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It is fair to say that Help to Buy has been something of a Marmite government scheme. Beloved by builders, who say it has increased supply of homes, its detractors claim it has driven up property prices.

Meeting Housing Demand, a House of Lords report released in January this year, concluded that Help to Buy 鈥渋nflates prices by more than its subsidy value in areas where it is needed the most鈥�.  Financial Times columnist Neil Collins called the scheme 鈥淗elp to Buy Yachts for housebuilding executives鈥� in a column in 2018. 

Whatever the view, the scheme, for which final applications had to be in by the end of last month 鈥� and which will have cost the government around 拢29bn when it ends in March next year 鈥� has increased supply and enjoyed a huge take-up among buyers, particularly those stepping onto the housing ladder for the first time.

The Home Builders Federation (HBF) says that it has generated about 拢60bn in economic activity. The number of homes built in England went up from 110,530 in the year to June 2013 鈥� the year that Help to Buy was introduced 鈥� to 183,450 in the 12 months to June 2021, government figures show.

The Department for  Levelling Up, Housing and Communities (DLUHC) said the scheme has helped 369,000 households to buy their own home so far. 

Certainly, the equity loan scheme, which enables buyers to buy with a 5% deposit using an equity loan worth 20% of the price of a new build home (40% in London), has been popular with housebuilders. Help to Buy will account for around 20% of many housebuilders鈥� total sales this year [see table below].

And, while this is down from figures in excess of 30% and 40% in the past couple of years,  [see timeline below], that is still a sizable chunk of property sold.

So, how do housebuilders plan to replace those house sales, if indeed they are going to do so?  And how is the change likely to impact them, at a time of high inflation and mortgage rate rises? 

Not a good time   

Neil Jefferson, managing director of the HBF, believes that Help to Buy has been one of 鈥渢he most successful government home ownership interventions in history and handsomely delivered on all its pre-set objectives鈥�. He argues that this is not the right time to pull the scheme. 

鈥淔or the first time in decades, there is now no government scheme in place to support first-time buyers to purchase new homes at a time when political and economic instability has seen mortgage availability challenged,鈥� Jefferson explains. 

The National Federation of Builders (NFB) also does not believe this is a good time to end the scheme. Rico Wojtulewicz, its head of housing and planning policy, says: 鈥淲e have lobbied the government to keep Help to Buy and reform it in a way to ensure it supports certain criteria, such as higher energy-efficient housing, on smaller plot sizes of houses only, or to help specific people who struggle the most to borrow, such as families needing bigger homes or single people.鈥�

Brian Berry, chief executive of the Federation of Master Builders (FMB), believes 鈥渢he ending of the Help to Buy scheme could exacerbate an already troubled market鈥�.

The FMB would like to see the government bring forward a policy that would mitigate the loss of revenue from Help to Buy, by providing investment to planning authorities so schemes can be approved more quickly. 

鈥淔or the first time in decades there is now no government scheme in place to support first-time buyers to purchase new homes at a time where political and economic instability has seen mortgage availability challenged鈥�

Neil Jefferson, HBF

Tony Williams, chief executive of the consultancy firm 好色先生TV Value, believes it is a 鈥渞eally unfortunate time鈥� to pull the scheme. 鈥淚 was sceptical when it was launched but it has played a blinder,鈥� he says, adding that it has been 鈥渁 real fillip to industry.鈥�

He thinks it would be a good idea for the government to 鈥渂ring something else out to replace it鈥�, although he admits that this might prove 鈥減olitically difficult鈥� at the moment. 

However, Neil Hudson, founder of Residential Analysts, thinks the scheme should have been abandoned years ago. 鈥淚t鈥檚 never a good time,鈥� he says. While it has done 鈥渁 good job鈥�, he adds: 鈥淭he reality is, we should have stopped Help to Buy years ago because there was a danger the market became dependent on the scheme.鈥�

Housebuilders should have been 鈥渨eaned off it years ago鈥� and Hudson believes the government should 鈥渂e looking to see what it can instead do to maintain capacity in the housebuilding sector鈥�.  

The fall-out 

But, if the government does not do anything to replace the money that Help to Buy would have brought in, analysts are sure that it will lead to a drop in the  number of homes built. While the higher mortgage rates and rising costs because of inflation pose a bigger problem, Help to Buy is definitely expected to exacerbate it. 

Berry says: 鈥淲e have seen workloads among our housebuilding members drop as the year has progressed and members reported in our latest State of Trade survey that they have seen a drop-off in enquiries.鈥� 

Lucian Cook, head of UK residential research at Savills, agrees. With the scheme being dropped at a 鈥渢ime of great uncertainty鈥�, he now expects it to 鈥渃ontribute to a decline in housing delivery over the next 18 to 24 months鈥�.  

Ross Smith, director at new-build sales and marketing business SiteSales, adds: 鈥淲ithout the Help to Buy scheme, volumes will inevitably drop unless extended or a combination of the government and housebuilders collaborate to create alternative buying options.鈥�

Williams echoes this. 鈥淲e are going to have dramatically falling numbers of buyers and cancellations,鈥� he says. 鈥淸Build] volumes are going to fall significantly.鈥� 

But the end of Help to Buy is not only going to affect housebuilders. There is also the social impact of wannabe buyers having to spend longer in rented housing to consider. This may not go unnoticed by new prime minister Rishi Sunak,  to make 鈥渉ome ownership a reality for a new generation鈥�.

A Royal Institution of Chartered Surveyors monthly residential survey this month pointed out that house price growth was 鈥済rinding to a halt鈥� while the lettings market is growing. Williams said it will now be harder for a young couple to get a foot on the housing ladder. 鈥淧eople will be living at home for longer, or team up and you鈥檒l get more than one person living in a house,鈥� he suggests. And there will also be a greater reliance on the 鈥渂ank of mum and dad鈥�. 

Cullen agrees: 鈥淢ore people will have to stay in the rental sector and their ability to save for a deposit will be impaired.鈥�

Wojtulewicz explains: 鈥淲ith fewer people being able to access mortgages, the housing crisis will no doubt worsen as people continue to pay more in rent, live with parents longer or in overcrowded homes.鈥� 

However, the head of housing and planning policy at the NFB feels that any drop in purchases is likely to have a greater impact on larger builders with vacant stock than smaller builders who would 鈥渓ikely change their housing typology to attract different buyers鈥�. 

What the builders have been doing 

So what are housebuilders planning? Wojtulewicz thinks SME builders are likely to have been 鈥減ivoting to smaller properties鈥�.

But he suggests: 鈥淏ig builders will certainly be analysing which regions hold better opportunities.鈥�

Of course, builders are likely to have already been choosing to build homes in areas that would yield the greatest return since the Help to Buy restrictions came in last year, as they introduced regional purchase price caps [see timeline below].  

Hudson says builders have been 鈥渟hifting their activity from markets and product types that were coming in above the regional price caps鈥�. He explains they have been 鈥渟hifting away from first-time buyers and selling to people moving on鈥�. 

Indeed, builders themselves, who have known for a while that Help to Buy would end, say they have been preparing for the moment. Redrow鈥檚 Help to Buy sales this year were just 8.6% compared with 28% last year.

A spokesperson for the developer told 叠耻颈濒诲颈苍驳鈥檚 sister title Housing Today: 鈥淲e have successfully transitioned away from the scheme without any impact on our reservations.鈥�

They added: 鈥淭his reflects the strategic advantage of our award-winning Heritage Collection, which is predominately made up of three to four-bedroom detached homes with an average private sales price above the Help to Buy threshold.鈥�

Help to Buy has made up about 20% of Persimmon鈥檚 total sales in the year to date. A spokesperson said: 鈥淲e believe our unique value proposition will provide an enduring strength in an uncertain market. Our lower average selling price, combined with the cost advantage of new homes鈥� 30% energy efficiency premium above existing housing stock, will prove attractive.鈥�

In Taylor Wimpey鈥檚 annual report for last year the firm said: 鈥淲e have been preparing for this change [the end of Help to Buy] for some time, and this is reflected in our landbuying approach, site selection and in the design of our developments.

鈥淔or example, in certain areas, we have plotted sites to include a greater weighting of three-bedroom than four or five-bedroom homes reflecting expected market demand.鈥�

Options, options 

There are, of course, other mortgage schemes available, even if they are not so generous. Taylor Wimpey also points out in its 2021 report that it will be using Deposit Unlock on a small number of its new-builds in England and Scotland.

This scheme, developed by housebuilders, provides 鈥渃ompetitive rate mortgages鈥� to customers with a 5% deposit. 鈥淸It] is expected to be appealing to customers when Help to Buy ends in England in March 2023,鈥� the Taylor Wimpey report says. 

Wojtulewicz explains: 鈥淭here are other products on the market trying to fill the gap left by Help to Buy.鈥�  One of these, he says, is the Capita-backed market mortgage, 鈥渨hich provides a 95% mortgage, albeit at slightly higher rates.鈥�

The DLUHC says it has 鈥渋ntroduced a range of flexible home ownership schemes to help young people on to the housing ladder and we keep all options to increase home ownership under review鈥�.

These schemes include shared ownership and its First Homes scheme, offering discounted homes to local first-time buyers. There have however been concerns in the past expressed that developers would not be keen to deliver First Homes.

A DLUHC spokesperson said: 鈥淗elp to Buy has supported over 369,000 households into homeownership. It is just one of the many ways the government has made owning a home more achievable as we continue to help more first-time buyers.鈥� 

Cook suggests that there may be an extension of the mortgage guarantee scheme, where lenders are encouraged to offer 95% mortgages through a government-backed guarantee. The scheme is due to end on 31 December this year.

Cullen also says there has been 鈥渕ore talk around the mortgage indemnity scheme鈥�. He said the government could go back to this. 鈥淚 would be surprised if the government doesn鈥檛 do something to support the market,鈥� he adds. 

>> See also: Housebuilders say 鈥榖itterly disappointing鈥� autumn statement does nothing to help sector

Cook believes there will be a greater need for private rental stock in the market and, becasue there was a 鈥渟trong wall of money鈥� going towards built-to-rents, this sector may see a rise in growth. He pointed out, however, that BTR developers needed to 鈥渦nderstand the returns鈥� and it could cost more to build properties with guilt yields rising. 

Hudson also thinks housebuilders could turn to 鈥減rivate equity and other sources of equity to build in the build-to-rent market鈥�. He says there would be 鈥渁 lot of interest from big institutional investors鈥� in this.

Whatever happens, people will miss Help to Buy. Wojtulewicz says: 鈥淏uyers still come in and ask whether they can access it, so it remains a well-known, enticing product.鈥�

But there appears to be no political appetite to keep it going or replace it at present. Which means, while high mortgage rates and inflation costs are inevitably going to cause the greatest trouble, the end of Help to Buy is certainly going to contribute to a housing market downturn.