Help to Buy is finally being scrapped. Here’s why it was a terrible idea

Oooh, a house. Image: Getty.

Buried in last autumn’s budget announcement was the news the the government’s Help to Buy (HtB) scheme would finally wind up in 2023. Which is long overdue considering it could finish tomorrow and that still wouldn’t be soon enough.

Introduced in 2013, the scheme was one of the flagship policies of the coalition government. It was meant to get a new generation of people onto the “housing ladder” – that semi-mythical place of milk and honey where your money works for you and everyone votes Tory. But what it’s actually done is passed huge profits to developers and screwed over the very people who bought into it.

Key to the scheme was the “Equity Loan”. As long as the buyer could stump up 5 per cent of the total cost of the property as a deposit, the government would provide a loan of 20 per cent. The final 75 per cent would be reached through a conventional mortgage. But there are requirements.

One of the requirements of the HtB Equity Loans is that the home being brought is newly built. Now this of course comes with advantages – often they have ten-year warranties, built with modern materials and to modern specs.

But there is a cost for those fresh-out-the-packet homes – what’s known as the “new-build premium”. Across England and Wales new-builds command a 16 per cent higher price than comparable properties in the area.

And just as a new car loses its value when it’s driven out the lot, once a new-build is lived in it starts to lose that premium. The average new-build loses around half its premium when it is sold for the first time. Suddenly the bottom rung of the ladder doesn’t seem so sturdy.


Another requirement of the scheme is that the property being bought is from “a registered Help to Buy builder”. This has the even more perverse effect of adding another premium onto the price that the first-time buyers are paying. A 2017 Morgan Stanley report found that builders could charge an extra 5 per cent for the properties sold through the scheme.

So between the new-build premium and the Help to Buy premium, the latter of which evaporates on purchase, people buying through HtB are paying 21 per cent over the odds.

Now if property were guaranteed to appreciate in value at those pre-2008 levels then it would still make sense. But that’s unlikely. Some assessments are predicting a 25-35 per cent fall in house prices in the case of a no-deal Brexit. Even if this on the cynical side, you know it’s not going to be pretty.

For developers, the scheme is brilliant. They no longer need to contribute any capital to support the sale of new-builds, so there is so much less risk involved. And this means they can rake it in. In a fairly excruciating video, the CEO of Persimmon Homes (a HtB builder) refused to answer questions from a BBC journalist about a £75m bonus.

Which makes the real winners of Help to Buy those whose bonuses are being propped up at the expense of those it is meant to help – and suddenly it’s easy to see why the scheme must be scrapped. But for the 400,000 first-time buyers who have already used it, it might just turn out to be a terrible deal.

 
 
 
 

The Fire Brigades Union’s statement on Theresa May’s resignation is completely damning

Grenfell Tower. Image: Getty.

Just after 10 this morning, Theresa May announced that she would resign as Britain’s prime minister on 7 June. A mere half an hour later, a statement from Royal Institute of British Architects president Ben Derbyshire arrived in my inbox with a ping:

“The news that Theresa May will step down as Prime Minister leaves the country in limbo while the clock ticks down to the latest deadline of 31 October. While much is uncertain, one thing remains clear – a no deal is no option for architecture or the wider construction sector. Whoever becomes the next Prime Minister must focus on taking the country forward with policies beyond Brexit that tackle the major challenges facing the country such as the housing crisis and climate change emergency.”

I was a bit baffled by this – why would the architecture profession try to get its thoughts into a political story? But then Merlin Fulcher of Architects Journal put me right:

Well you know construction is a larger contributor to GDP than financial services, and most of the work UK architects do is for export, and at least half of the largest practice (Foster + Partners) are EU, so there's a lot at stake

— Merlin Fulcher (@merlinfulcher) May 24, 2019

So, the thoughts of the RIBA president are an entirely legitimate thing to send to any construction sector-adjacent journalists who might be writing about today’s big news, and frankly I felt a little silly.

Someone else who should be feeling more than a little silly, though, is Theresa May herself. When listing her government’s achievements, such as they were, she included, setting up “the independent public inquiry into the tragedy at Grenfell Tower” – a fire in a West London public housing block in June 2017 – “to search for the truth, so nothing like it can ever happen again, and so the people who lost their lives that night are never forgotten”.

Matt Wrack, general secretary of the Fire Brigades Union, is having precisely none of this. Here’s his statement:

“Many of the underlying issues at Grenfell were due to unsafe conditions that had been allowed to fester under Tory governments and a council for which Theresa May bears ultimate responsibility. The inquiry she launched has kicked scrutiny of corporate and government interests into the long-grass, denying families and survivors justice, while allowing business as usual to continue for the wealthy. For the outgoing Prime Minister to suggest that her awful response to Grenfell is a proud part of her legacy is, frankly, disgraceful.”

A total of 72 people died in the Grenfell fire. At time of writing, nobody has been prosecuted.

Jonn Elledge is editor of CityMetric and the assistant editor of the New Statesman. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.

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