Fears are growing that the housing market has become too reliant on Help to Buy as research shows the scheme has funded up to 97 per cent of new build sales in some regions.
Through the government’s Help to Buy equity loan, buyers can borrow 20 per cent of the cost of a new build property from the government with no loan fees for the first five years of owning the home.
This means buyers only need a 5 per cent cash deposit and a 75 per cent mortgage to make up the rest. In London the government loan even amounts to 40 per cent.
The initiative has helped thousands of borrowers take their first steps onto the property ladder with more than 200,000 properties being bought via the scheme since it launched on April 1, 2013, according to data from the government.
Research from Project Etopia, a builder of modular homes, showed the scheme is responsible for up to 97 per cent of new build sales in areas such as Northampton.
On top of this more than half of all new-build property purchases in England were funded through the Help to Buy equity loan scheme last year with reliance on the scheme even more acute in towns and cities.
Among the 105 locations in the study, 20,179 (54.6 per cent) of the 36,950 new build sales in these areas were funded by the scheme.
Help to Buy hot spots included Burnley, Derby and Warrington, where more than 90 per cent of new builds were purchased with the scheme.
Even in places where the scheme was used the least — Cambridge, Portsmouth and Norwich — still about one in five new builds were purchased with government help.
According to Project Etopia, the ending of the government-backed scheme in 2023 means the nationwide housing market would be dealt a serious blow.
Help to Buy is set to end in 2023 but will face new restrictions from 2021, when it will only be available to first-time buyers and be subject to regional price caps.
Joseph Daniels, chief executive of Project Etopia, said: “Building more homes is the long-term solution to the housing crisis, not a free leg up, but this startling research shows just how far Help to Buy is underpinning and driving the new build market across the whole of England.
“There is a danger that, once the scheme ends, the rug could be pulled out from beneath those areas that have come to rely on Help To Buy to too great a degree.”
Kevin Dunn, director at Furnley House, agreed that it was “definitely a concern” for some areas and said he hoped the current political uncertainty would soon pass so issues like this could be addressed.
He said: “These everyday problems are being skipped over. Hopefully the government will either extend the scheme or introduce something in its place to help such areas.”
Mr Dunn also thought the market could see new developments with smaller and potentially more affordable housing once the scheme is restricted to first-time buyers in 2021.
He said: “Developers may change the way they design the sites. They may have to have more affordability and smaller homes.
“This is a good thing — clients I speak to find it hard to find a new build two-bed home. Most are larger three or four beds, sometimes worth half a million pounds.”
The Help to Buy scheme has created a bit of a bubble in terms of property prices, according to Dan White, of White Financial Services.
He said affordability of new builds in Help to Buy heavy areas had skewed consumer views on the cost of such properties, because the extra help from the government was seen as “monopoly money”.
He added: “Once the scheme ends, you may find either a shortage of new builds being built or a number of new builds unable to sell.
“On top of that, those who have bought through the scheme could be unable to sell due to a lack of equity in a property that has not necessarily increased in price.”
Just earlier this week advisers were warned of a crunch in the Help to Buy space as more borrowers using the scheme are to face charges for the first time while others will see theirs hiked.
Many of those who used the scheme in its first year are now facing higher fees, while those in the second year are facing fees for the first time.
By Imogen Tew
Source: FT Adviser