When former UK chancellor George Osborne launched the Help To Buy property ownership scheme in 2013, he promised “a great deal for homebuyers” and “a great support for homebuilders”.
Six years on it has certainly delivered on the second.
Persimmon this week became the first UK housebuilder to post annual pre-tax profits above £1bn. Since 2012 its profits have more than trebled. Rivals Taylor Wimpey and Bovis Homes have benefited from a similar rise, while at Barratt, the UK’s largest housebuilder, profits have risen from £110m to £835m in the same period. Share prices across the industry have soared.
“Far from benefiting first-time buyers, the major effect of Help to Buy is to drive up demand while having no effect on supply,” said Vince Cable, the Liberal Democrat leader, last week. “The result is not help for those who need it, but a boost to the profits of big developers.”
The Help to Buy scheme allows buyers to put down a deposit of as little as 5 per cent on a new-build home, and receive an equity loan from the UK government to cover 40 per cent of the property’s value in London, or 20 per cent elsewhere.
It was conceived during the challenging housing market of 2013, when rapidly rising prices were putting home ownership beyond the reach of many and increasing pressure on a housebuilding sector already reeling from the financial crisis. Seeing the government take a stake in prices rising gave lenders — typically nervous about the true value of new builds — confidence, said Neal Hudson, director of Residential Analysts.
But what may have been appropriate for those conditions is less so in an environment of record profitability.
More than £10bn of loans have been issued through the scheme, while 200,000 properties, with a total value of £50bn, have been bought through it, according to government figures. More than a quarter of those purchases were made in the year to September 2018, with use of the scheme increasing every year since its introduction.
Last year it underpinned around half of Persimmon’s sales and two-fifths of transactions across the sector.
As Help to Buy has expanded its impact has come under closer scrutiny.
A tool borne partly of political expediency, the scheme is now in danger of becoming politically toxic as industry executives have seen their bonuses swell, while customers have complained of shoddy building practices.
Last year Persimmon offered its chief executive a £110m award as part of an ill-conceived long-term incentive plan linked to the company’s share price, before ousting him as public pressure grew. Taylor Wimpey was forced to set aside £130m to compensate customers who had bought leasehold homes with ground rents that doubled every 10 years in 2017 and Bovis was embroiled in a build quality scandal, the same year that resulted in its chief executive leaving and profits falling.
Aware of the criticism, the government has announced it will limit Help to Buy to first-time buyers from 2021, before closing it in 2023. In advance of Persimmon’s results this week it hinted at a review of housebuilders’ contracts.
A spokesperson for James Brokenshire, the housing minister, said that from 2021 “Help to Buy will look different. We’ve already said it will look only at first-time buyers and we will definitely not be funding leasehold properties. We will look carefully at developer performance over recent years.”
The move was “a way of reminding the housebuilders that they have to think about customer care and good practices across the industry”, said Aynsley Lammin, equity analyst at Canaccord Genuity.
“Housebuilders are doing exactly what you’d expect them to be doing: they’re publicly listed, they have a duty to maximise returns to shareholders,” Mr Hudson said. “The political environment has changed and they [government] feel quite comfortable using a stick rather than the carrot housebuilders have got used to.”
Help to Buy is not the only cause of the recent industry momentum. Housebuilders were already recovering from the recession, the government moved to increase land availability, and more recently low unemployment and low interest rates have supported rising profits.
“Help to Buy has transformed the lives of hundreds of thousands of people by enabling them to get on to the housing ladder,” said Steve Turner, director of communications at the Home Builders Federation. “Homebuilders do not receive funding from Help to Buy, but by supporting first-time buyers the scheme has helped [to] drive an unprecedented increase in housing supply, creating tens of thousands of jobs and boosting economies across the country.”
Publicly, housebuilders have welcomed the planned wind-down of the plan.
“From the very beginning of Help to Buy we argued it was a good incentive if used properly: stabilising construction in what was a volatile industry. But it shouldn’t be there forever,” said Pete Redfern, chief executive of Taylor Wimpey.
But there are doubts about whether the government will be able to scrap it.
The difficulty, said one analyst, is that with the government relying on housebuilders for the vast majority of new build supply, Help to Buy has become too big to fail. Government can therefore do little more that “sabre-rattle”, he added.
“The big issue is that housing is too expensive because there hasn’t been enough supply. If you cut supply you make it more likely prices will go up,” said Clyde Lewis, equity analyst at Peel Hunt.
Having set a target of delivering 300,000 homes a year by the mid-2020s — from a base of under 200,000 currently built from scratch — the government can ill-afford to constrain supply.
Limiting the scheme — described by buying agent Henry Pryor as “the crack cocaine of the housing market” — to first-time buyers from 2021 will reduce exposure to some extent.
It may make ending the scheme altogether even harder though, according to Greg Fitzgerald, chief executive of Bovis. “In 2023, it will be a harder political decision to stop it when it’s available to only those who need it most,” he said.
Mr Lewis was more unequivocal. “It will be here beyond 2023,” he predicted.