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You can find the current article at its original source at http://www.theguardian.com/money/2014/mar/05/auditor-queries-help-to-buy-spending
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| Government has failed to show Help to Buy is value for money - watchdog | |
| (about 3 hours later) | |
| The government has failed to demonstrate whether its £3.7bn | The government has failed to demonstrate whether its £3.7bn |
| Help To Buy equity loan mortgage scheme is giving value for money, the | Help To Buy equity loan mortgage scheme is giving value for money, the |
| spending watchdog has warned. | spending watchdog has warned. |
| The scheme was launched in England last April with the aim of helping credit-worthy buyers with a deposit of at least 5% on to the property ladder as well as increasing the housing supply | The scheme was launched in England last April with the aim of helping credit-worthy buyers with a deposit of at least 5% on to the property ladder as well as increasing the housing supply |
| by being targeted at new-build properties only. | by being targeted at new-build properties only. |
| But the National Audit Office (NAO) found there was no method in | But the National Audit Office (NAO) found there was no method in |
| place to measure the “joined up” impact of a string of recent | place to measure the “joined up” impact of a string of recent |
| government initiatives aiming to inject new life into the housing | government initiatives aiming to inject new life into the housing |
| market. | market. |
| Margaret Hodge, chairwoman of the Commons public cccounts committee, said | Margaret Hodge, chairwoman of the Commons public cccounts committee, said |
| she was “shocked” the government was spending billions on the scheme without fully understanding its effects. | she was “shocked” the government was spending billions on the scheme without fully understanding its effects. |
| The NAO also found that in around one in 62 (1.6%) sales completed | The NAO also found that in around one in 62 (1.6%) sales completed |
| under the equity loan scheme last year the home buyer had a | under the equity loan scheme last year the home buyer had a |
| deposit of less than 5% and in one case the buyer had nothing at all, potentially increasing the taxpayer’s | deposit of less than 5% and in one case the buyer had nothing at all, potentially increasing the taxpayer’s |
| exposure if the property was later repossessed. | exposure if the property was later repossessed. |
| Amyas Morse, head of the NAO, said Help To Buy was generally “running smoothly” but warned: “The scheme’s costs, which come in large part from | Amyas Morse, head of the NAO, said Help To Buy was generally “running smoothly” but warned: “The scheme’s costs, which come in large part from |
| tying up £3.7bn long-term in the housing market, will be | tying up £3.7bn long-term in the housing market, will be |
| substantial.” | substantial.” |
| The government expects to make equity loans to 74,000 households | The government expects to make equity loans to 74,000 households |
| over three years and the NAO found that based on “strong” early | over three years and the NAO found that based on “strong” early |
| take-up it was on target to do this. The government expected to make back | take-up it was on target to do this. The government expected to make back |
| its investment in cash terms after 15 years and go on to recoup £4.8bn. | its investment in cash terms after 15 years and go on to recoup £4.8bn. |
| But the NAO said the Department for Communities and Local Government | But the NAO said the Department for Communities and Local Government |
| (DCLG) could not yet “robustly” quantify the benefits of the scheme. | (DCLG) could not yet “robustly” quantify the benefits of the scheme. |
| It said: “The department provided us with an overview of the range | It said: “The department provided us with an overview of the range |
| of different initiatives but cannot say how the impact of each scheme | of different initiatives but cannot say how the impact of each scheme |
| affects the others. | affects the others. |
| “There is, therefore, a risk that the department does not understand | “There is, therefore, a risk that the department does not understand |
| the combined impact of its initiatives or their effects, positive or | the combined impact of its initiatives or their effects, positive or |
| negative, on one another.” | negative, on one another.” |
| The report said the department could not say firmly how many of the | The report said the department could not say firmly how many of the |
| people accessing the scheme would have bought a home anyway, or how many | people accessing the scheme would have bought a home anyway, or how many |
| extra homes would be built as a result. | extra homes would be built as a result. |
| “For these reasons we cannot yet say whether the scheme will provide value for money.” | “For these reasons we cannot yet say whether the scheme will provide value for money.” |
| The NAO’s report covers the first part of the programme launched in England last spring and not | The NAO’s report covers the first part of the programme launched in England last spring and not |
| the second UK-wide phase that began in October. | the second UK-wide phase that began in October. |
| Under the first phase of Help To Buy the government offers buyers | Under the first phase of Help To Buy the government offers buyers |
| of new-build homes an equity loan of up to 20% of the purchase price, | of new-build homes an equity loan of up to 20% of the purchase price, |
| in addition to the buyer’s own deposit, which is normally required to be | in addition to the buyer’s own deposit, which is normally required to be |
| at least 5%. | at least 5%. |
| The borrower then takes out a mortgage on the remaining 75% of the property’s value. | The borrower then takes out a mortgage on the remaining 75% of the property’s value. |
| The equity loan is interest-free for the first five years and | The equity loan is interest-free for the first five years and |
| borrowers taking part must pay the government back after 25 years, or | borrowers taking part must pay the government back after 25 years, or |
| when the mortgage is paid back, for example if the home is sold. | when the mortgage is paid back, for example if the home is sold. |
| The cash amount the borrower will eventually pay back also hinges on | The cash amount the borrower will eventually pay back also hinges on |
| the wider performance of the housing market. If the value of the | the wider performance of the housing market. If the value of the |
| property increases, the value of the equity loan will grow in | property increases, the value of the equity loan will grow in |
| proportion with the rising house price and the reverse is also true. | proportion with the rising house price and the reverse is also true. |
| Some 12,875 buyers completed purchases through Help to Buy during | Some 12,875 buyers completed purchases through Help to Buy during |
| its first nine months, with £518m worth of government loans | its first nine months, with £518m worth of government loans |
| handed out. | handed out. |
| But in 205 cases last year, representing 1.6% of the completions so far, the buyer’s contribution was a deposit of less than 5%. | But in 205 cases last year, representing 1.6% of the completions so far, the buyer’s contribution was a deposit of less than 5%. |
| One borrower got through the scheme despite not putting any cash into a deposit. The NAO said mortgage lenders may still give | One borrower got through the scheme despite not putting any cash into a deposit. The NAO said mortgage lenders may still give |
| applicants with sub-5% deposits the go-ahead because they still had the | applicants with sub-5% deposits the go-ahead because they still had the |
| government’s 20% equity loan as a fallback. | government’s 20% equity loan as a fallback. |
| It said the government was “aware of this issue” and committed to monitoring the impact but had not yet resolved it. | It said the government was “aware of this issue” and committed to monitoring the impact but had not yet resolved it. |
| The NAO said the £3.7bn budget was much larger than previous | The NAO said the £3.7bn budget was much larger than previous |
| similar schemes. Its immediate predecessor, FirstBuy, had a budget of | similar schemes. Its immediate predecessor, FirstBuy, had a budget of |
| just £250m. | just £250m. |
| It also pointed to a “relatively high” cap on the value of a property that can be bought under Help To Buy, at £600,000. Hodge said: “You have to ask why the department thinks that providing | It also pointed to a “relatively high” cap on the value of a property that can be bought under Help To Buy, at £600,000. Hodge said: “You have to ask why the department thinks that providing |
| loans to people who are buying homes worth £600,000 is actually | loans to people who are buying homes worth £600,000 is actually |
| benefiting those most in need.” | benefiting those most in need.” |
| By the time the reduced fee kicked in last July £600,000 more had | By the time the reduced fee kicked in last July £600,000 more had |
| been spent on agents’ fees than if they had been set at £600 per | been spent on agents’ fees than if they had been set at £600 per |
| completed case from the outset. | completed case from the outset. |
| So far 89% of Help To Buy equity loan sales have gone to people | So far 89% of Help To Buy equity loan sales have gone to people |
| taking their first step on the property ladder and take-up is | taking their first step on the property ladder and take-up is |
| particularly strong in the Midlands, the North East and Yorkshire and | particularly strong in the Midlands, the North East and Yorkshire and |
| the Humber. | the Humber. |
| The DCLG will appear before the public accounts committee next month. | The DCLG will appear before the public accounts committee next month. |
| The housing minister, Kris Hopkins, said the scheme would help 74,000 households buy a home “without costing | The housing minister, Kris Hopkins, said the scheme would help 74,000 households buy a home “without costing |
| taxpayers a penny”. | taxpayers a penny”. |
| “Over 25,000 people have reserved a new build home in just 10 | “Over 25,000 people have reserved a new build home in just 10 |
| months, with 89% of sales to first-time buyers. More homes are being | months, with 89% of sales to first-time buyers. More homes are being |
| built as a direct result of the programme, with housing starts up by 23% | built as a direct result of the programme, with housing starts up by 23% |
| in 2013, the highest level since 2007. | in 2013, the highest level since 2007. |
| “The surge in housebuilding is creating jobs, and orders for | “The surge in housebuilding is creating jobs, and orders for |
| construction materials are growing at the fastest rate for 10 years, | construction materials are growing at the fastest rate for 10 years, |
| providing a boost to thousands of small businesses that supply | providing a boost to thousands of small businesses that supply |
| developers, from timber traders to tile makers.” | developers, from timber traders to tile makers.” |