The Equity Loan part of Help to Buy has assisted over 27,000 transactions since its launch in April 2013. This is more than three times the number of deals carried out over the previous 12 months with the assistance of FirstBuy, the Government scheme it replaced. There is more to come.

According to the Government, the initial investment of £3.5 billion is expected to support 74,000 sales by 2016. The extension of the scheme to 2020 and a further £6 billion investment should help 120,000 more householders purchase a home. The Equity Loan scheme is now also available in Scotland and Wales, albeit under slightly different rules.

Recent news that Lloyds Banking Group has reduced the amount it will lend under the Help to Buy equity loan scheme from £500,000 to £150,000, corresponding to a maximum house price of £200,000, has generated further debate over the controversial Government initiative. The Group, which includes Halifax and Bank of Scotland, controls a 50% share of this market, prompting speculation over whether their retreat could encourage other lenders to follow suit.

The Lloyds’ measure will constrain lending under the scheme particularly to buyers in higher value markets. As Graph 6.1 shows, almost 22% of Help to Buy 1 buyers have acquired homes worth between £200,000 and £250,000. This is more than the maximum purchase price possible with a 20% Help to Buy equity loan plus a 5% deposit. However, 58% of deals would have been unaffected by the changes.

While the number of transactions supported by the Help to Buy Equity Loan (HTB1) remains a small part the overall number of house purchases in England, which currently run at just under one million a year, there is little doubt the scheme has been popular.

Click Graphs below to enlarge

How successful has HTB been?

Developers are not required to contribute to the advance as they did under previous equity loan schemes. The Home Builders Federation says more than 1,200 companies have registered, 94% of which are small or medium sized businesses. Many of the major players are reporting increased profits and rising share prices over the 15 months that it has been running.

The latest annual reports show that profits at the large listed housebuilders are at their highest level since the final boom year of 2007. Recent trading updates show that very significant proportions of completions are taking place through Help to Buy: 35% at Persimmon, 40% at Crest Nicholson, and 42% at Taylor Wimpey.

What has it meant for housebuilders?

Savills analysis shows that Help to Buy Equity Loan has had the greatest impact in lower value markets. Yet while the scheme has played a part in reviving parts of the market lagging in the recovery, not all completions achieved under Help to Buy necessarily represent additional transactions. Some of the deals may have happened under different house builder led incentives.

At Barratt, 29% of completions went through the Equity Loan scheme in their 2013-14 half year results. But a year earlier 17% of sales were assisted by “other” shared equity schemes, so the net effect is not as large as it first appears. Bovis has reported 872 shared equity completions in 2013 compared with 535 the year before, and “sees the Help to Buy scheme as an attractive replacement for other shared equity products”.

Housebuilders also stimulate demand in other ways, including part exchange and contributions to deposits or stamp duty. In their 2012 results Persimmon stated they retained a shared equity interest in 26% of completions over the year, and 25% of private customers utilised a part exchange offer. Therefore, Help to Buy may be partly replacing sales made through previous Government or internal schemes.

After Help to Buy was introduced in April 2013 use of ‘sales incentives’ fell sharply, according to HBF survey data. In April 2014 this measure reached its lowest level since March 2002. Incentives include part exchange schemes and contributions to deposits or stamp duty.

Click Map 6.1 below to enlarge

What does it mean for the future?

Numbers of starts and planning permissions have risen in the year to March 2014 in England, admittedly this is off a very low base. Many of the larger housebuilders have stated that the increased certainty from the Help to Buy extension has allowed them to plan increases in their numbers of completions. Hence, across the major builders there is an intention to increase annual output by a total of 25,000 units.

Over the last six months, the scheme has supported 2,387 sales per month on average at a mean price of £213,252. At this rate the funding is set to last comfortably until the scheduled end date. However, at the rate of 4,000 per month, surpassed for the first time in June, they would be exhausted some time during 2018. 2020 may seem a long time away, particularly with a general election in between. However, planning an orderly end to the scheme is essential to avoid disrupting the markets where it has had the greatest impact. A gradual phasing out is likely to be the best option.

Taken from
Residential Property Focus Q3 2014