Share price index
FTSE 250 index
Bloomberg UK Homebuilder index
1.00
0
2.00
3.00
4.00
5.00
6.00
7.00
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Homebuilders using the scheme have seen their share value continue to increase since the beginning of the scheme in April 2013
Notes
1 Share prices are taken as the closing prices for each quarter, indexed to April 2008.
2 Bloomberg UK Homebuilder index accounts for 13 developers, including the top-five Help to Buy developers as defined by the number of properties
sold that have used the equity loan scheme. These 13 developers account for around 60% of all Help to Buy sales as at December 2018.
3 We have not identified the causes of the increase in profit for these companies. They result from a wide range of factors and identifying specific causation
would require access to underlying company financial records.
4 Over the same period, total combined housing completions for the top-five developers increased by over a half.
Source: National Audit Office analysis of Bloomberg data
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Help to Buy: Equity Loan scheme – progress review Part Three 37
Part Three
Managing the Department’s investment
3.1 This part of the report examines the Ministry of Housing, Communities & Local
Government’s (the Department’s) overall investment in the scheme, and whether it is
likely to recover the money loaned. It also looks at how borrowers are repaying their
loans and, for those who took out the first loans in 2013-14, the interest that is now due.
Total investment in the scheme
Value of the investment
3.2 The Department expects to have loaned around £22 billion in cash terms by the
time the current scheme comes to an end in March 2021 (Figure 14 overleaf). The total
amount loaned, including in the new scheme from April 2021, is forecast to reach around
£29 billion in cash terms by March 2023. This investment is the gross figure, as people
will pay back their loans, reducing the net amount of the investment over time.
3.3 The loan book, comprising the total portfolio of individual loans, is a significant
asset on Homes England’s balance sheet. As at 31 March 2018, the value of the loan
book was £8.3 billion (72% of Homes England’s total assets of £11.6 billion). Its value
on a specific date is based on the amount Homes England would have received had
all homeowners redeemed their loans on that date. Loan values are estimated using
regional house price indices. Our review of Homes England’s model for valuing its
home equity investments found it to be appropriate and the assumptions within it
reasonable.
13
The valuation is sensitive to assumptions, which interact in complex ways,
including rates of additions and disposals, levels of arrears and the split between part
and full repayments for those redeeming their loans. For example, a 15% fall in house
prices might lead to both a 10% increase in redemptions (relative to sales) and a 7.5%
increasein accounts in arrears.
3.4 The scheme is a long-term investment and therefore exposed to market risks over
which the Department and Homes England have limited influence; Homes England’s
annual accounts state that “a downturn in house price or other economic conditions
could place the balance sheet under considerable pressure”.
14
Homes England is the
second-charge lender and is therefore exposed to greater risk should house prices
fall. Should a borrower encounter financial difficulty and their property is repossessed,
the mortgage lender, as the first-charge lender, gets the first cut of the sale proceeds.
ByDecember 2018, there had been 16 repossessions in total.
13 National Audit Office Audit Completion Report on Homes England’s financial statement 2017-18.
14 Homes and Communities Agency, Annual Report and Financial Statements 2017-18, HC 1135, 19 July 2019, page 27.
38 Part Three Help to Buy: Equity Loan scheme – progress review
Figure 14 shows Total and forecast Help to Buy: Equity Loan expenditure in England, 2013-14 to 2020-21
Total equity loans (£m) 801 1,207 1,585 2,269 3,048 2,708
Total equity loans –
forecast (£m)
932 4,390 4,683
Receipts from full
and partial
redemptions
0.38 10 102 262 490 453
Notes
1
Based on Homes England forecast as at December 2018.
2
Total equity loans may not sum to exactly £11.7 billion due to time lags in updating forecasts for actual sales.
3
Full and partial redemptions relate to when a homeowner pays their equity loan back in total or two instalments outside London, and up to four instalments in London,
each amounting to 10% of the value of the property.
4
Of the £11.7 billion total expenditure, £1.3 billion (11%) has been recouped, as at December 2018.
Source: National Audit Offi ce analysis of data from Homes England
Figu
re 14
To
tal and forecast Help to Buy: Equity Loan expenditure in England, 2013-14 to 2020-21
T
otal equity loan expenditure is £11.7 billion, as at December 2018, of which 11% has been recouped
£ million
2013-14 2014-15 2015-16
2016-17 2017-18 2018-19 2019-20 2020-21
0
500
1,000
1,500
2,000
3,000
4,000
5,000
2,500
3,500
4,500
Help to Buy: Equity Loan scheme – progress review Part Three 39
Opportunity cost
3.5 The scheme has accounted for a significant proportion of the Department’s total
expenditure, totalling around 29% in 2017-18. Although money is to be recovered over
time, a large proportion will be unavailable for other housing schemes or departmental
priorities during the scheme and for a period after its end. The Department recognises
the opportunity cost of this money being unavailable for other uses for up to three
decades. Should current trends of loans and redemptions continue, by the end of the
new scheme in March 2023, around £25billion in cash terms will still be invested in
properties bought with the support of the scheme.
15
Return on investment
3.6 Homes England currently forecasts that total redemptions will equal the amount
loaned by 2031-32, and that by the time all loans have been redeemed in 2048 the
scheme will have achieved a positive return on investment. The rate of return will
dependon:
•
the trajectory of house prices over the course of the scheme; and
•
the timings of redemptions.
3.7 One Help to Buy agent told us that they are detecting signs of a slowdown in
demand for the scheme. We heard that the slowdown may relate to potential buyers’
uncertainty over the implications of Brexit for house prices in the long term. The rate
of increase in house prices has recently slowed and is forecast to continue on this
trenduntil 2020.
3.8 Homes England has estimated the impact of different housing market scenarios:
a a 20% fall in house prices would result in a reduction in the portfolio value by
£3billion (29% of current estimated value); and
b a 30% fall would result in a £5 billion reduction (47% of current estimated value).
These are falls in portfolio book value which the Department does not consider would
turn into overall cash losses.
3.9 Reductions in the value of the portfolio would not materialise immediately after the
start of a market downturn, because the total equity has built up over the first six years
as house prices have risen. Continued house price rises will reduce the scale of risk to
the portfolio should a downturn occur in the future.
15 As these are financial instruments, the budget could only be used for programmes with similar financial instruments.
Thebudget could not be exchanged for housing investments for grants or loans as the fiscal impact would differ.
40 Part Three Help to Buy: Equity Loan scheme – progress review
Redemptions
3.10 Buyers can redeem at any point, when the funds are available to do so. This typically
happens when buyers remortgage, or when the property is sold. ToDecember2018,
11% of the total equity loan value had been redeemed: £1.3 billion of £11.7 billion
invested. Nearly 50% of loans made in the first year of the scheme had been redeemed
by December 2018. The vast majority of buyers who have redeemed their loans to date
have redeemed in full, rather than redeeming part of the loan. Buyers who redeem their
loans in full within the first five years avoid paying interest.
3.11 The number of redemptions since the start of the scheme has been higher
than initially expected. The number of redemption transactions has exceeded
Homes England’s expectations every year by between 11% and 35%. In response,
in December2018, Homes England increased its forecast of the rate of redemptions
over the period 2018-19 to 2021-22 by around 8%, increasing confidence that the
Department will recoup its investment. Homes England re-forecast the overall return on
investment based on the higher rate of redemptions, resulting in a small reduction in the
estimated return. TheDepartment does not collect detailed information on household
finances to assess the ability of buyers to redeem in the future.
Interest fees
3.12 Buyers who bought at the start of the scheme started paying interest from May2018.
By December 2018, 7% of buyers had started paying interest on their loans. Some
5% of buyers who had bought in the first 11 months of the scheme were in arrears in
February 2019. Arrears totalled £54,000, around 4% of the £1.5 million due. Inalmost
all cases, buyers have fallen into arrears because arrangements to collect interest
were not set up when the loan was issued, and they have not responded to Target
(theorganisation administering the loans on behalf of Homes England). Homes England
attributes this mainly to out-of-date or incomplete contact details held by Target for
thesebuyers.
3.13 In September 2016, Homes England introduced a monthly management fee, to
be paid by buyers from the start of the loan. This requires the buyer to set up a direct
debit as part of the registration process. After five years, Target starts to recover interest
through the direct debit, alleviating the need to contact the buyer at that point to set up
anew direct debit.
Help to Buy: Equity Loan scheme – progress review Part Three 41
Scheme administration
3.14 From around May 2018, Target began having problems dealing with the volume and
complexity of queries from buyers. Queries mainly related to how the interest is calculated
and paid, and how the loan works as an equity share. Target had planned on the basis
of Homes England’s forecast of 11,250 calls per month in 2017-18, and neither it nor
Homes England had anticipated the actual volume, which was 20,000 queries permonth
in 2018-19 (over 75% higher).
16
Homes England’s forecast also assumed that each query
would, on average, require Target to engage two to three times with the customer to
resolve the query. The queries received were more complex than predicted, requiring
more and longer interactions with customers. In response, Target tripled its capacity to
75 staff to respond to queries, and worked with Homes England to improve processes
around redemptions and recovering interest. The volume of queries has settled to around
13,000calls per month, though this is still higher than forecasted. Target is now able to
dealwith the volume of queries, and the process changes have reducedthevolume.
3.15 In February 2019, Homes England’s internal auditor raised concerns over the accuracy
and completeness of data held by Target, including a lack of checks carried out on the
records supporting the data on loan amounts and timings. The report acknowledged that
Homes England and Target had been working together to improve processes, but further
changes were needed to address the issues identified to improve Target’s performance
and Homes England’s oversight and monitoring of Target. Asecond report, in March2019,
identified problems with the arrangements at the Helpto Buy agents for chasing up
outstanding documentation from solicitors, meaning some loan amounts were not supported
by a complete set of documentation, and raised concerns about Homes England’s limited
oversight of information security arrangementsat the agents. Homes England has accepted
recommendations to strengthen its monitoring and oversight to improve the way it manages
its contracts withagents andTarget, for example introducing additional data quality checks.
3.16 Homes England told us that aspects of the scheme’s administration are hampered
by a lack of automation. Much of the administration involves paperwork and human
verification, which had led to data-quality issues and inefficiencies. In January 2019,
HomesEngland started a programme to improve administration processes through
digitisation. Theprogramme aims to put in place, by April 2020, improved processes
thatwill increase the speed of some aspects of the scheme administration, reduce
theriskof data errors, and improve the experience for buyers.
Management of arrears
3.17 Homes England told us that, until recently, the processes for recovering outstanding
debts were ineffective – for example Target did not use enforcement agents or share
information with credit reference agencies. This was mitigated by Homes England’s
ability to collect any outstanding debt when the buyer sells the property. In May 2019,
theDepartment approved a new interest recoupment policy, which addresses these
issues, and Homes England and Target are currently implementing newprocesses.
Theseinclude the use of credit reference agencies and field agents, who willvisit the
customer and help develop a payment plan.
16 This refers to the peak volume of queries during summer 2018-19, when the first scheme participants began to pay interest
on their equity loan. The number of queries through email and letter were also higher than forecasted.
42 Part Four Help to Buy: Equity Loan scheme – progress review
Part Four
The future of the scheme
4.1 The current Help to Buy: Equity Loan scheme is due to end in March 2021.
InOctober2018, the government announced that a new scheme will operate between
April2021 and March 2023. The Department is not planning to run an equivalent
scheme after March 2023. This part of the report looks at the Department’s plans
forthenew scheme, and how it is planning for the end to the scheme in 2023.
Continued need for a scheme
4.2 The government introduced the scheme in 2013 to help deposit-constrained
buyers to obtain mortgages. Since the scheme has been in place, mortgage availability
has improved and buyers now have more opportunity to access higher loan-to-value
mortgages, including 95% mortgages. Between 2017 and 2018, the number of 95%
mortgages offered by lenders increased by 45%, and there are now 224 different
products available, compared with 155 in 2017.
17
4.3 Despite the improved availability of mortgages, 95% loan-to-value mortgages remain
restricted, are less readily available on new-build property and are not usually available at
interest rates as favourable as lower loan-to-value mortgages. Current regulations stipulate
that individual lenders can only offer 15% of their mortgages at income multiples of 4.5 or
greater. House prices are currently high compared to incomes (Figure 15), meaningthat
many buyers do not earn enough to be eligible for these products. Affordability is an
issue for first-time buyers in particular.
18
Developer confidence has improved, but recent
uncertainty in the property market could impact it. For these reasons, the Department
considers that there is still a need for a Help to Buy scheme up to, and beyond,
thecurrentplanned end date of March 2021.
4.4 The scheme has been extended beyond the original planned timescale, but
the Department does not intend it to be permanent. The Department understands
that developers plan their future activity three years in advance. It announced in
October2018 that the scheme would not continue beyond March 2023, giving
developers and lenders four and a half years to plan their exit.
17 Available at: www.which.co.uk/news/2018/11/exclusive-first-time-buyers-offered-cheaper-mortgage-rates-despite-two-
base-rate-hikes/
18 Comptroller and Auditor General, Housing in England Overview, Session 2016-17, HC 917, National Audit Office,
January2017.
Help to Buy: Equity Loan scheme – progress review Part Four 43
Figure 15 shows Annual household income and property prices in England, 2000 to 2018
No
te
1
House prices and incomes are indexed to the year 2000.
Sour
ce: National Audit Office analysis of Office for National Statistics data set on house price to workplace-based earnings ratio data
Figu
re 15
An
nual household income and property prices in England, 2000 to 2018
House price and annual income indexed to 2000
Median house price
Median gross annual income
0.50
0
1.00
2.00
1.50
2.50
3.00
3.50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
House prices have risen at a quicker rate than household incomes each year
44 Part Four Help to Buy: Equity Loan scheme – progress review
New scheme from April 2021 to March 2023
Key changes to the new scheme
4.5 The government has allocated £7.2 billion for the new Help to Buy: Equity Loan
scheme to run between April 2021 and March 2023. It is introducing two main changes
to the eligibility criteria for the new scheme:
•
Only those buying a property for the first time will be eligible to apply for a loan.
TheDepartment has not yet clarified its definition of a first-time buyer under the
new scheme, nor how it will check eligibility.
•
There will be regional caps on the maximum price for a property that can be
purchased under the scheme. The upper limit will remain at £600,000 in London,
but elsewhere the maximum property price will be capped at one and a half times
the average first-time buyer property price for the region (Figure 16).
Impact of the changes
4.6 The Department expects that the changes to the eligibility criteria will
improvethe scheme’s targeting at those first-time buyers in greatest need of support.
TheDepartment chose not to introduce an income cap or means-testing for the
scheme. The Department expects the regional caps will limit the scheme to those
buying cheaper properties, who are likely to be on lower incomes.
4.7 The Department expects that the exclusion of existing homeowners from the new
scheme will reduce demand by around 20%. Under the current scheme, over a quarter
of sales made in 2018 would not have been eligible for the scheme if the proposed
regional price caps had been in place.
Help to Buy: Equity Loan scheme – progress review Part Four 45
Figure 16 shows Average purchase price for first-time buyers using the scheme in 2018 and price caps for 2021 to 2023
Price cap, 2021–2023 (£) 600,000 4 37,6 0 0 407,400 349,000 261,900 255,600 228,100 224,400 186,100
Average first-time buyer
price paid, 2018 (£)
449,443 338,395 299,682 263,301 235,470 233,135 201,971 215,351 182,445
Source: National Audit Offi ce analysis of data from Homes England, and Autumn Budget announcement, 2018
Figu
re 16
A
verage purchase price for first-time buyers using the scheme in 2018 and price caps for 2021 to 2023
Price (£)
The average prices paid by first-time buyers using the scheme in 2018 wer
e close to the proposed price caps in some regions
0
300,000
400,000
700,000
600,000
500,000
200,000
100,000
Yorkshire
and The
Humber
West
Midlands
North
West
North
East
South
West
East
England
South
East
East
Midlands
London
46 Part Four Help to Buy: Equity Loan scheme – progress review
The regional caps
4.8 The impact of the cap will be different in each region. For all regions, the proposed
cap is currently higher than the average price paid by first-time buyers for a property
bought with the scheme’s support in 2018. Based on current house price inflation, in
nearly a third of local authority areas most properties with three or more bedrooms will
be above the cap.
19
Developers may therefore build more smaller properties that can be
priced below the cap.
4.9 Representatives of the sector told us of some potential issues with the regional caps:
•
House prices, and therefore affordability, vary across regions. Some regions contain
local areas where properties are significantly more expensive than the average for the
region. By setting the cap at one and a half times the average first-time buyer price,
buyers looking for help in local areas where property prices are higher, and where
affordability pressures are greatest, may be unable to find a suitable property
priced below the cap and therefore will be excluded from the scheme.
•
Near the boundaries between regions, different price caps may apply to areas,
including towns or cities, in close proximity. Developers may decide to focus
building in areas that fall within the region with the higher cap, where they can
sellmore properties with the support of the scheme. However, these may not be
the areas where new housing is most needed.
Designing the new scheme
4.10 The Department is still designing and developing the new scheme and can make
further changes to rules and eligibility. The Department could use the new scheme
to address concerns it has about other behaviours by developers. For example,
theDepartment recently responded to public concern about developers selling new
houses as leasehold and then charging high, and rapidly increasing, ground rent.
InOctober 2018, it launched a consultation on plans to end the practice, which it
regards as unjust. In 2017, nearly 17% of detached properties sold with the support of
the scheme were sold on leasehold terms. This dropped to 6% in 2018. The Department
could prohibit the sale of detached properties as leasehold under the new scheme.
Post-2023
4.11 The Department intends that developers and lenders will have sufficient time
to consider alternative ways to maintain demand for new-build housing and to boost
supply. This may include developing their own measures to support home ownership,
and to help buyers raise deposits and access finance. Housing sector representatives
we spoke to suggested that the Department may still need to support the new-build
sector if it is to meet its objective of supporting 300,000 new homes per year from
themid 2020s.
19 Average purchase price for a property bought using the equity loan in 2018. Where a local authority did not have a sale
for a relevant property in 2018, figures from 2017 were used.
Help to Buy: Equity Loan scheme – progress review Appendix One 47
Appendix One
Our audit approach
1 This report assesses whether the Help to Buy: Equity Loan scheme has been
valuefor money to date, and whether it is likely to be so in the future. We examined:
a The impact of the Help to Buy: Equity Loan scheme, and whether it has supported
additional demand and supply in the housing market.
b The Ministry of Housing, Communities & Local Government’s (the Department’s)
management of its investment, and whether the scheme is likely to deliver a return
for the taxpayer.
c The Department’s plans for the future of the scheme.
2 Our audit approach is summarised in Figure 17 overleaf, and our evidence base is
set out in Appendix Two.
48 Appendix One Help to Buy: Equity Loan scheme – progress review
Figure 17 shows our audit approach
Figure 17
Our audit approach
Our evidence
(see Appendix Two
for details)
As part of our fieldwork we:
•
analysed data from Homes England and from the Department;
•
interviewed central government representatives and other key stakeholders; and
•
analysed key central government documents including the two independent evaluations of the Help to Buy:
Equity Loan scheme.
Our evaluative
criteria
Impact of the scheme
The Ministry of Housing,
Communities & Local
Government (the Department)
and Homes England can
demonstrate that the scheme
has achieved the objectives set
out in 2013 (supporting home
ownership and increasing supply
of new homes).
The Department understands
who has benefitted from the
scheme and other consequences
of itsinvestment.
Planning for the future of
thescheme
The Department has a clear
plan for the Help to Buy: Equity
Loan scheme beyond the current
end date of March 2021, based
on robust evaluation of the
effectiveness of the scheme
todate.
The Department has a clear
plan for how to end the scheme
without disruption to the
housingmarket.
Return on investment
Borrowers are repaying their
loans and fees when they are
due(including the Department
having a complete record of
money owed).
The Department has a robust
valuation of the Help to Buy:
Equity Loan scheme, and a good
understanding of the likely return
on investment.
The Department and
HomesEngland have a good
understanding of the main risks
to the investment, and a plan is
inplace to mitigate them.
The objective of
government
Increase home ownership and housing supply, to deliver the homes the country needs.
How this will
beachieved
Through the Help to Buy: Equity Loan scheme. Buyers of new build properties worth up to £600,000 can take out
an equity loan of up to 20% of the sale price (40% in London). The loan is interest free for the first five years.
Our conclusions
The Department’s independent evaluations of the Help to Buy: Equity Loan scheme show it has increased home
ownership and housing supply. It seems likely to continue to do so as long as the scheme remains open, provided
there is no significant change in the housing market. The scheme is therefore delivering value so far against its own
objectives. The Department is currently forecasting a positive return on its investment and redemptions are running
ahead of expectations.
Given that the government has entered the equity loan market place, it has put reasonable arrangements in place to
benefit from increasing property prices. However, this is dependent on the performance of the housing market and
property values can go down as well as up. At points when the market turns down (whether over the near, medium or
longer term), the taxpayer could lose out significantly, as the government’s investment in housing capital would reduce
in value. Furthermore, property owners could face the trap of negative equity, exacerbated by the new-build premium.
Thescheme also has an opportunity cost in tying up a great deal of financial capacity, and its broad participation
criteria have allowed some people who did not needfinancialhelpto buy a property to benefit from the scheme.
The government has indicated that it will wean the property market off the scheme. It will need to ensure that
developers continue to build new properties at the rates currently achieved, or better, if it is to meet its challenging
ambition of creating 300,000 new homes per year of sufficient quality from the mid-2020s. The scheme may
have achieved the short-term benefits it set out to, but its overall value for money will only be known when we can
observe its longer-term effects on the property market and the net return, or cost, to the taxpayer when the very
substantial portfolio of loans hasbeen repaid.
Help to Buy: Equity Loan scheme – progress review Appendix Two 49
Appendix Two
Our evidence base
1 We completed our review of the Help to Buy: Equity Loan scheme following our
analysis of the evidence we collected between November 2018 and April 2019. Our audit
approach is outlined in Appendix One.
2 We reviewed and carried out extensive analysis related to the Help to Buy:
Equity Loan scheme and housing in general. This analysis looked at house building
and sales, profile of buyers, and the loan book and repayments. The primary sources of
these data were from Homes England and the Ministry of Housing, Communities & Local
Government (the Department). We also analysed housing data from wider stakeholders,
which included UK Finance mortgage data, Land Registry, and housing developers’ annual
reports. Where Land Registry data are used, a six-month gap is applied to account for the
delay to this dataset, particularly with new-build sales.
3 We carried out regression analysis to assess unintended consequences of
the scheme. The analysis looked at the suggestion that properties sold with the scheme
command a premium, and the suggestion that the scheme has an effect on new-build
prices (see Appendix Three). These data were sourced from Land Registry, Energy
Certification, and Homes England Help to Buy transactions.
4 We conducted semi-structured interviews with central government
representatives from the Department and Homes England. This was to help us to
understand the processes, unintended consequences, and how the scheme is managed
and monitored.
5 We visited and interviewed representatives from Target, the agency
administering the Help to Buy loans on behalf of Homes England, and Orbit, one of
the agencies administering applications to the scheme. These two visits included a
walkthrough of processes undertaken as part of an application to the scheme.
50 Appendix Two Help to Buy: Equity Loan scheme – progress review
6 We also interviewed representatives from key stakeholders in the housing
sector. This helped us to understand the impact of the scheme and how effectively it is
being managed. They included:
•
Home Builders Federation;
•
Housing Finance Institute and Housing Accelerators Forum;
•
Federation of Master Builders;
•
UK Finance; and
•
authors of the Help to Buy evaluations.
7 We reviewed the two independent evaluations of the Help to Buy scheme
commissioned by the Department. We assessed the robustness of the evaluations
and the methods used. We also interviewed the authors of the evaluations to better
understand the choice of methodologies and analysis.
8 We reviewed government policy documents and guidance. This review
included policy documents, progress reports and board papers. This also included a
review of the business cases supporting the budget announcements of the scheme.
9 We carried out a desk-based review of existing literature, academic
research and media reports. We used this review to develop our understanding of the
HelptoBuy scheme and wider housing context. The literature review was conducted
by internet search, supplemented by information provided or recommended by
stakeholders interviewed.
10 We drew on past National Audit Office work on housing and the
planningsystem.
Help to Buy: Equity Loan scheme – progress review Appendix Three 51
Appendix Three
Regression analysis
Rationale
1 From our literature review, we identified suggestions that a ‘Help to Buy premium’
exists – an additional cost to buyers when using the scheme. This was reported as
appearing through both a purchase price premium and as additional incentives for
buyers who did not use the scheme. Our literature review also identified suggestions
that HelptoBuy has supported and increased new build house prices through
increaseddemand.
Data sources
2 For our first regression analysis which looked at the ‘Help to Buy premium’,
wematched Land Registry price-paid data for new build transactions with Energy
Certification data, as a way to control for property characteristics, such as the size
of a property. We further matched this with Homes England Help to Buy transaction
data to identify property transactions that used the scheme. This process resulted in a
proportion of data being lost through difficulties in data matching; however, it allowed
us to control for a number of housing and location characteristics. The initial dataset
totalledover 536,000 properties, which represented all new-build sales between 2013
and 2018. Following data matching and removal of postcodes without Help to Buy
properties, thedataset totalled over 146,000 properties.
20
3 For our second regression analysis looking at the impact on new-build house
prices, we calculated the proportion of Help to Buy sales to new-build sales within
each postcode district (for example, AL1, BS2) for each year from Homes England
transaction data. These data were matched with Land Registry and Energy Certification
datasets for both new-and existing-house sale transactions, as a way to control for
a number of housing and location characteristics. This dataset consisted of nearly
4milliontransactions.
20 Further refining of the dataset removed any postcode where a Help to Buy property was known to have not matched.
This process also excluded any further properties within the postcode. This dataset consisted of over 61,000 properties
and showed the same effect of less than 1%.
52 Appendix Three Help to Buy: Equity Loan scheme – progress review
Model choice
4 The dependent variable in both regressions was the natural log of house price,
tested to be the most suitable functional form to capture the non-linear relationship.
Thevariable of interest in regression one was a dummy variable for properties purchased
with Help to Buy. This allowed us to identify an effect on the purchase price with and
without the scheme, with controls in place for characteristics such as size, property
type,postcode and time.
5 The variable of interest in our second regression was an interaction term for a
new-build property and the annual proportion of Help to Buy properties to new-build
sales within that postcode district. This allowed us to analyse the change of the new
build premium given the proportion of Help to Buy to new-build sales.
6 The models used in both regressions were fixed-effects models, as a method
for controlling the effects of a large number of postcodes and postcode districts.
Thisallowed a comparison of similar properties within the same location and often
on the same street, particularly with the ‘Help to Buy premium’ regression where
thefullpostcode was used.
Further work
7 We could not establish an effect between a greater proportion of Help to
Buy properties within a postcode district and the price of new-build properties.
However,thisanalysis looked at the effect on a local scale and is not likely to represent
the wider national effect; the scheme has enabled a wider number of people to purchase
a new-build regardless of location within England. We could not identify and use a
counterfactual – similar areas where Help to Buy could be utilised and where itcould
not– in this analysis, but that would be better suited to establish this effect.
8 These are large datasets with large data ranges, and are likely to suffer from
omitted variable bias, such as the behaviour of homebuyers using the scheme.
Ourmodels suffer from heteroskedasticity (i.e. unequal dispersion of data points),
whichhas been controlled for as far as possible with the programme controls.
Theregressions expand on previously reportedanalysis.
This report has been printed on Pro Digital
Silkand contains material sourced from
responsibly managed and sustainable
forestscertified in accordance with the
FSC(Forest Stewardship Council).
The wood pulp is totally recyclable and
acid-free. Our printers also have full ISO 14001
environmental accreditation, which ensures
that they have effective procedures in place to
manage waste and practices that may affect
the environment.
£10.00
9 781786 042712
ISBN 978-1-78604-271-2
Design and Production by NAO External Relations
DP Ref: 006336-001
You have reached the end of this
document