Hailed by the Government as the fix for first time buyers entering the property market, the scheme is apparently not making property more affordable, making little difference in addressing the issues in the housing market.
According to a report released by the Public Accounts Committee, courtesy of the House of Commons, 60% of buyers using the scheme did not actually need the financial help, with one in five using the scheme already owning property.
To add insult to injury, where its application has clearly not been used effectively, it is now predicted to go on for a further ten years than originally planned, using over eight times the original budget. Quite evidently, this money should have been used in an alternative way to improve the number of first-time buyers entering the market, and equally those that really need it.
The scheme simply doesn’t address the issues surrounding the property market as a whole, importantly it does not address the provision of affordable housing to buy or rent property. With the rising levels of homelessness in the UK, should this scheme have been the priority?
Admittedly, the aim of the scheme was never to specifically address these issues, it never was, the issue comes with the funding invested in the scheme and the mismanagement of how it has been applied.
Uncertainty in the market
What we can take from this is the inherent lack of confidence in the property market. Investors in particular are seeing property purchases, with a view to let them out or receive returns from capital gains, as less profitable than emerging investments in debt investment, as an example.
The scheme, from 2021, is set to use the money more effectively. As much as this is good news, the way in which this will be done is yet to be decided.
If there are not alternative plans put into place for alternative housing initiatives, we are likely to see a shortfall in supply, compounding the difficulties facing the Government in there aim to provide 300,000 new homes until 2025.
Where Help to Buy has undoubtedly improved the level of new housing, helping to boost the bottom line for house builders, it has also tied up a large sum of money – this being nearly £29bn when it concludes in 2023. The value for the scheme is, again, probably not the most effective use of the funds.
The scheme appears to have exposed both the consumers and the Government to significant financial risks, if house prices or interest rates are to change. Consumer protection needs to be implemented and nurtured for future schemes to be more secure.
Taking the positives
Most would agree there have been benefits to the scheme, we should be looking at the positives of the scheme when looking at future housing schemes, specifically focusing on how regional price caps will work across the region.
The committee need to focus on how the scheme is currently working with developers, addressing concerns about developer’s behaviour in the market and the perceived value of the scheme to developers.
There needs to be a focus on how buyers are obtaining the loans from the scheme, improving clarity on who is entitled to the scheme, streamlining this to those that really need the support.
With the rise in off-plan and other alternative methods of raising finance for developers entering the market, there needs to be consideration on how these rising methods of raising finance can be implemented whilst also ensuring that buyers are protected. Identifying the ways in which buyers redeemed the benefits of the scheme to date will be essential to implement in schemes going forward.
Growing concerns over goals
Concerns over how the Governments proposed 300,000 new homes per year are beginning to escalate as we step ever closer to a potential housing crisis across the UK. There needs to be alternative ways to improve the supply of new housing, irrelevant of the current contribution of the Help to Buy scheme.
The number of properties under occupied across the UK needs addressing. The ability to encourage a downsizing with those with money tied in property will be an immediate benefit to the shortage of housing. Stamp duty reform for those over the age of 65 will encourage this downsizing.
Above all, the housing industry needs clarity on how the future of the industry is headed. With Help to buy set to close down by 2023, the Governments lack of information regarding an improved housing scheme is causing great uncertainty in the market.
Stating that it will not replace Help to Buy with a similar scheme, focus is being shifted into other measures to help lenders, essentially filling this gap. The Financial Conduct Authority’s (FCA) current rules make it tough for buyers entering the market to secure a viable mortgage.
The payments which current borrowers would need to make in the current low interest market would be lower than what they would pay in rising rentals to private landlords.
A relaxation of rules required
The problem here is the size of the deposit needed to secure a mortgage in the current risk adverse economy, with traditional lenders making this difficult. With deposits typically around 25% of the value of the property, many are finding it difficult to enter the market.
Since the 2008 financial crisis, lenders have been restricted for the loan-to-value mortgages which have been able to be approved. A relaxation on these restrictions are the obvious way to increase buyers entering the housing market, supporting the wider economy.
The FCA currently require lenders to repay a loan at the current Standard Variable Rate (SPV) of 3%. The problem here is that this is far above the actual product rate that the borrower would be able to pay, this being unrealistic in the current market.
Clearly, more communication is needed between all of the parties involved, this being the Government, regulators, lenders and developers. A policy that works for all parties, most important being first time buyers, to enable the purchase of property for this demographic, is urgently required.