How rich are Help to Buy users?

Today the Treasury released their figures on the use of the controversial Help to Buy scheme – specifically for the second (mortgage guarantee) part of the policy.

 

It has been used 7,313 times so far – but Berenberg’s Rob Wood notes that the figures lean heavily towards more recent months. Only 818 mortgages were approved using the scheme in December, in comparison to 2,657 in March, more than a third of the first six months’ use.

 

The scheme appears to be picking up interest, and pace. But what do the people using it earn?

 

 

At first glance the figures stand out – they are far higher, for example, than the Office for National Statistics (ONS) gives for median household income. In London this stood at around £25,051 between 2009 and 2011 – much lower than the £80,395 mean borrower income of Help to Buy users.

 

The Treasury’s regional Help to Buy figures are mean rather than median, meaning that they would be dragged upwards by high-income outliers. But there shouldn’t be too many of these, since the cap on the use of the scheme is homes costing £600,000, and only 2.6 per cent of the scheme has been used on properties worth over £350,000.

 

 

The scheme is not available on second or buy to let homes, so most of the buyers will be purchasing their only property, one which is not far from (or even well below) the average price. 

 

A call to the Treasury also established that their figures are gross income figures, of the sort that buyers would provide to banks when applying for mortgages, whereas the ONS calculations subtract direct taxes on income and places of residence (income tax, national insurance contributions, council tax). 

 

 

Once we use the before-tax figures published by the ONS, we can get a good look at how close to median income Help to Buy users are. And in every region of the UK, the mean Help to Buy user has a higher income than the median household.

 

In some regions, it’s a smaller difference – Help to Buy users in Northern Ireland take in around £5,000 more than the average household. In other regions, the difference is much more stark – the difference is nearly £20,000 in the south east of England, just over that amount in London (though the lower use of the scheme in these regions means the figures may change over time).

 

The Treasury does provide a median figure for the UK as a whole, showing that the median household income for households using the scheme was £42,597. They’re right that this is very close to the median household income of households buying property across the market, which is £42,731.

 

That raises the question of why exactly the scheme is necessary – if the typical Help to Buy user’s income is roughly of the average mortgage applicant, is the scheme working for lower-income prospective buyers, as intended?

 

And although the median earnings of the scheme’s users are similar to other buyers, they still have incomes around £5,000 higher than the median UK household, since some people are simply unable to afford property. Whether the government should guarantee investments for people earning over average incomes is an unresolved question.

 

The mean and median disparity for regions is frustrating, so it would be interesting to see if the ONS or Treasury could provide a more directly comparable series.