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Interest Free Loans For Those That Don’t Need Them

Peter Hemple reports on the latest backlash against the Help to Buy scheme

A measure first introduced by then Chancellor of the Exchequer George Osborne in 2013, Help to Buy (H2B) will finally end in 2023. At the time of its introduction, home ownership was falling for the first time in decades, housebuilding completions in the UK were at a record low and house prices had increased substantially in the previous decade but salaries had failed to catch up due to the financial crisis in 2008.

The program had one primary purpose: to help first time buyers (FTBs) onto the housing ladder. George Osborne believed that, by increasing demand for new builds through H2B, the supply side of the housing market would correct itself; more houses would be produced to meet the increased demand.

In the financial year to 2013, 103k private sector homes were completed in the UK, rising to 110k (2014), 119k (2015), 136k (2016), 146k (2017) and 156k (2018). So initially the figures show a rise of just over 50% in the private sector and, on paper at least, the scheme could be called a success. However, the base rate during the H2B years has so far stayed in the 0.25-0.75% range, but 20 years ago when the base rate was almost 15.0%, more than 200k new homes were built. So, it seems that after an initial boost in construction, housebuilders simply started charging more for new homes and construction numbers have been edging up by less than 10% per year since 2016.

The big winners from the scheme have undoubtedly been the housebuilders. For example, around 45% of the 17,856 homes sold by Barratt in the year to the end of June this year were bought with the support of the H2B loan scheme. Barratt Developments made a £14,053 pre-tax profit per house before the equity loan scheme was introduced in 2013. That has risen to £50,952 per house in the year to the end of June 2019.

During that period it has increased its volume of annual completions from 13,663 to 17,856. However, its volumes have been close to flat in the past four years as operating margins have improved.

The value of Help to Buy is uncertain says the PAC
On 17 September, the Public Accounts Committee (PAC) reported that, while the housing market has been boosted and many have been helped into home ownership through the H2B scheme, a large proportion of those buyers did not actually require any financial help.

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