Help to Buy was a government scheme which assisted buyers (first-time buyers only, from April 2021) to purchase a property, requiring just a 5% deposit. In England, the Government offered equity loans of up to 20% outside London, and 40% within London. Buyers would then borrow the additional money from a lender. The equity loan meant first-time buyers had a greater choice of mortgage products as they needed to borrow less from lenders.
One of the main reasons Help to Buy was introduced was the need to boost the construction of new homes post-Global Financial Crisis. The scheme created demand for new build homes, leading to an increase in delivery. The growth in housebuilding created jobs and boosted local economies - just what was needed after the Global Financial Crisis.
New build sales in England have slowed since early 2020. There are multiple factors which influenced sales rates; the pandemic slowed new homes delivery, the Help to Buy scheme switched to first-time buyers only in 2021, Help to Buy reservations closed in 2022, and the new macroeconomic environment reduced buyer demand. Plus, a lag in new build data.
Since the scheme began in April 2013, it has accounted for 48% of all new build sales and helped 387,100 buyers (Q2 2013 to Q1 2023). Help to Buy applications closed at the end of October 2022 and the scheme finished at the end of May 2023.
This report will explore where Help to Buy was used the most, examine the success of the scheme for homeowners, and look at what is next for the new build sales market.
Where Was Help To Buy Used The Most?
The number of new build homes purchased using Help to Buy varies greatly by geography.Central Bedfordshire, Somerset Council, Wiltshire, North Northamptonshire, West Northamptonshire, and Buckinghamshire were the top users of Help to Buy, with over 5,000 households using the scheme in each local authority since April 2013. Local authorities with the highest number of Help to Buy purchases have tended to have the highest levels of new build sales, reflecting large scale development.
Harlow, Waltham Forest, Merton and Gravesham had the highest proportion of new build sales purchased using Help to Buy, with 85% plus of new homes purchased using the scheme.
Waltham Forest, for example, reflects a more accessible price point of new homes in this borough, the greater prevalence of larger, multi-phased schemes being delivered, and the growing demand from first-time buyers (please refer to our Q4 2022 BTR Report for a deep dive into Waltham Forest). In 2021, 1,206 homes were granted planning permission in Waltham Forest, 776 in 2022 and so far 614 in 2023 (Molior). Without Help to Buy supporting the sales of these homes, there will be questions around the delivery of these schemes, with housebuilders perhaps looking to diversify some exit routes.
In London, it is no surprise that the City of London, Kensington & Chelsea and Westminster used the Help to Buy scheme the least. Pricing will have been the biggest factor, with average new build prices much higher than the £600,000 London price cap. Croydon, Barnet & Greenwich had the highest number of Help to Buy purchases in London, all with average new build prices under the London price cap.
Outside of London, local authorities who relied on Help to Buy the least tended to have limited new homes for private sale. For example, Oxford only had 389 new build sales since 2013, which is the result of a lack of development opportunities. On the other hand, Oxford’s surrounding local authorities South Oxfordshire and Cherwell had a much greater number of new homes for private sale, and therefore higher usage of Help to Buy.
Local authorities who have relied on Help to Buy the least are likely to see little change following the end of Help to Buy (excluding economic headwinds).
How Successful Was The Scheme For Buyers?
The Help to Buy scheme helped 387,100 households purchase a home. Households borrowed an equity loan from the Government which was interest free for 5 years. In the sixth year, households start paying interest.So far, 134,546 (35%) households have paid off their equity loan. For loans that are five or more years old, 65% have been fully repaid. 58,616 households have not paid off their loan and are now paying interest on the money borrowed. In the sixth year, households are charged an interest rate of 1.75%. This annual interest is spread over the year in monthly payments. The interest rate then increases every year in April, by adding RPI plus 1% (first scheme) or CPI plus 2% (second scheme).
For example, a household who purchased a home for £300,000 in 2018, with a 5% deposit and a 20% equity loan, with a mortgage interest rate of 1.7%, will have been making mortgage repayments of £921 pcm plus a £1pcm management fee. In year 6, when the interest free period is up, they will now be paying 1.75% interest on their equity loan (£88 pcm), plus a new mortgage rate of 5.1% (£1,106 pcm) and the management fee. This takes total monthly costs up to £1,194 pcm, an increase of 29%. In year 7, the interest rate on the loan will increase by RPI plus 1%. This takes the monthly interest payment to £96, increasing total monthly payments to £1,203. Households in London who have a 40% equity loan will be exposed to a greater increase in monthly costs.
With 58,616 households now paying interest on their equity loan and facing increased mortgage rates, some may not deem the scheme a success.
What Happens Next?
The end of Help to Buy has come at a time when the sales market is slowing due to a new macroeconomic era shaped by high inflation and increasing interest rates. Analysis of the top 5 housebuilders in the UK shows a 23% annual fall in sales rates over the last year. For many, sales rates were higher than they expected as investor deals and registered providers of social housing helped boost sales rates. Removing bulk deals further reduces sales rates, with an average annual decline of 30%. The current market conditions have reduced confidence in the new homes market, and as a result both construction starts and planning permissions have slowed. However, with a severe undersupply of homes in the UK and housebuilders desire to continue their pipeline, there are still plenty of opportunities. Developers will be looking for alternate exit routes and new homes delivery is likely to diversify. In fact, it has already started.
Private Rented Sector
Outside of London, 88% of Help to Buy purchases were houses. For housebuilders who are struggling to sell new homes, there are opportunities to partner with investors who are in search of Single Family Housing (SFH) opportunities. In fact, this is well underway with SFH accounting for 47% of Build to Rent (BTR) investment in Q2 2023. Two of the key deals were Citra & Barratt and MJ Gleeson & Carlyle & Gatehouse, with a discount of around 5% to 10%, making it attractive to both investors and housebuilders.
On the other hand, diversifying exit routes of urban flatted schemes is more complicated. For those schemes already built, most investors will only be interested in unbroken freehold blocks, therefore reducing the number of opportunities. For sites with block opportunities, most institutional investors will now want a second staircase (even where the block meets building regulations at the time), following advice from the National Fire Chiefs Council, stating that all residential buildings of 18 metres / seven storeys should have a second stair core. Any existing consented scheme over this height with a single stair core is now of little interest to the majority of institutional grade investors and therefore most developers will need to go back into planning. Despite the challenges the urban flatted market faces, investor demand remains strong for the right product, and constrained supply and strong performance of operational stock have led to the return of competitive bidding.
Seniors Housing
Housebuilders have started to become more comfortable with seniors housing, with a number of communities now operational, created from operator and house builder partnerships. Alignment of interests for the housebuilders in terms of de-risking delivery, and for the operator delivery of suitable accommodation, will help deliver age-appropriate homes for our ageing population.
Increasing the delivery of seniors housings will also improve affordability in the wider housing market. Our latest research showed that if we increase the delivery of seniors housing to 50,000 units a year, we will release 628,000 standard homes back into the mainstream market.
The newly announced Government Older People’s Housing Taskforce External Link is expected to put in place policy and support to further encourage housebuilders to diversify exit routes and deliver seniors housing.
For sale starter homes
Many developers will still want to go down the private for-sale route. Particularly where rental exit routes aren’t appropriate (demographics, locations, size of scheme, etc).
There are several sales exit routes developers can explore which will help boost new build sales, for example:
- A switch to affordable External Link - using schemes such as Shared Ownership or First Homes
- Deposit Unlocked / Mortgage Indemnity Products – schemes which help buyers purchase a new build home with just a 5% deposit
- Shared Equity Schemes / Partnership Mortgage – borrowing an additional loan from a lender, alongside your main mortgage. Profits are shared when the loan is repaid, or the property is sold
- Rent to Buy – helping tenants save for a deposit to buy a home by offering homes at a discount
Summary
Help to Buy boosted demand for new build homes and has helped sell 387,100 homes since 2013. Local authorities who relied on the scheme the most had either seen a large number of new build homes being delivered or had accessible price points in a growing first-time buyer market. Local authorities who used the scheme the least either had low levels of housing delivery or had house prices much greater than the regional price caps.
There are questions over whether the scheme was a success for homeowners, with 58,616 households now paying interest on their equity loans. For those households also exposed to an increase in mortgage rates, monthly payments may have increased by 35%.
The withdrawal of Help to Buy was needed, but this has come at a bad time, with the housing market slowing as rising interest rates, high inflation, and a weaker economy cause a slowdown in housing market activity.
The end of Help to Buy has impacted the delivery of new homes, particularly in those local authorities who were top users of the scheme. However, it creates an opportunity to further diversify the type and tenure of new build homes being delivered in England.
The upcoming General Election will no doubt influence housebuilders exit routes over the coming years. It appears that Labour will make a serious effort to replace the Conservatives as the party of home ownership. The Labour party looks to be leaning towards a mortgage guarantor scheme and giving first-time buyers ‘first dibs’ on new developments in their area. The Conservatives are more likely to extend Help to Buy, with rumours swirling that Rishi Sunak could put the scheme back on the table. Both parties look to reform the private rented sector, through greater tenant rights, a national landlord register and ending Section 21 ‘no fault’ evictions. Both parties’ housing strategies should become clearer following the party conferences in October.
