10 years on, what did George Osborne’s Help to Buy scheme really achieve?

George Osborne’s Help to Buy scheme officially shuts this Friday, a little over a decade after the then chancellor launched it with the aim of revitalising what was a sluggish UK property market.

The scheme granted 375,654 interest-free equity loans for the purchase of new-build properties, according to the latest figures which cover until the end of last September, with 84% of applicants first-time buyers. On average they borrowed £63,000, on a typical purchase price of £273,500, with a total value of £23.6bn lent out.

But what exactly did that enormous sum achieve? Osborne tweeted on Thursday that it had “helped hundreds of thousands of families buy their own home and supported thousands of construction jobs”. But experts argue the real legacy has been to massively inflate the market, swell housebuilders’ profits and leave many buyers in negative equity.

Ministers have argued the scheme has been vital in underpinning a resurgence of property construction in the UK, a view echoed by Home Builders Federation. It told the Lords’ built environment committee last year that schemes supporting home ownership had “led to a sustained period of record investment in land and labour for future housing delivery, therefore increasing supply”.

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However, Rose Grayston, an independent housing analyst, argues it was only ever going to provide a short-term boost to housebuilding. “It was an effective way to support supply of new homes when it started. There was very little housebuilding and it encouraged developers to expand supply.

“But it was only really a gimmick that worked for the first group of buyers. They needed prices to rise from that moment on, pricing out more people in the queue for new homes.”

And in the way the scheme favoured the market for new over secondhand homes, she says it created a captive demand “for what in many periods over the last 10 years has been the building of shoddy flats that have lost value”.

Run by the quango Homes England, Help to Buy has taken various forms over the years, including one underwriting mortgages for secondhand properties which closed in 2016. The second equity loan scheme closed to new applicants at the end of October last year, with the scheme closure on Friday marking the deadline for them to complete their purchase, although those who have obtained an extension have a final cutoff of the end of May.

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The equity loan is interest-free for five years to potential new-build purchasers, who since 2020 must also be first-time buyers, who can muster a 5% deposit of up to 40% of the purchase price in London and 20% outside the capital.

But many homebuyers have accused private developers of using the scheme to inflate the price of new flats, effectively pocketing the state subsidy for themselves.

A report in January last year by the Lords’ built environment committee found the loans inflated prices by more than their subsidy value in areas where it was 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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Toby Lloyd, a former No 10 adviser who, like Grayston, has worked for the housing charity Shelter, says it is unsurprising the initiative was popular with developers: “Why not? The government was offering them lots of money and they were more than happy to accept it.

“But it distorted the pattern of development, diverting away from the need to revive depressed town centres in favour of out of town developments on greenfield sites, increasing car use.”

Others who relied on Help to Buy to secure a new-build quickly found themselves in negative equity, with an investigation by consumer group Which? in 2020 finding one in seven homes bought under the scheme lost value despite booming local property markets, trapping homeowners in unsellable properties.

Lloyd and Grayston believe there is another group about to get whacked by Help to Buy, those people who banked on low interest rates and are now remortgaging their loans.

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In their recent report for the Joseph Rowntree Foundation, they said: “Rising costs disproportionately impact particular groups of owners, such as those on low incomes, shared owners and those who have recently bought through Help to Buy, especially those using larger equity loans in London.

“The result will be more homeowners who find themselves struggling with their mortgage costs but are unable to move easily to a more affordable home.”

Lloyd believes it could amount to a huge cost to the government if a housing downturn forces thousands of homeowners to default on the loans, despite the Treasury, which takes a cut of any gains on Help to Buy homes, registering a £1.8bn paper profit so far, according to Homes England.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), is concerned that the government’s housing strategy relied on a single policy for a decade.

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“At the margin, it did help the delivery of new homes. But was it the best policy to deliver new homes across tenures, to reflect the need for housing beyond just home ownership? You might question if it alone was the right approach, or could it have been part of something more holistic.”

He disputes that the private sector can be relied on to satisfy the demand for housing. The number of completions for new home builds increased steadily from 130,000 in the year Help to Buy started to 219,000 in the financial year 2019-20. However, over the last year the number of new home starts has dived as the cost of living crisis and high interest rates have dented the appetite for taking on large mortgage loans.

“The private sector has an important part to play. But inevitably developers are going to respond to the economic changes we see at a macro level and that is going to influence their build-out rate,” Rubinsohn says.

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“It means that without a huge injection [of funds] from central government, we are not going to see the building at scale we saw in the [1950s].”

Lloyd says that despite political pressure on ministers to launch a new version of Help to Buy ahead of the general election, there is no sign of one at the moment. “With a housing market downturn under way, the government needs to step up.”