But that’s a politician talking. What would happen if the scheme did shut down? Help to Buy was launched in April 2013 and, outside London, offered a loan of as much as 20 per cent of a property’s value up to a valuation cap of £600,000. This was useful at the time because banks were not generally offering 95 per cent mortgages. So a buyer could save up a 5 per cent deposit, take the 20 per cent loan and secure a much more readily available 75 per cent mortgage. The government loan was interest-free for the first five years, after which there was a 1.75 per cent administration fee, rising each year at the rate of the retail prices index plus 1 per cent. Repayment is required after 25 years, or when the property is sold. The scheme has already been responsible for sales of £17.7bn on more than 100,000 loans taken out.
With higher loan-to-value (LTV) mortgages now available, it could be argued that the scheme has outlived its usefulness, but that is not strictly true because 95 per cent mortgages can command interest rates of up to 5 per cent. Even the cheapest from Barclays requires a 10 per cent deposit to be held in an account for three years, placed there by a generous member of your family. And at 2.8 per cent, it’s still more expensive than a mortgage with a lower LTV.
For the housebuilders there is a problem. Turning a land purchase into a sales plot can take a long time, and they need visibility to plan ahead. Time is running out on that score. But it's inconceivable that the major step up on to the first rung of the housing ladder would be withdrawn completely. If there is going to be a change, it’s more likely that some sort of tapering would be put in place. Other restrictions could confine the scheme to first-time buyers and there could also be a reduction in the £600,000 sale price ceiling. None of this is good news for a first-time buyer who not only has to convince a lender of their ability to afford repayments, but also their ability to cope with a substantial increase in interest rates. Coming at a time when average earnings growth lags behind inflation, this adds fuel to the notion that perhaps the government isn’t interested in subsidising house purchases, driving those in search of somewhere to live into the rental sector.
To suggest that Help to Buy is bloating new home construction has to be put into perspective. At Persimmon (PSN), for example, there were 15,171 completions in 2016, around half of which involved purchasers using the scheme. Comparing that with the 16,000 completions completed in the year before the financial crash and without the scheme shows that sales on non-assisted homes is still way below what it was before the crash.
The LSE report will take soundings from all the relevant parties, including the Home Builders Federation, housebuilders and charities. If the scheme ends, it will hit housebuilders' shares badly, which is the usual knee-jerk reaction, and inevitably the wrong one. The first move by housebuilders would be to stop buying land. Land purchases have already been cut back following the uncertainty generated by the referendum result, but spending is still significant. Barratt Developments, for example, made pre-tax profits of £321m in the six months to December 2016 and in the same period spent £328m on buying land.
In the event that Help to Buy is terminated completely, it would also be a mistake to tar the housebuilders with the same brush. Berkeley Group (BKG), for example, has just 5 per cent of sales linked to the scheme, while retirement home specialist McCarthy & Stone (MCS) has none at all. Nor has Telford Homes (TEF) as Help to Buy purchases have to be completed within six months of agreeing the loan; Telford sells most of its apartments off-plan, sometimes years ahead of completion.
And if the next generation is going to be driven into the rental sector, who is going to build the homes? Strangely enough, Telford Homes has recently secured another build-to-rent scheme with real estate company Greystar. The terms of the contract include regular payments made to Telford during the development process, which involves a very capital-light structure because Telford doesn’t have to use any of its own money to fund each stage of the development. Margins are lower, but not as much as you think because for Telford there are no construction or marketing costs and virtually zero risk. So for the housebuilders there is an avenue opening if the rental route is to be expanded.
