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Analysis confirms Help to Buy not just benefitting buyers in London

It also accounted for 2.4% of all sales across England but it has, contrary to some claims, not just benefitted those buying in London and some 85% of the 19,394 using the equity loan were first time buyers.

This underlines the pent-up demand among would be purchasers who have been struggling to amass a deposit large enough to climb onto the housing ladder, according to the latest analysis from real estate firm Knight Frank.

Around 60% of these loans have been extended on homes worth up to £200,000 underlining the regional spread of the take up of the equity loan scheme, the firm says in its latest House Building report.

The median purchase price for all loans extended was £184,995. On a regional basis, the highest take-up of Help to Buy equity loan has been in the West Midlands, where some 38% of all new build sales have been carried out under the scheme. This is nearly three times more than in London, where only 13% of new build buyers have used the equity loan.

The report points out that this calls into question the assertion that Help to Buy is pushing up prices in London and the South East where average house prices are much higher.

‘It is likely that the confidence engendered by the government intervening in the housing market has had a bigger effect on prices than the scheme itself,’ says the report.

While the government has so far extended around £791 million in equity loans, the programme is still undershooting expectations in terms of the number of people it will help buy a home. Take up rates will have to accelerate markedly if the scheme is to help 200,000 buyers as the Chancellor George Osborne hopes.

At the other end of the house building cycle, the impact of Help to Buy is also clear. There has been a rise in planning applications over the last year by developers and house builders of all sizes which their feedback suggests is at least partially due to the Help to Buy Equity Loan.

The report also points out that there has been some criticism of Help to Buy. Help to Buy spans three schemes, the equity loan, the mortgage guarantee and NewBuy. But recently Help to Buy is often used as shorthand for the mortgage guarantee.

The Organisation for Economic Cooperation and Development (OECD) recently highlighted the mortgage guarantee scheme saying it should be reined in, while three former Chancellors of the UK have said that this part of Help to Buy needs to be rethought. ‘The government may now be wishing it had not encompassed three different schemes under the same Help to Buy banner,’ the report says.

Next year’s general election throws up some uncertainty about Help to Buy. ‘Labour have not commented on their intentions around the equity loan, although they too have criticised the mortgage guarantee. Also, finding a suitable unwinding mechanism for the Equity Loan will be paramount in the coming years if a cliff edge market distortion is to be avoided in six years’ time,’ it explains.

It adds that a gradual widening of the LTV’s available, or tightening criteria over a year is one option to phase it out.