Lessons from Help to Buy

The Prime Minister recently announced plans for a new scheme to support first-time buyers in England. Under the “Your First Home” scheme, first-time buyers will be able to get a loan from the government to help them buy a new build property. The scheme is also intended to encourage developers to build more homes, helping the government towards its commitment to deliver 1.5 million new homes by the next election.

“Your First Home” follows on from similar previous schemes. In particular, Help to Buy ran from 2013 to 2023 and was one of the country’s biggest recent housing market interventions.

We were commissioned by the Ministry of Housing, Communities and Local Government to evaluate the success of Help to Buy in England, along with our partners at Alma Economics and the Centre for Regional Economic and Social Research at Sheffield Hallam University. You can find the full report here.

We found that Help to Buy boosted construction and supported many people to buy a home. But the effects varied between different places, and the scheme may have put extra pressure on housing prices in the areas that were already least affordable.

This post summarises our reflections about the lessons that can be learned from Help to Buy.

What was Help to Buy? 

Through Help to Buy, the government provided loans to buyers to help them purchase new build homes. Buyers needed a deposit worth at least 5% of the property value, and the government would then give them a loan reducing the amount they needed to take out in a mortgage. The loan was interest free for the first five years and had to be repaid when the home was sold, tied to the value of the home at that time. More than 387,000 homes were bought through Help to Buy in England over the 10 years it ran.

What were the impacts of Help to Buy? 

We concluded that Help to Buy led to roughly 300,000 additional homes being built in England across the 10 years of the scheme, about 15% of all new build homes in England over that time. We also found evidence that the scheme helped people get onto the housing ladder. For example, about half of Help to Buy customers said they would not have been able to buy a home without it.

However, the effects on home ownership were uneven. In particular, the number of first-time buyers didn’t increase much in areas that were already least affordable, where buyers typically needed a large deposit. These were also the areas where house prices increased the most. This evidence suggests that the scheme couldn’t address affordability barriers everywhere, and may have pushed home ownership further out of reach for potential first-time buyers in some parts of the country.

While most customers found the scheme easy to enter, use and understand, understanding of key equity loan terms was weaker; in particular, interest payments and repayment linked to the property’s current, not original, value. Customers who were financially struggling, less informed of the scheme or less confident in managing their financial commitments to the scheme reported more negative experiences of the scheme.

How did Help to Buy have these effects? 

When the scheme was introduced in 2013, house building was at a historically low point across England following the 2008 global financial crisis. Help to Buy appears to have helped kick-start construction in this depressed market.

Housing developers told us that high demand for the scheme was an important factor in boosting their confidence to increase house building. And the effects were not limited to homes that were bought through Help to Buy. As developers became more confident, they completed more housing developments, including many homes that were not bought through the scheme.

Help to Buy also supported home ownership at a time when there were very few opportunities to get a mortgage without a deposit worth at least 10% of the property. By opening up a route to buying a home with smaller deposits, the scheme addressed a significant barrier faced by many potential first-time buyers.

However, by lending money to people buying homes, Help to Buy risked inflating house prices. Our analysis shows that prices rose the most in more expensive areas, reducing the effectiveness of the scheme in these areas.

Was Help to Buy good value for money?

Working with our partners at Alma Economics, we assessed the costs and benefits of the scheme in line with government guidance, and concluded it delivered very high value for money overall, equivalent to around £25.1 billion.

Most of the benefits in this analysis come from “Land Value Uplift”, an estimate of the value to society from land being used for new homes. The impact of the scheme on housing supply generated benefits worth more than £28 billion in today’s money.

On the other hand, the overall cost of the scheme was comparatively low, around £3.6 billion. Although the government put a much larger sum than this into the scheme’s equity loans (more than £30 billion), most of this has already been paid back. In fact, in many cases, the government got a positive return on its investment, both from interest on the loans and because the value of homes had increased.

As most of the costs were recovered, the scheme did not need to deliver very much in benefits to be considered good value for money.

What next?

Our evaluation has shown that schemes like Help to Buy can lead to an increase in housing supply and can help more people buy their first home. But we think any new policy should recognise that the economic conditions are very different today than when Help to Buy was first introduced.

In 2013, interest rates were very low but it was difficult for people with small deposits to get a mortgage. Now, mortgages with a 5% deposit are more easily available, but higher interest rates mean monthly repayments are more expensive. The proposed “Your First Home” scheme is expected to require only a 2.5% deposit, so it could create a market for new mortgage products that open up home ownership to more people who would struggle to save a larger deposit. However, to be effective, the scheme must address ongoing monthly affordability concerns as well as initial lending limits and ensure buyers are fully aware of the financial commitment.

Additionally, when Help to Buy was first introduced, house building was at a historically low point. Now more homes are being built, there may be less scope for a new scheme to boost construction. The government is introducing reforms to the planning system to make it easier for new developments to get planning permission. This could create the headroom for a new scheme to increase supply. However, it is too soon to say what impact these planning reforms will have.

Our findings show that schemes like Help to Buy can make a difference, but their impact depends on the wider economic context as well as how the scheme works alongside other housing and planning policies.