RTB scheme – comments on report by the House of Commons Committee of Public Accounts

Andrew Weir and Sarah Clarke comment on the impact of a report by the House of Commons Committee of Public Accounts on the value of the Help to Buy scheme.

Report issued on 17^th September 2019

Full copy available at: https://publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/2046/204602.htm

• It is clear that the Help to Buy (“HTB”) scheme has acted as an incentive for developers to build more properties but analysis by Anthony Gold has highlighted that the use of the scheme is less widespread than might have been anticipated, particularly in Greater London.
• The subdued take up of the scheme in London is likely to be due to the relatively high cost of property in the capital and because  the scheme is only available for new builds with a purchase price not exceeding £600K. In London, many new builds have a purchase price of over £600K, and those below the threshold are usually one bedroom flats which will only appeal to a specific category of buyer.
• An HTB loan is for up to 40% of the purchase price of a property and a buyer will still need to obtain a 5% deposit and obtain the remaining 55% of price plus purchase costs, often by way of a second loan to the RTB loan. It follows that if a buyer is purchasing a one bedroom new build flat for £500K they would still need a £25K deposit and around a £250K mortgage, which is still beyond the reach of many people in London. The HTB scheme, as the Report acknowledges, is only a viable option for those who could previously have been able to get on the property ladder anyway.
• When looking at the properties available under the HTB scheme and the cost to the buyer, many find that financially it is better to buy an existing property as they are likely to find a property of a similar size for a lower price. As the Report acknowledges, new builds can command prices as much as 20% more than existing properties of a similar type.
• Some buyers may be more inclined to purchase a property just with a single mortgage for simplicity, rather than having the worry of servicing two separate loans, and the Report does not make reference to the reality of many first time buyers being reliant on gifts from family members towards the purchase costs property (the “Bank of Mum and Dad”).
• The scheme may be less popular in London as new build properties in the capital tend to be leasehold only and the leases impose restrictions on how the property can be used and on what alterations that can be made to it. Service charges for new build flats in large developments may be higher than for existing leasehold flats.
• The HTB scheme is available to existing home owners but Anthony Gold has seen minimal evidence of anyone other than first time buyers seeking to take advantage of the scheme. This is likely to be as a result of the type of property (particularly in London) that the HTB scheme appears appropriate for is not the type of property that anyone other than first time buyers are interested in buying.

Summary

The Report correctly identifies that the HTB scheme has successfully increased the amount of properties being built, which is one of its primary objectives, but many properties remain unaffordable to a large section of society and people who have used the scheme are likely to be  comparatively high earners with a large deposit, who were likely to be in a position to buy property anyway, but use the scheme to possibly buy something in a better area. The positive effect of this on the wider housing market is that the scheme will take the HTB buyers out of competition with other buyers not interested in new builds (or who cannot afford them) lessening slightly the demand for existing properties. It is not clear however that the scheme has created an opportunity for larger numbers of first time buyers to get on the property ladder and in this respect the findings of the Report, and the criticisms of the HTB scheme contained in it, are a welcome addition to the housing debate.