The Return of Help To Buy?

On December 26 2023, Andrew Lainton drew attention to a report from The Times about Conservative Government plans for helping young people to buy their own home.

It will be interesting to see how it affects Government financial support to London for those on low incomes who may be unlikely to be able to purchase a home.

Reproduced by Andrew Lainton from The Times of London

The Conservatives will promise to cut the up-front cost of a home for first-time buyers as a pre-election giveaway to win over younger voters.

In what is expected to be a central element of the party’s campaign, Michael Gove told The Times that it would “definitely” have a new offer in place before polling day.

Among the options being worked up is a scheme to provide government support for much longer fixed-term mortgages to reduce how much first-time buyers must find for a deposit. Such schemes are common in the United States, where mortgage rates are often fixed for 30 years and government protection against default reduces requirements for large deposits.

Other options include resurrecting a version of the Help to Buy scheme, which was started in 2013 but shut to new entrants last year. It offered new buyers a government equity loan of up to 40 per cent of the purchase price with no interest payable for five years. Those buying properties, which had to be newly built, were required to save only a 5 per cent deposit. Over the past decade the scheme has issued more than 375,654 loans, worth a total of £23.6 billion.

Government sources said the plan would either be announced in the March budget or form part of the Conservative manifesto.

Ministers are also looking again at stamp duty and some in favour of scrapping the tax altogether, arguing that it distorts the housing market by discouraging people from moving. This would do little to help first time buyers outside London and the southeast, however, as they do not pay the tax on properties worth less than £425,000.

Gove believes that longer-term fixed-rate mortgages could help first-time buyers but said it had been impossible in recent years because of rising interest rates and concern about fuelling inflation.

“We have been asking the question, how can we ensure that people with decent incomes who are finding it difficult because of the scale of deposit required can get on to the housing ladder?” he said. “I don’t want to pre-empt anything … but it’s about looking at some of the rigidities in the mortgage market which they haven’t got in other jurisdictions.”

Asked whether the Tories would be able to go into the next election promising more help for first-time buyers, he replied: “Oh, yes, we must. Definitely.”

Gove’s comments were backed by another senior Tory campaign strategist who said that a “big offering on housing” was needed if the party was to have any chance of winning round younger voters.

YouGov polling for The Times shows that only 11 per cent of 24 to 49-year-olds say they will support the Conservatives at the next election, compared with 43 per cent over the over-65s. “This is a group that predominantly says at the moment they aren’t going to vote for us. In order to make them think again we need to have a substantive offer in place,” the strategist said.

A Treasury source said that Jeremy Hunt, the chancellor, had been keen to explore long-term mortgage options for some time but it had not been a “realistic option” with high inflation and interest rates. “As rates begin to fall, that is now looking like something we can explore with lenders,” the source added.

Although homeowners have been hit by higher mortgage rates over the past year, there is growing expectation that these will start to fall early next year after better than expected inflation data. Analysts now expect that five-year fixed-rate mortgages will fall below 4 per cent for the first time since May.

The source added that Hunt had considered further help for first-time buyers before the autumn statement in November, but had decided against it so as “not to do anything that would pull against the Bank’s attempts to reduce inflation”.

The source said: “But as we move to a more stable environment we have got more options available to us. It certainly makes sense politically to do something. It is absolutely something that we need to have an offer going into the next election.”

The average age of a first-time buyer has risen from 31 when the Tories came to power in coalition in 2010 to 33.5 this year. First-time buyers account for 53 per cent of sales but their numbers fell by 10 per cent last year.

The number of mortgages obtained by first-time buyers is down nearly one quarter this year compared with last year, according to data from the trade body UK Finance. This would mark the fewest purchases of first homes since 2013.

The average house price for first-time buyers in the UK was more than £300,000 last year, up from about £264,000 in 2021. Their average deposit was £62,470 up from £53,935. In London it was up to £125,000.

Launched by George Osborne in the aftermath of the financial crisis, the Help to Buy scheme had twin objectives.

The first was to make it cheaper for first-time buyers to get on the property ladder by offering them a government equity loan of up to 20 per cent of the purchase price, with no interest payable for five years.

The second was to help the construction industry, and the economy, by specifying that loans had to be for newly built properties.

In purely numerical terms the scheme, which finished last year, was a success, issuing more than 375,654 loans with a total value of £23.6 billion. But there are concerns that some of those who took on the loans at a time of historically low interest rates may struggle as their five-year interest-free grace period ends.

Data from Homes England suggested that 94,000 homeowners who purchased using Help to Buy have not yet repaid their equity loans and were due come to the end of their interest-free periods between last April and 2025.

At this point, they are also likely to be paying a higher interest on the commercial element of their loan than when they took it out, as well as paying interest to the government. Their circumstances may have also changed, as many young couples who used the scheme to buy their first homes are now also paying for children.

Others have also accused private developers of using the scheme to inflate the prices of new flats, effectively pocketing the state subsidy.

A report in January last year by the Lords built environment committee found that the loans had inflated prices by more than their subsidy value in areas where they were needed the most, concluding that “this funding would be better spent on increasing housing supply” directly, through local authority and housing association building projects.

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