Should we reintroduce Help to Buy?

Help to Buy (HtB) was introduced in April 2013 with the dual aim of boosting housing supply and helping first time buyers onto the property ladder. Under the scheme, the Government offered buyers an equity loan of up to 20% (40% in London) of the price of a new home. The loan was interest-free for the first five years and allowed buyers with a 5% deposit to access home ownership. In April 2021, the scheme became available to first-time buyers (FTBs) only, before closing entirely in April 2023. 

Almost 390,000 homes were bought using HtB, with 85% of those being FTBs. Overall, the scheme accounted for 4% of total housing sales over its lifetime. This meant HtB provided a significant boost to housing supply, accounting for one fifth of all new build completions during its lifetime. It also appeared to provide a fillip to overall housing supply. In 2013, the year HtB was introduced, there were 131,000 net additional dwellings. This increased by 80%, to an average of 237,000 per annum in the last five years of HtB. Although, it is hard to distinguish how much of this was HtB-driven as opposed to just reflective of the improved operating and economic environment.

Sales of new homes have fallen significantly since the removal of HtB. In London, for example, annual new home sales fell by 32% in 2023 and to their lowest level since 2010 according to Molior. Still, it is important to consider that its removal has coincided with a significant interest rate tightening cycle. As a result, a slowdown in transaction activity is unsurprising. 

In line with weaker demand, housing supply has been on a downward trend since the removal of HtB. 231,000 Energy Performance Certificates were issued on new builds in 2023 (used as an up-to-date proxy of housing delivery). This is the lowest number since 2020, when the construction industry was significantly hampered by COVID lockdowns. Excluding the COVID period, it is the lowest annual total since 2017.

Figure 1: Housing delivery and planning approvals in England

Source: DLUHC, Home Builders Federation

Future housing delivery levels look set to continue decreasing. 231,215 units gained permission in the 2023, the lowest annual total since 2013 and 20% fewer than the previous year. Still, while supply will continue to decrease in the short-term, it cannot all be attributed to the removal of HtB. Build cost inflation, new planning regulations, and increased cost of debt have also contributed to a slowdown in construction. However, without HtB to support sales rates, the proportion of surveyors citing lack of demand to be a key factor in limiting construction activity has doubled in the last 18 months.

The supply-side picture might create an argument for reintroducing HtB. A lack of supply has long been an issue in the UK’s housing market and is one that will inevitably lead to further house price inflation. But while HtB did appear to stimulate housing supply, it also increased buyers’ purchasing power and so boosted house prices, which will have worsened affordability. The average value of a new build home in the UK increased by 77% over the duration of the scheme, exceeding the 64% for secondhand homes.

Although the HtB scheme has closed, other Government initiatives remain options for homebuyers. These include First Homes and the Mortgage Guarantee Scheme, but neither of these have gathered much traction since introduced. An advantage of HtB over other 95% LTV products, was that the interest-free equity loan kept monthly repayments affordable. It is worth noting that in some cases, shared ownership has seen a boost since HtB closed. In addition, there are private sector initiatives to help buyers with low deposit access home ownership. These include Deposit Unlock and Own New’s Rate Reducer.

Overall, the evidence isn’t clear. Housing supply did pick up for the duration of the scheme, but the timings also coincided with the up and downturn of the general economic cycle. It is clear we need interventions to boost housing supply, but not ones that overstimulate housing demand and therefore lead to inflated property prices. So instead of reintroducing HtB, perhaps the Government should focus on encouraging the delivery of affordable new homes.