Charlotte Tyson grew up in Hull thinking that she’d never be able to buy a house. Like many people her age she absorbed the idea that she was a lazy member of Generation Rent condemned to deal with unscrupulous landlords for life while taking guilty pleasure in avocados and feckless flat whites.
Without Help to Buy, David Cameron and George Osborne’s controversial taxpayer-backed plan to “turn Generation Rent into Generation Buy”, she might have been right.
Charlotte was just 19, studying marketing at the University of Hull, when Help to Buy was launched by Osborne in 2013. Meanwhile, in York, Jeff Fairburn, the son of a mechanic, who had trained as a quantity surveyor, became the CEO of Britain’s second biggest house-builder, Persimmon. At the time the news was of little interest, but in a few years Fairburn would become the poster-boy for the controversy surrounding Help to Buy.
2013 was a critical year for housing in Britain. It appeared to the Chancellor that the economy was still on a plateau after the 2008 crash. House-builders were struggling to find both investment and buyers. In 2009 and 2010, only 115,000 new-builds were completed in England – fewer than any year in peace time since the 1920s. The number of new mortgages had plummeted.
As Cameron and Osborne saw it, the housing market was one of the biggest casualties of the 2008 crash, which made “getting the market moving again”, as Cameron put it, a priority. In their eyes, this was central to the country’s economic recovery.
Enter Help to Buy. One part of it pumped £3.5 billion into loans for financially stretched homebuyers, allowing them, with government backing, to take out a mortgage worth up to 95 per cent of the value of a property.
There were also £12 billion worth of government guarantees to increase the availability of mortgages.
These ideas hardly reinvented the wheel. In effect, they built on previous schemes. So why does Help to Buy remain so divisive?
The answer is scale and regulation (or, rather, a lack thereof). Where previous schemes were deliberately cautious – directing £200m or £300m in support at up to 10,000 first-time buyers – Help to Buy was a multi-billion-pound unrestricted behemoth.
At first, the scheme was open to anyone, not only first-time buyers, and available for existing properties as well as new builds with a value of up to £600,000.
Within four years of Help to Buy’s launch, by the age of 23, Charlotte had saved £4,500 from her graduate job in marketing for the discount supermarket Poundworld. That was enough to put down a 5 per cent deposit on a newly built two-bedroom flat in Wakefield from Miller Homes using Help to Buy’s equity loan scheme. It cost her £90,000.
The average age of first-time buyers in the UK is 30 and rising, so Charlotte’s purchase was ahead of the curve. This is the sort of success story that Cameron wanted. He, according to a former senior Treasury advisor who helped devise Help to Buy with Osborne, had a particular bee in his bonnet because he was hearing that even middle-class people couldn’t buy homes, and had told the Treasury in no uncertain terms that he wanted the problem fixed.
But, there was more to Britain’s housing problems than supply. A crisis of affordability was brewing across the country too.
An entire demographic of Charlottes was dubbed “Generation Rent” because both rising rents and house prices were pushing more and more people into the precarious private rented sector.
At this time, in the middle years of the coalition government, a source confirms that the term “housing crisis” was all but banned in Whitehall and, though experts warned that simply increasing supply was not enough to bring house prices down, the warning fell on deaf ears.
Help to Buy wasn’t inevitable. Sir Bob Kerslake, who was permanent secretary of the Department for Communities and Local Government from 2010 to 2015 and head of the Civil Service from 2012 to 2014, argued for a different approach. He wanted to see public funds used to build more social housing – a national asset – instead of creating a national liability, which is what Help to Buy could become if house prices fell.
Kerslake believes that the decision to focus on home ownership by creating Help to Buy in an already unaffordable housing market was politically driven. Housing was now “a key battleground” in British politics and home ownership “a distant dream” for those who couldn’t access the “Bank of Mum and Dad”, which was becoming one of Britain’s biggest lenders.
The Conservatives, the party of home ownership, were rattled. Would an entire generation abandon the Conservatives if they had no assets to conserve? A former senior Number 10 adviser confirms that Help to Buy was regarded as “policy gold”, a vote winner; and it was no coincidence that the name of the scheme mimicked another flagship Conservative housing policy, Right to Buy, which, from Margaret Thatcher’s time onwards, has given social housing tenants the opportunity to buy their homes.
Today, over lunch in the House of Lords, Kerslake says “they’d looked at the graphs comparing home ownership and Conservative voters and… Cameron won’t be quoted on this, but he saw social housing as toxic… synonymous with sink estates… Osborne thought it was toxic because it was synonymous with Labour voters. So when I came up with the idea to stimulate the housing market through building social housing, they would say ‘that’s absolutely not where we’re going.’ They described it as Old Labour even though it made sense because with social homes there’s a guaranteed sale.”
He feels that “not only was there no consideration” of the long-term repercussions of Help to Buy, “there was an active choice on the part of the Treasury to say, ‘let’s take the stabilisers off’.”
“It wasn’t that nobody raised concerns internally,” he explains. “They did. The Government just said ‘We don’t care…’ A year or two years in, they were really, ‘Christ, what are we going to do to get this economy to grow again?’. What they wanted to do was to ‘release the animal spirits’, as they put it.”
External voices warned about the potential dangers of Help to Buy, too. The free-market Adam Smith Institute said implementing such a scheme on this scale was like the government “throwing petrol on a bonfire” of unaffordable house prices, effectively underwriting a fundamentally broken market. Meanwhile, the campaign group Priced Out said that it really ought to be called “Help to Sell” because it had more to do with propping up housebuilders at a time when few could afford their prices.
“The crucial point here,” Kerslake says, is that “some very smart people in the Treasury decided that loans under [the Help to Buy] model could be classified as fiscal instruments rather than spend, which is what building social houses would have been. This meant that Help to Buy didn’t score on the deficit… That was absolutely the turnkey judgement to help Osborne because it meant he could really open the floodgates to make a product available.”
As soon as the figures emerged, it was clear that Help to Buy was a boon for housebuilders. From 2013 onwards, the average profit margins and return on equity for builders using the scheme – big names like Barratt, Bellway, Persimmon and Taylor Wimpey – began to accelerate.
Analysis from the London School of Economics clearly shows that average builders’ margins jumped from 9.6 per cent in 2011, before the introduction of the scheme, to 15.9 per cent in 2013 shortly after it hit the market, and then leapt to 21.4 per cent in 2016. Similarly, builder’s average returns on equity went from 4.8 per cent in 2011 to 11.8 per cent in 2013 and hit 20.6 per cent by 2016.
Perhaps these figures should have caused alarm bells to ring. It was clear from 2013 that taxpayers’ money had provided higher margins for private companies while only marginally boosting home ownership. Nonetheless, the government hailed Help to Buy as a success. Cameron said it showed his party was “on the side of hardworking people” and proved that “the land of hope is Tory”.
It wasn’t until December 2017 that a reckoning for the builders arrived. And initially it wasn’t their overall profit margins or returns on equity which provoked it, but one man’s pay packet: Jeff Fairburn, the CEO of Persimmon. News broke that he had accepted a bonus thought to be worth over £100 million.
The national row over Fairburn’s pay packet and bonus ultimately ended with him agreeing to hand back £25 million before being asked to leave his role at Persimmon. Clearly shaken, other builders such as Bellway condemned Persimmon for “damaging buyers’ faith”. In the most recent financial year, we now know that Help to Buy boosted housebuilders’ profits to £2.3 billion.
The Government was at that point said to be “increasingly concerned” by the huge bonuses and profits being posted by Persimmon. A review was promised but the scheme survived. After all, officials pointed out, it had helped “hundreds of thousands of people into homeownership”. Simultaneously, they whispered that they would look at limiting it to first-time buyers if it was extended, which tacitly acknowledged another problem soon to become public: Help to Buy was vindicating concerns that it would ramp up house prices.
This was first acknowledged in a 2017 Government report which accepted that those using Help to Buy could be paying a 19 per cent new-build premium which may or may not have been caused by the scheme itself.
Shelter, the housing charity, had warned about this in 2015 when it released a report saying that Help to Buy had added £8,250 to the average house price. The report found that North West Leicestershire was the worst affected area, with average prices boosted by over £19,000. This was closely followed by South Tyneside, where prices were up by more than £13,000. At the time, the Department for Communities and Local Government maintained that there was “no evidence” that Help to Buy was increasing house prices.
Osborne, who is now editor of the Evening Standard, stands by his policy in spite of the outcry over housebuilders’ bonuses and profits: “If shareholders in a private building company are stupid enough that they want to give tens of millions of pounds to the people who run the company, fine… We don’t live in a socialist economy where the government regulates what everyone’s paid.”
To Kerslake’s accusation of a political aversion to social housing Osborne responds: “I think it’s a good thing to have a society where as many people as possible own something… because it gives you a bit of security, it means you’re not entirely dependent on your income…”.
And to anyone who thinks he “shouldn’t have meddled in the housing market”, Osborne says “that’s fine, but when you’re faced with an economy which is flatlining and a country which, according to the economic figures available to you at the time is in recession… you’ve got a responsibility to try and get it moving.” Help to Buy remains, he says, “one of the most successful schemes” introduced while he was in Government.
Would things have been different if the country had invested in social housing instead, as Kerslake argues it should have done? Quite possibly. By 2016, Britain was paying private landlords £9.3bn in housing benefit, propping up the private rented sector with taxpayers’ money while pouring money into Help to Buy and, by proxy, underwriting profits for private companies.
If more affordable housing is a priority, it’s starting to become apparent that this is not what Help to Buy has delivered. In 2019, the same year that Persimmon posted £1bn in profits, the National Audit Office (NAO) released a report confirming that more than half of those who used the equity loan scheme could have bought a home without it. Indeed, the NAO found that more than 8,000 of them had a household income in excess of £100,000 (well over twice the UK average).
The NAO concluded that it is too early to tell whether Help to Buy has “delivered value for the taxpayer” but warned that “the scheme has also exposed the government to significant risk if property values fall, as well as tying up a significant public financial capacity”.
The Help to Buy premium is now being referred to as “the next PPI scandal” (an insurance mis-selling scandal) because when people who have used the scheme try to sell their house they have to repay their loan, even if the value of their home has fallen. In those circumstances, they may struggle to raise a deposit for their next property.
Charlotte, now 25, knows this all too well. When she wanted to sell and buy with her partner last summer, she had to pay back 20 per cent of the value it sold for, which was around £17,000. This, she says, left her with a smaller deposit than she needed.
“I think Help to Buy is great initially,” she says, “but if you can’t pay off the government loan or ‘staircase’ it gradually before you need to move, and the value of your home doesn’t go up massively then you could find yourself a bit trapped.”
Therein lies the rub. If house prices rise and deliver Help to Buy users a windfall, they’ll be able to upsize and wipe out their equity loans but, at the same time, home ownership will be pushed further out of reach for the millions still caught in a “rent trap”.
If prices fall, the taxpayer will be exposed to serious risk and Help to Buy users could find themselves in a different sort of trap – paying off both mortgages and Help to Buy loans monthly after the five year interest-free period is up.
Henry Pryor is a property expert who has called Help to Buy “crack for housebuilders”. He points out that, because wages show no signs of catching up with house prices, “first time buyers will find it harder to meet the current prices demanded for new homes and so these prices will have to fall to levels they can afford, which in turn will drag down the values of current homes bought with the assistance of Help to Buy”.
While the building industry claims Help to Buy has almost no impact on prices, other studies have suggested it may be 5-10 per cent, Pryor says. So what happens when owners look to sell on their Help to Buy homes? Pryor warns that prospective buyers may not be able to afford the premium that the current owners paid for the homes when they were new.
The equity loan scheme has been extended until 2023, but this time the stabilisers are firmly on. There will be price caps and it’s restricted to first-time buyers only. Are these new restrictions shutting the door after the horse has bolted?
While it might be too soon to calculate the real cost of Help to Buy, in terms of its value to the taxpayer what we know is this: the Government has handed out 211,000 equity loans (half of which went to people who didn’t need them to buy a home) while the number of people in private rented accommodation swelled to over five million households. At the same time, it is estimated that one in three young people will never own a home. Wages continue to lag behind housing costs and, as the housebuilding figures show, we’re a long way from delivering the 3.1 million social homes that Shelter thinks are needed.
There is no doubt that Help to Buy achieved what George Osborne says was its key objective. It contributed to getting the post-crash economy moving by making it easier for people to get mortgages while boosting housebuilders’ profits at a time when, as Osborne puts it, “the available figures said Britain was still in recession”. But the data show that Help to Buy did nothing to address the structural causes of the housing affordability crisis. Arguably, it made things worse.
Today, concerns continue to grow about the ever-widening gap between people’s wages and the cost of housing. There are no obvious solutions as to how to bridge it. Affordability has been stretched to its limit; homes are now less affordable than they’ve been at any point since the financial crisis. We’ve been here before: high house prices and increasing household debt. The inflated windfalls of housebuilders may prove the least of Help to Buy’s flaws.