It also highlighted that the Help to Buy premium could be as low as one per cent according to its analysis but the scheme had boosted developers’ profits and meant many people simply bought bigger homes.
Overall the government watchdog said it was unable to decide if the scheme was providing value for money until the longer-term effects on the property market have been observed and whether the government recovered its substantial investment.
In its review of Help to Buy, the NAO urged the government to undertake more analysis of how the scheme was affecting the market and whether any operational and eligibility criteria changes would increase its impact.
Information given by agents and developers to potential buyers should also be investigated to ensure it fully explains the financial risks of buying a new-build property through the scheme.
Minor Help to Buy premium
Perhaps most surprisingly, analysis conducted by the NAO indicated that buyers who used the scheme had paid less than 1 per cent more than they might have paid for a similar new-build property bought without an equity loan.
It compared prices paid for similar new-build properties in the same area with and without the scheme, and estimated that buyers supported by the scheme had paid less than 1 per cent more.
“Our estimate is significantly less than others in the public domain, which range between 5 per cent and 20 per cent,” it said.
“We found that these estimates do not compare similar properties and so do not accurately assess any additional premium paid by those using the scheme on top of the new-build premium.
“We have not, however, quantified other financial incentives that buyers of properties without the scheme might receive. Incentives on properties sold with the support of the scheme are restricted to 5 per cent of the total purchase price, but there is no restriction on incentives on new-build sales generally,” it added.
Increasing developer profits
The NAO also highlighted that the scheme has supported five of the largest developers in England to increase the overall number of properties they sell year on year, contributing to increases in annual profits which have all increased since the scheme’s start.
These five developers sold between 36 per cent and 48 per cent of their properties with the support of the scheme in 2018, it noted.
But it also flagged that some small and medium-sized developers have required more help than anticipated from Help to Buy agents to engage with the scheme.
Only minority needed the scheme
And it highlighted that the government had not set any quantified targets for the scheme, but expected that between 25 per cent and 50 per cent of sales would result in new homes being built.
However the government’s second evaluation, covering loans made between June 2015 and March 2017, concluded that the rate of building had increased by just 14.5 per cent because of the scheme
Around 81 per cent of all buyers supported by the scheme have been first-time buyers.
The Department’s independent research also found that around three-fifths of buyers could have bought a property without the support of Help to Buy, but not necessarily a property they wanted. Almost a third of all buyers could have purchased a property they wanted without the scheme.
Exposed significant market risk
NAO head Gareth Davies agreed that Help to Buy has increased home ownership and housing supply, particularly for first-time buyers.
“However, a proportion of participants could have afforded to buy a home without the government’s help. The scheme has also exposed the government to significant market risk if property values fall, as well as tying up a significant public financial capacity,” he said.
“The government’s greatest challenge now is to wean the property market off the scheme with as little impact as possible on its ambition of creating 300,000 homes a year from the mid-2020s.
“Until we can observe its longer-term effects on the property market and whether the Department has recovered its substantial investment, we cannot say whether the scheme has delivered value for money.”
The full list of recommendations made by the NAO is:
- Housing market conditions have changed since the start of the scheme. The department should assess the existing scheme against current market conditions and determine whether any changes to how it operates and criteria for eligibility would increase its impact.
- The department should consider further changes to the new scheme from 2021 to achieve other housing policy goals, for example to enact the government’s commitment to addressing the practice of developers selling new houses as leasehold.
- The department should plan a further evaluation of the scheme, either soon to inform the new scheme from 2021, or after the end of the current scheme to inform potential new initiatives to support home ownership and housing supply after 2023.
- The department should support Homes England to take appropriate enforcement action to recover money due from homeowners who have fallen into arrears.
- Homes England should continue to improve its oversight of the Help to Buy agents and its mortgage administrator Target.
- The department should review the information given by the Help to Buy agents and developers to potential buyers, to confirm that it fully explains the financial risks of buying a new-build property through the scheme.
- The department has not undertaken a detailed assessment of the impact of the scheme on the wider housing market. It should expand the scope of its next evaluation to examine such wider effects, including a potential influence on the new-build premium, and identify lessons learned for any future interventions.