The United Kingdom's Help to Buy equity loan scheme has generated £1.74 billion for the government, according to new data. However, declining prices in the flat market are expected to diminish future returns from the program. As of March, the scheme had achieved a profit of £1.24 billion from loan repayments made by 214,000 individuals who had fully repaid their loans, largely due to prior increases in house prices. An additional £500 million was collected from interest payments on outstanding loans, as detailed in the annual report from Homes England, the agency responsible for managing the repayments.
Introduced in 2013 to assist first-time buyers in purchasing property, the Help to Buy equity loan scheme closed to new applications in March 2023. Under the scheme, the government provided a loan covering up to 20% of a home's value (or 40% in London), with buyers contributing a 5% deposit. The maximum loan amount was capped at £120,000, or £240,000 in London. When buyers repaid the loan, they owed the government 20% or 40% of the property's value at the time of repayment, not the initial borrowed amount. This structure generally led to government profits when house prices rose.
The loans were interest-free for the first five years. After this period, borrowers had the option to pay interest or remortgage to buy out the government's stake, though the loan had to be fully repaid upon selling the property. In 2021, the scheme was restricted to first-time buyers only.
As of March, approximately 173,000 equity loans remained outstanding. While Help to Buy has been credited with helping individuals onto the property ladder, it has also faced criticism for potentially inflating house prices. Developers, aware that buyers could access substantial government loans, have been accused by some of increasing prices, leading buyers to overpay for new-build properties.
The current market conditions present challenges, particularly for those who purchased flats through the scheme. A notable decline in flat prices, with typical values falling by 5.3% in the 12 months to March, from £199,186 to £188,643 according to Land Registry data, is impacting homeowners. More recent statistics suggest that average flat owners have sold their properties for £39,509 less than their purchase price over the past year. Homes England acknowledged this sensitivity to market fluctuations in its report, noting a £438 million decrease in net fair value gains on financial assets, primarily due to a reduction in the estimated value of properties within the Help to Buy equity loan portfolio. The report specifically identified falling flat prices in London as a significant market risk.
Homes England also pointed out that falling house prices could make it more difficult for Help to Buy participants to repay their loans. Flat owners might find themselves in negative equity or with insufficient equity to repay the government loan if property values continue to decline, potentially complicating remortgaging. This scenario could lead to increased income from interest payments for Homes England, but it would not offset the loss of income from loan redemptions.
Despite these challenges, some property experts have advocated for a revival of a Help to Buy-style scheme to support first-time buyers. Discussions have reportedly taken place within the Housing Ministry regarding the possibility of reinstating the program, though no concrete plans have been announced. Financial advisors suggest that a new iteration could provide impetus to the current housing market, especially if interest rate cuts do not materialize. Some proposals include expanding a future scheme to encompass second-hand homes, thereby potentially spreading demand more evenly and mitigating price inflation in the new-build sector.
A previous report by the Institute for Fiscal Studies indicated that Help to Buy had a limited impact on social mobility and primarily benefited more affluent buyers.