A recent analysis by the Institute for Fiscal Studies (IFS) indicates that the government's Help to Buy schemes disproportionately benefited higher-income households, with a limited effect on social mobility. The schemes, designed to facilitate home ownership, primarily assisted individuals who could already afford to purchase property, particularly those residing in less expensive areas outside of London and the South East.
Uneven Distribution of Benefits
The IFS research, which employed a novel approach using survey data and local property price information, suggests that a significant portion of the benefits accrued to higher earners. These individuals were more likely to leverage the scheme to purchase homes they might have eventually acquired anyway. This was especially true in regions where property prices were lower, making the government's assistance more impactful on affordability.
The schemes provided taxpayer-backed loans to reduce the required deposit for buyers.
A mortgage guarantee scheme was also part of the initiative, insuring lenders against potential losses on high loan-to-value mortgages.
The IFS analysis highlights that the scheme was restricted to new builds, which are scarce in many localities, thus limiting its utility for a broader range of buyers.
Furthermore, the scheme tended to "increase maximum affordable prices most among those who could already afford higher prices," according to the report.
Bee Boileau, a research economist at the IFS and co-author of the briefing, stated: “Help to Buy policies can help first-time buyers get on the housing ladder, in theory, but can also push up house prices and require the government to assume the risk on loans that the private sector is not otherwise willing to make.”
Questions of Effectiveness and Social Mobility
Critics have long argued that the Help to Buy initiatives, while potentially stimulating demand, did little to address underlying issues of housing supply. The IFS findings align with these concerns, suggesting that the schemes had a "limited impact on social mobility." While some proponents claim the schemes spurred construction and led to more homes being built, the core benefit appears to have bypassed those most in need of assistance to access the property market.
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The equity loan scheme closed to new applicants in England and Scotland, with the Welsh version scheduled to end soon. The mortgage guarantee scheme, however, has been made permanent across the UK.
For homeowners who utilized the equity loan, approaching the end of their interest-free period coincides with rising interest rates, potentially leading to increased monthly costs. The government held an entitlement to a share of future sale proceeds from these loans.
Broader Context and Industry Response
The findings emerge as the government reportedly considers reviving similar housing support programmes. Housebuilders have voiced support for equity loan schemes, citing an affordability crisis and arguing that government intervention would stimulate demand and support the construction sector. However, the IFS report suggests that future housing interventions aiming to tackle inequality might require more direct targeting towards lower-income households, though this could entail greater risk for the taxpayer.
The Home Builders Federation, however, contended that 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."
