Help to Buy Scheme Favored Higher Earners, Says IFS
A government loan scheme designed to assist first-time home buyers in England predominantly benefited higher earners residing in areas with lower property prices, according to a significant report by the Institute for Fiscal Studies (IFS).
Introduced in 2013 by the Conservative government, the Help to Buy scheme was also found to have had a "limited impact" on social mobility, the IFS report stated.
The scheme aimed to support individuals lacking access to financial assistance from friends or family by providing loans to cover part of a house deposit and enhancing mortgage availability.
While critics argue that the scheme inflated house prices by enabling buyers to spend more, proponents claim it facilitated homeownership for many and stimulated housebuilding.
The IFS report specifically examines the Help to Buy policies launched in England in 2013, which included the mortgage guarantee scheme and the equity loan scheme.
The mortgage guarantee scheme increased mortgage availability for buyers with 5% deposits, whereas the equity loan scheme offered a government-backed 20% loan to purchasers of new build properties, thereby reducing the amount buyers needed to borrow.
Help to Buy equity loan schemes have since closed to new applicants in England and Scotland, with the Welsh scheme scheduled to close in September.
Notably, Northern Ireland never introduced a similar equity loan scheme.
Meanwhile, the mortgage guarantee scheme has been made permanent throughout the UK.
Various other home buying schemes and supports exist across the devolved nations.
Despite Help to Buy supporting about one-fifth of first-time buyer purchases in England at its peak during 2014–15, the IFS concluded that "Help to Buy made only a limited difference to housing affordability."
The IFS conducted this research amid calls for the scheme's reintroduction, and its findings echo earlier criticisms from the official government watchdog.
The report noted that Help to Buy did not effectively make homes affordable for many because it was restricted to new builds, which are "relatively rare in most areas."
Additionally, the IFS found that the scheme disproportionately benefited higher-income buyers, stating it "increased maximum affordable prices most among those who could already afford higher prices."
Help to Buy 'Can Push Up House Prices'
The IFS research revealed that in the early 2010s, buyers were limited by income-based mortgage lending caps, so the loaned deposit had a "limited effect" on housing affordability for participants who often received last-minute help from friends and family.
"Help to Buy policies can help first-time buyers get on the housing ladder, in theory, but can also push up house prices," said Bee Boileau, a research economist at IFS.
The scheme was found to be less beneficial for buyers in London and the South East, where property prices are higher and fewer homes qualified for the scheme. Consequently, higher earners in more affordable areas gained the most.
Supporters of Help to Buy argue that it enabled many individuals to enter the housing market and contributed to increased home construction.
"The scheme was a major factor in the doubling of housing supply that occurred in the few years following its introduction, creating tens of thousands of jobs and leading to a boom in the supply of affordable housing provided through private sector cross-subsidy," said the Home Builders Federation.
Shadow housing secretary James Cleverly remarked that the Conservative policy "gave many thousands of people the chance to realise the dream of homeownership."
A spokesperson for the Department of Housing, Communities and Local Government stated that Help to Buy was both introduced and closed by the previous government and that "an evaluation of the scheme is ongoing."
"While we have no current plans to introduce a new Help to Buy scheme, we have launched a comprehensive mortgage guarantee scheme that will open the door to homeownership for more young families and hardworking renters," the spokesperson added.
