Last week it emerged that Rishi Sunak was thinking of rebooting the Help to Buy equity loan scheme, but I think it strikes of a lack of ideas for a government that knows it’s going to struggle to win re-election.
There was a clear reason for the scheme to exist back in 2013, when the country was in recovery mode from the global financial crisis. Banks and building societies weren’t lending to people with a 5% deposit, and the scheme helped to make that happen. Nowadays there are 95% LTV mortgages anyway, so having this scheme would be about making mortgages more affordable and available, as well as arguably encouraging new builds.
The consequences of the original Help to Buy were both positive and negative.
The positive was it stimulated the housing market and helped more people to get on the ladder, at the same time as incentivising developers to build – as the equity loan version of the scheme had to be used on new builds with a Help to Buy registered builder.
The negative is it fired up demand without supply climbing to the same degree, effectively pushing up house prices for the current generation of potential first-time buyers. That’s why I’ve long labelled the scheme a short-termist one.
That’s not to say the Labour Party are taking a particularly long-term approach either. So far Labour has said it wants 70% of the country to be homeowners, while it’s talking up launching a mortgage guarantee scheme where first-time buyers have first dibs on new homes in the area. I think giving first-time buyers first priority is a policy that makes sense, but I think it would create similar problems to a new version of Help to Buy – more people would be able to buy at the expense of those tomorrow.
For a new version of Help to Buy to do more good than bad, it has to be launched in tandem with another scheme to encourage the creation of new supply.
One thing I’ve long wondered is why doesn’t the government incentivise the nation’s investors to create supply? For example landlords could receive tax benefits if they bought a dilapidated property, refurbished it and rented out, as they would be creating stock.
Similarly they could receive a handout if they self-built a property that ends up on the rental market.
And when it comes to the professional developers we need more support in the form of grants to ensure large housebuilders don’t have regional monopolies, effectively controlling how many flats and houses are put on the market in areas in order to maximise their profits.
The UK has lots of problems to solve, but focusing on supply, not stoking demand, would be a start.
