Although the Scheme was up and running quickly, with nearly 13,000 homes purchased in its first nine months the Department for Communities and Local Government does not understand the overall impact of its housing strategy, says the report from the Committee of Public Accounts.
It explains that while the aim of improving access to mortgage finance, increasing housing supply and contributing to economic growth, is excellent, not enough thought has gone into the combined effectiveness of different initiatives.
In the case of Help to Buy, the department did not carry out any assessment of alternative, potentially more effective options before going ahead with the Scheme and the committee claims this is a violation of Treasury guidelines.
This means it has committed to spending up to £10 billion on supporting Help to Buy without establishing whether it represents the most effective way of using taxpayers’ money to achieve its objectives.
The department will not carry out a comprehensive evaluation of the Scheme until 2015, by which time billions of pounds will already have been spent, the report also says.
‘That evaluation needs to ask three things: whether more people purchased properties than would have done without the Scheme; whether builders built more houses than they would have built otherwise; and what effect the Scheme could be having on house prices,’ according to the report.
‘Any future assessment of the Scheme must also assess its impact on different regions. The Scheme has proved popular in the North and Midlands, and in areas that have already seen regeneration or major housing expansion, such as Milton Keynes.
'So far the Scheme had had less traction in London and the South East despite the fact that these are the regions with the greatest need for new housing. Only 6% of equity loans made had been for properties in London at the time of our hearing. The Department should assess the Scheme’s effectiveness in different local and regional housing markets and tailor the Scheme so it is effective in all regions,’ it adds.
It also voices concerns about some buyers having accessed the Scheme with deposits of less than 5%, which it says increases taxpayers’ exposure to risk. ‘The department must be mindful of these risks and it must demonstrate that the Scheme is value for money to the taxpayer,’ said Margaret Hodge, chair of the committee.
Housing Minister Kris Hopkins said that he believes it is offering excellent value for money. ‘The Help to Buy equity loan scheme is helping build more homes and support the economy. In fact we estimate the wider economic benefits of the scheme could be as much as £1.9 billion. So it is offering excellent value for money for taxpayers’, and to suggest otherwise is simply absurd,’ said Hopkins.
‘Since the scheme’s launch, house building is up a third and now at its highest level since 2007. Over 27,000 people across the country have used Help to Buy to get on the property ladder with a fraction of the deposit they would normally require, with cities including Leeds, Durham and Manchester seeing some of the biggest numbers of sales,’ he added.
The Help to Buy equity loan scheme was introduced in April 2013 with the objectives of increasing demand for new homes, making mortgage finance more accessible and affordable and encouraging developers to build more new homes.
Under the Scheme, the department makes equity loans to buyers financing up to 20% of the purchase price of newly built properties that cost £600,000 or less, which supplements the buyers’ own deposit of, normally, at least 5%. Buyers then raise a repayment mortgage of, typically, 75% of the property’s value.
The equity loan is interest free for the first five years, and is paid back within 25 years, or when borrowers redeem their mortgage, for example when they sell their home. The department initially aimed to spend up to £3.7 billion to help 74,000 households buy a new home by 2015/2016.
In the 2014 Budget the government decided to extend the Scheme to March 2020, and was providing an extra £6 billion to support the purchase of a further 120,000 homes. The Scheme is administered by the Homes and Communities Agency (the Agency), through its network of Help to Buy agents.
