The Government is yet to prove its Help to Buy scheme will deliver value for money to taxpayers.
There is no evidence that the Help to Buy scheme will deliver value for money to taxpayers, a new report has warned.
The Public Accounts Committee (PCA) report warned that £10 billion had been committed to be spent on the controversial initiative, which helps borrowers buy a property with a very small deposit, without the Government establishing it would actually meet its objectives.
What is Help to Buy?
The Help to Buy scheme actually consists of two schemes under a single umbrella. The first, an equity loan from the Government of up to 20%, allows buyers to place down a deposit of just 5% against the value of a property, while the remaining proportion of the value is covered by a Help to Buy mortgage of up to 75% of the property's value.
The second scheme, a mortgage guarantee offer, allows buyers to supply a deposit of just 5%, while the Government acts as a guarantor for the remaining 95% of the home’s value.
Read Help to Buy mortgages explained to find out more.
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Violating guidelines
The report slammed the Goverment for refusing to assess other options before going ahead with Help to Buy, violating Treasury guidelines in the process.
Because the Government had failed to conduct any real analysis, it could not say for sure whether Help to Buy really was the best way to meet its stated aims of increasing access to mortgage finance, increasing the housing supply or contributing to economic growth.
However, the report did also say that the scheme had been implemented effectively and was up and running quickly.
Risks to the taxpayer
The report points out that the £10 billion portfolio of equity loans built up by the scheme will require “careful management,” and is “new territory” for both the Department for Communities and Local Government (DCLG) and the Homes and Communities Agency (HCA). This would create a “heavy administrative burden” for both organisations.
Margaret Hodge MP, who chairs the committee, warned that the Government had created a “medium- and long- term risk” to taxpayers that will require close monitoring for a period that could stretch to decades.
[SPOTLIGHT]She added: “The Government has yet to demonstrate that the Help to Buy scheme provides value for money.”
Deposits of less than 5%
The report mentions that some buyers were able to access the scheme with deposits of less than 5%. The National Audit Office had reported that there were 205 cases where this had occured. The report warned these deals slightly increased “taxpayers’ exposure to costs if these properties are repossessed”.
In the PAC’s hearing on Help to Buy, Andrew Rose, Chief Executive of the HCA, explained that focus was placed on getting the scheme up and running “very quickly,” and a couple of lenders couldn’t alter their systems fast enough to guarantee that no deposits were below 5%.
Sir Bob Kerslake, Head of the Home Civil Service, added that the risk of repossession was not believed to be higher for this small group of buyers. Nonetheless these cases are being monitored very carefully.
The Government response
Unsurprisingly, the Government has hit back at the report. Housing minister Kris Hopkins said the Government "completely rejects" the findings, arguing that that the equity loan scheme was increasing the number of new builds and estimated that the “wider economic benefits could be as much as £1.8billion”.
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