UK Government Blew Billions on “Help to Buy” Scheme that Enriched Home Builders and Drove Up Home Prices. Taxpayers on the Hook When Prices Sink, New Report Warns

[sancho panza]

But it helped high-income people buy homes.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

The UK’s government’s flagship “Help to Buy” equity loan scheme, launched ostensibly to give cash-strapped first-time buyers a leg up onto the property ladder, has dished out billions of pounds of publicly subsidized loans to relatively well heeled homeowners who were perfectly capable of buying their first property without need for outside help, asserts a new report by the National Audit Office (NAO).

The report, which used figures supplied by the Ministry of Housing, Communities and Local Government, found that only 37% of the roughly 210,000 people who have so far benefited from Help to Buy would not have been able to afford a property without it. Since the scheme is not means tested, anyone can apply and qualify for the loans, including people earning more than £100,000 a year, who reportedly account for 4% of the total borrowers.

One particularly egregious example is Conservative MP Peter Boone who, in 2016, used the scheme to buy a new constituency home, purchasing the £175,000 home in his wife’s name, with a £35,000 equity loan from the government. The first five years of that loan are interest free — hence the term “equity loan” – after which borrowers are charged 1.75% interest on the outstanding amount.

It’s a pretty sweet deal for Mr Boone and his wife, but perhaps not so much for UK taxpayers. But according to the Department for Housing, Communities and Local Government, such abuses are an “acceptable consequence” of designing the scheme to be widely available.

Here’s how the scheme works: First-time property buyers get to put down a deposit of as little as 5% on a new-build home worth as much as £600,000 ($761,000) and receive an “equity loan” from the government. The size of the loan varies depending on where borrowers live. In London, where the price of property is an order of magnitude higher than in most other places, buyers can receive as much as 40% of the property price. Across the rest of the country the upper limit is 20%. The rest of the financing is covered by a traditional mortgage.

While Help to Buy may have had a limited effect in terms of making housing affordable for first time buyers who are genuinely priced out of the market, it has proven to be effective at sustaining the UK’s all-important housing bubble by jacking up the prices of new-build houses, resulting in even less affordable housing. Since Help to Buy was first launched in 2013, average UK house prices have increased by 35%, from £167,000 to £226,000, according to the Office for National Statistics.

Through the scheme, the government has so far issued around 211,000 loans worth £11.7 billion ($14.8 billion) to home buyers. According to the NAO, this has helped increase sales of new-build properties from 61,357 a year in 2013-14 to 104,245 a year in 2017-18. That, in turn, has helped fuel a spike in profits for the UK’s biggest home builders. The nine largest builders dished out £2.3 billion in dividends in their most recent financial year, 39 times greater than the £53 million they paid out in 2012, a year before the scheme was introduced.

The NAO estimates that over the last six years, about 40% of all new-build properties have been bought by buyers using the scheme. This has not only helped to line the pockets of large home builders and banks, it has also transformed the UK government into a major player in the UK housing market. And with that comes potential rewards as well as risks, the report says:

Given that the government has entered the equity loan market place, it has put reasonable arrangements in place to benefit from increasing property prices. However, this is dependent on the performance of the housing market and property values can go down as well as up. At points when the market turns down (whether over the near, medium or longer term), the taxpayer could lose out significantly, as the government’s investment in housing capital would reduce in value.

By 2023, when Help to Buy is scheduled to end, the net amount loaned by the government through the scheme is expected to hit a peak of around £25 billion in cash terms. The government believes it will be able to claw back its investment in Help to Buy by 2032, but a downturn in the property market could hit the value of its loan book. It also means that Help to Buy borrowers looking to sell their properties in the future may have to grapple with negative equity.

Gareth Davies, head of the NAO, warned that the biggest challenge the government faces will be to wean the property market and the home builders off the scheme with as little disruption as possible while still being able to meet its goal of 300,000 new homes being built by the mid-2020s. But many home builders are by now completely hooked on the public funds, with companies such as Persimmon depending on the scheme for around half of their sales. By Don Quijones.

It was a doozie, but it shouldn’t have come as a surprise. Here’s why. Read…  About this Biggest Plunge Since 2002 in Manufacturing in the UK

[BearyBear]

Isn't that house prices are set to rise for the next 50 years...?

https://www.thisismoney.co.uk/money/mortgageshome/article-4188266/House-prices-set-rise-50-years.html

 

[Lavalas]

Public Accounts Committee have launched an inquiry into Help to Buy...

 

[XswampyX]

50 minutes ago, Lavalas said:

Public Accounts Committee have launched an inquiry into Help to Buy...

 

It's a bit fucking late! 

Quote

The government introduced the Help to Buy: Equity Loan scheme to address a fall in property sales following the financial crash of 2008 and the consequent tightening of regulations by the regulatory authorities over the availability of high loan‑to‑value and high loan-to-income mortgages. Through the scheme, home buyers receive an equity loan of up to 20% (40% in London since February 2016) of the market value of an eligible new‑build property, interest free for five years.

Here :- https://www.nao.org.uk/report/help-to-buy-equity-loan-scheme-progress-review/

Quote

Report conclusions

The Department’s independent evaluations of the Help to Buy: Equity Loan scheme show it has increased home ownership and housing supply. It seems likely to continue to do so as long as the scheme remains open, provided there is no significant change in the housing market. The scheme is therefore delivering value so far against its own objectives. The Department is currently forecasting a positive return on its investment and redemptions are running ahead of expectations.

Given that the government has entered the equity loan market place, it has put reasonable arrangements in place to benefit from increasing property prices. However, this is dependent on the performance of the housing market and property values can go down as well as up. At points when the market turns down (whether over the near, medium or longer term), the taxpayer could lose out significantly, as the government’s investment in housing capital would reduce in value. Furthermore, property owners could face the trap of negative equity, exacerbated by the new-build premium. The scheme also has an opportunity cost in tying up a great deal of financial capacity, and its broad participation criteria have allowed some people who did not need financial help to buy a property to benefit from the scheme.

The government has indicated that it will wean the property market off the scheme. It will need to ensure that developers continue to build new properties at the rates currently achieved, or better, if it is to meet its challenging ambition of creating 300,000 new homes per year of sufficient quality from the mid-2020s. The scheme may have achieved the short-term benefits it set out to, but its overall value for money will only be known when we can observe its longer-term effects on the property market and the net return, or cost, to the taxpayer when the very substantial portfolio of loans has been repaid.

 

 

[A_P]

"When prices sink"....

New Help to Buy regional price caps

Region	Price cap for properties eligible for Help to Buy from April 2021 to March 2023
North East	£                                 186,100
North West	£                                 224,400
Yorkshire and the Humber	£                                 228,100
East Midlands	£                                 261,900
West Midlands	£                                 255,600
East of England	£                                 407,400
London	£                                 600,000
South East	£                                 437,600
South West	£                                 349,000

[dgul]

Everything I read about it at the time was critical.  Most reports went with the 'help to sell' meme.

But yet again this is a 'no-one knew' situation that'll merely recommend actions for the future rather than actually take people to account for what was obviously a bung for the housebuilders.

[The Idiocrat]

19 hours ago, dgul said:

Everything I read about it at the time was critical.  Most reports went with the 'help to sell' meme.

But yet again this is a 'no-one knew' situation that'll merely recommend actions for the future rather than actually take people to account for what was obviously a bung for the housebuilders.

Yep. "Help to Bribe".

[georgist]

On 14/06/2019 at 16:08, dgul said:

Everything I read about it at the time was critical.  Most reports went with the 'help to sell' meme.

But yet again this is a 'no-one knew' situation that'll merely recommend actions for the future rather than actually take people to account for what was obviously a bung for the housebuilders.

Osborne literally said it would "create a nice little housing boom", so the aim was clearly to pump prices. Everyone knew it would do this, no question.

Yet the FT wrote as though this was a surprise. Fuck those guys.

[spygirl]

On 14/06/2019 at 14:02, sancho panza said:

But it helped high-income people buy homes.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

The UK’s government’s flagship “Help to Buy” equity loan scheme, launched ostensibly to give cash-strapped first-time buyers a leg up onto the property ladder, has dished out billions of pounds of publicly subsidized loans to relatively well heeled homeowners who were perfectly capable of buying their first property without need for outside help, asserts a new report by the National Audit Office (NAO).

The report, which used figures supplied by the Ministry of Housing, Communities and Local Government, found that only 37% of the roughly 210,000 people who have so far benefited from Help to Buy would not have been able to afford a property without it. Since the scheme is not means tested, anyone can apply and qualify for the loans, including people earning more than £100,000 a year, who reportedly account for 4% of the total borrowers.

One particularly egregious example is Conservative MP Peter Boone who, in 2016, used the scheme to buy a new constituency home, purchasing the £175,000 home in his wife’s name, with a £35,000 equity loan from the government. The first five years of that loan are interest free — hence the term “equity loan” – after which borrowers are charged 1.75% interest on the outstanding amount.

It’s a pretty sweet deal for Mr Boone and his wife, but perhaps not so much for UK taxpayers. But according to the Department for Housing, Communities and Local Government, such abuses are an “acceptable consequence” of designing the scheme to be widely available.

Here’s how the scheme works: First-time property buyers get to put down a deposit of as little as 5% on a new-build home worth as much as £600,000 ($761,000) and receive an “equity loan” from the government. The size of the loan varies depending on where borrowers live. In London, where the price of property is an order of magnitude higher than in most other places, buyers can receive as much as 40% of the property price. Across the rest of the country the upper limit is 20%. The rest of the financing is covered by a traditional mortgage.

While Help to Buy may have had a limited effect in terms of making housing affordable for first time buyers who are genuinely priced out of the market, it has proven to be effective at sustaining the UK’s all-important housing bubble by jacking up the prices of new-build houses, resulting in even less affordable housing. Since Help to Buy was first launched in 2013, average UK house prices have increased by 35%, from £167,000 to £226,000, according to the Office for National Statistics.

Through the scheme, the government has so far issued around 211,000 loans worth £11.7 billion ($14.8 billion) to home buyers. According to the NAO, this has helped increase sales of new-build properties from 61,357 a year in 2013-14 to 104,245 a year in 2017-18. That, in turn, has helped fuel a spike in profits for the UK’s biggest home builders. The nine largest builders dished out £2.3 billion in dividends in their most recent financial year, 39 times greater than the £53 million they paid out in 2012, a year before the scheme was introduced.

The NAO estimates that over the last six years, about 40% of all new-build properties have been bought by buyers using the scheme. This has not only helped to line the pockets of large home builders and banks, it has also transformed the UK government into a major player in the UK housing market. And with that comes potential rewards as well as risks, the report says:

Given that the government has entered the equity loan market place, it has put reasonable arrangements in place to benefit from increasing property prices. However, this is dependent on the performance of the housing market and property values can go down as well as up. At points when the market turns down (whether over the near, medium or longer term), the taxpayer could lose out significantly, as the government’s investment in housing capital would reduce in value.

By 2023, when Help to Buy is scheduled to end, the net amount loaned by the government through the scheme is expected to hit a peak of around £25 billion in cash terms. The government believes it will be able to claw back its investment in Help to Buy by 2032, but a downturn in the property market could hit the value of its loan book. It also means that Help to Buy borrowers looking to sell their properties in the future may have to grapple with negative equity.

Gareth Davies, head of the NAO, warned that the biggest challenge the government faces will be to wean the property market and the home builders off the scheme with as little disruption as possible while still being able to meet its goal of 300,000 new homes being built by the mid-2020s. But many home builders are by now completely hooked on the public funds, with companies such as Persimmon depending on the scheme for around half of their sales. By Don Quijones.

It was a doozie, but it shouldn’t have come as a surprise. Here’s why. Read…  About this Biggest Plunge Since 2002 in Manufacturing in the UK

Does Peter Boone exist?

A quick google comes up with very little info bar an EU search ban.

 

[One percent]

Genuine question as I don’t know how this works. I’m guessing that the borrower has to pay this back?  Is it in a lump sum?  When?  

[A_P]

1 hour ago, spygirl said:

Does Peter Boone exist?

A quick google comes up with very little info bar an EU search ban.

 

Maybe a typo? Could it be this one ? https://en.wikipedia.org/wiki/Peter_Bone

[A_P]

1 hour ago, One percent said:

Genuine question as I don’t know how this works. I’m guessing that the borrower has to pay this back?  Is it in a lump sum?  When?  

They only have to pay it back if they sell the house. If they don't they can just keep paying the ever increasing interest. I suspect it was setup with the view few would be paying it off before selling because there are a number rules and restrictions. Must get the house valued and can only pay off in certain amounts of increments eg if you borrowed a 20% deposit, you could only pay that off in 50% chunks. Very few will be able to save up the additional rather than being able to chip away at it

[One percent]

13 minutes ago, A_P said:

They only have to pay it back if they sell the house. If they don't they can just keep paying the ever increasing interest. I suspect it was setup with the view few would be paying it off before selling because there are a number rules and restrictions. Must get the house valued and can only pay off in certain amounts of increments eg if you borrowed a 20% deposit, you could only pay that off in 50% chunks. Very few will be able to save up the additional rather than being able to chip away at it

Ta. So, are these people paying anything towards the loan?  Interest payments ?

[A_P]

11 minutes ago, One percent said:

Ta. So, are these people paying anything towards the loan?  Interest payments ?

interest free for the first five years. No direct payments to the loan capital, only interest from year six onwards. If memory serves me correctly interest is then charged at 1.75% per annum, it then increases year on year by RPI + 1%. I did some caluclations a few months back somewhere on the forum, can't find the thread though from a quick search. What I gather that some are doing is when they remortgage they are rolling the equity loan into it and then paying it off that way.

 

[One percent]

4 minutes ago, A_P said:

interest free for the first five years. No direct payments to the loan capital, only interest from year six onwards. If memory serves me correctly interest is then charged at 1.75% per annum, it then increases year on year by RPI + 1%. I did some caluclations a few months back somewhere on the forum, can't find the thread though from a quick search. What I gather that some are doing is when they remortgage they are rolling the equity loan into it and then paying it off that way.

 

All very complicated. I suspect deliberately so 

[A_P]

Just now, One percent said:

All very complicated. I suspect deliberately so 

I think so to. The fact you can't chip away it in a more reasonable manner says a lot. Those in the SE that say have a £60k equity loan are expected to pay off in £30k chunks. GIven they could barely scrape the 5% together in the first place. Interest increases at RPI too. Wasn't restricted to first time buyers either.

[A_P]

@One percent Just reading the small print again. Here is something I missed before:

Quote

Help to Buy always requires that the buyer has a main mortgage of at least 25%of the full purchase price.

So not really sure why anyone would need a HTB if they have a 75% downpayment. Plus the fact they always have to maintain a mortage until the equity loan is paid off

[One percent]

23 minutes ago, A_P said:

@One percent Just reading the small print again. Here is something I missed before:

So not really sure why anyone would need a HTB if they have a 75% downpayment. Plus the fact they always have to maintain a mortage until the equity loan is paid off

Was it maybe a way of pumping cheap money (at first, just like a loan shark) into the economy?  

[spygirl]

1 hour ago, One percent said:

All very complicated. I suspect deliberately so 

Elaborate.

HTB was Gdiots little bit of Brownianess.

Which will blow up, like all Brown other stuff did.

If Gidiot had done what he should have had - crank down TCs, let houses price fall, etc in 2010 then he'd probably be PM

And before you go 'Oh the Tories and housing ...' The Cons are the only party that were prepaed to have what was then painful readjustment in house prices - 90->97.

[spygirl]

3 minutes ago, Tdog said:

1. If my aunty had a cock she'd be my uncle.

2. So for once they protected the currency over housing, long before many who have been priced out were born or out of nappies, more of a case they didnt know what they were doing as opposed to being capitalists.

Chart Sterling against a basket of currencies.

Go back 20 30 years.

UKGOV has always impoverished the plebs by making the curency bear the cost of its fuckups.

That OKish when the UK, like most other countries mostly traded within. These days - total disaster.

Id like the UK to prusue a hard currency policy.

Surprisingly, countries that do i.e. Swiss, are wealthy.

 

 

[spygirl]

2 minutes ago, Tdog said:

The Tory party dont know about such things as "hard currency" even back in the 90s it happened by default not by their economic prowess.

But anyway Liz Truss is 2/1 favourite to be the next |Chancellor.

Now this docile simpleton who has got her job due to having the ability of allowing a man put his cock between her legs now and then ... anyway she wants to fire up the printing press to magic up money to solve the so called housing crisis (aka Tory created housing bubble). Yes this stupid cow could well be continuing the work of Gidiot and Hammond. I for one look forward to Corbyn being PM if this is their continuing policy. As lets be fair it is the most extreme kind of socialism for a chosen group.

https://www.huffingtonpost.co.uk/entry/liz-truss-jeremy-corbyn-internet_uk_5bb386e8e4b00fe9f4fad654

https://www.oddschecker.com/politics/british-politics/next-chancellor

 

And Brown got his job how?

[TheNoSnowMan]

On 17/06/2019 at 11:34, spygirl said:

And Brown got his job how?

By agreeing not to challenge Bliar's crown, I thought.

 

[A_P]

Just now, Tdog said:

Max Keiser at his very best today, going back to his episode in 2013 where he stated HTB is a  ponzi and Osbornes a cunt.

https://www.rt.com/shows/keiser-report/462621-boeing-737-max-disasters/

Was that the one where he had Frankie on? I'd be interested to his opinion now.....given that he has been headlining a number of tv shows....

[A_P]

Just now, Tdog said:

Not sure who Frankie is but watch the first part, Keiser and his bird at their best.

 

This one....

I can't really stand the bird to be honest

[Green Devil]

7 hours ago, Tdog said:

Max Keiser at his very best today, going back to his episode in 2013 where he stated HTB is a  ponzi and Osbornes a cunt.

https://www.rt.com/shows/keiser-report/462621-boeing-737-max-disasters/

He nailed it in 2013. And the government tried to shut him up. It should have been called @Another scumbag tory policy to make you and your property owning mates richer@