Explainer: Rishi Sunak eyes a revival of Help to Buy
Just over a month ago, we were reporting the phasing out of Help to Buy, which was closed to new entrants last year. Now, Rishi Sunak is considering relaunching the policy. Talking of u-turns.
The scheme was introduced in 2013 by George Osborne to help first-time buyers get onto the housing ladder. It offered lower interest rates and only a 5 per cent deposit for new properties. Buyers could borrow 20 per cent of the purchase price interest-free for five years, or up to 40 per cent in London.
Help to Buy was always controversial: more than 350,000 people used it to buy their first home, something that might have otherwise been impossible. Yet others argued it inflated house prices, distorting the market, especially in London.
There is consistent evidence the scheme initially encouraged developers to expand supply, as more and more people were looking for a house to buy. But in the long-term, it might have inflated the price of new builds, reducing affordability – countering the same goal it was made to achieve.
It was particularly problematic in London, because the rate of borrowing was different from the rest of the nation.
People who joined the scheme also complained that some developers were inflating the price of new flats just to be able to be part of the scheme.
“Help to Buy has not been an unqualified success, helping some on to the housing ladder but leaving many more out in the cold”, says David Smith, head of property litigation at JMW Solicitors. According to Smith, the policy worked for housebuilders above anyone else.
Critics point out that Help to Buy encourages developers to build flats for sale, and not flats for rent, shared accommodation or affordable housing. In short, it does nothing to increase diversification – which according to many will be key in solving the housing crisis. Joshua Bond, founder and managing director of Bond Land, says the government should ensure other intermediary options for renters, “which means bringing back housing targets and incentivising developers to build for variety”.
The evidence of its real impact is also mixed. Analysis from the Bank of England found that between 10 to 15 per cent of those who used the scheme would have been able to buy a home without it. Government analysis claims this number is much higher, at 45 per cent.
Why is Rishi Sunak betting on such a contentious policy? The prime minister is trying to prove his party can still deliver on housing. But with many Conservatives MPs keen to show to their constituencies they’re listening to their complaints about new homes unfit for the local communities, house building targets were watered down last year. The Tory party keeps on claiming it can deliver the number of homes Britain needs, but many voters have lost hope.
In this context, Help to Buy offers a quick fix: it’s a policy that promises to increase homeownership without openly saying “we’ll build more homes on your doorsteps”. But Sunak should carefully consider whether Help to Buy would be best as a relic of the past – and perhaps focus on building more to unleash real affordability.