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Government has failed to show Help to Buy is value for money - watchdog
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The government has failed to demonstrate whether its £3.7bn
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Help To Buy equity loan mortgage scheme is giving value for money, the
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
by being targeted at new-build properties only.
But the National Audit Office (NAO) found there was no method in
place to measure the “joined up” impact of a string of recent
government initiatives aiming to inject new life into the housing
market.
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.
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
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.
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
substantial.”
The government expects to make equity loans to 74,000 households
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
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
(DCLG) could not yet “robustly” quantify the benefits of the scheme.
It said: “The department provided us with an overview of the range
of different initiatives but cannot say how the impact of each scheme
affects the others.
“There is, therefore, a risk that the department does not understand
the combined impact of its initiatives or their effects, positive or
negative, on one another.”
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
extra homes would be built as a result.
“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 second UK-wide phase that began in October.
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,
in addition to the buyer’s own deposit, which is normally required to be
at least 5%.
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
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.
The cash amount the borrower will eventually pay back also hinges on
the wider performance of the housing market. If the value of the
property increases, the value of the equity loan will grow in
proportion with the rising house price and the reverse is also true.
Some 12,875 buyers completed purchases through Help to Buy during
its first nine months, with £518m worth of government loans
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%.
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
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.
The NAO said the £3.7bn budget was much larger than previous
similar schemes. Its immediate predecessor, FirstBuy, had a budget of
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
loans to people who are buying homes worth £600,000 is actually
benefiting those most in need.”
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
completed case from the outset.
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
particularly strong in the Midlands, the North East and Yorkshire and
the Humber.
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
taxpayers a penny”.
“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
built as a direct result of the programme, with housing starts up by 23%
in 2013, the highest level since 2007.
“The surge in housebuilding is creating jobs, and orders for
construction materials are growing at the fastest rate for 10 years,
providing a boost to thousands of small businesses that supply
