Housebuilders' shares plunge as reports say end of Help to Buy on the table in government review


Help to buy has helped to boost the housebuilding industry (Source: Getty)

Shares in housebuilders plunged this morning after reports that an independent review commissioned by the government could consider ending the Help to Buy scheme early.

The Department for Communities and Local Government (DCLG) has tasked a team from the London School of Economics (LSE) to evaluate the scheme as part of a regular review process.

Scrapping the scheme entirely or introducing a tapering system are possible options to come under the review, according to reports in industry journal Property Week.

Read more: Help to buy has built up housebuilders – but it can break them down, too

A DCLG spokesman said: “As we said in our housing white paper, we have committed £8.6bn for the Help to Buy equity loan scheme to 2021, ensuring it continues to support homebuyers and stimulate housing supply."

He added: "The government also recognise the need to create certainty for prospective home owners and developers beyond 2021, so will work with the sector to consider the future of the scheme.”

The possible end of Help to Buy would have major implications for British property prices. In the Help To Buy equity loan scheme, which has been used by more than 100,000 people, the government lends up to 20 per cent of the purchase price (and up to 40 per cent in London) to reduce the size of deposits needed for first-time buyers.

Some 38 per cent of private completions make use of the scheme, according to Thomas Buisson, an analyst at stockbroker Liberum. Meanwhile, government figures from 2015 show the Help to Buy Equity Loan had contributed 14 per cent of total new build housing output.

Shares in FTSE 100-listed builders Barratt, Taylor Wimpey and Persimmon fell by around five per cent each in early trading. FTSE 250-listed Bellway and Crest Nicholson had fallen by more than four per cent and 3.5 per cent respectively at the time of writing.

The removal of such a significant support to demand would likely damage housebuilders.

Read more: How the Help to Buy scheme is distorting the London housing market

Buisson said: "This could lead to the scheme being cancelled, or no change at all, but at the very least it does signal that the government's whole hearted support for the scheme has eroded."

He added: "Removal of the scheme would impact margins and sales rates" for housebuilders.

The government has already shown its willingness to make changes to the scheme, after it last month said it will limit the use of Help to Buy for leasehold purchases (where the rights of ownership are time limited, albeit usually for a very long time). Leasehold purchases can lead to extra fees for owners to the person who owns the freeholder.

The government's spokesman said: “As a government committed to building a fairer society, we’re taking action to stop the unfair use of leaseholds. This includes, as far as possible, removing the Help to Buy Equity Loan on new build houses where they are sold as leasehold."

The spokesman added: "In specific circumstances where it’s justified for a house to be sold as leasehold, Help to Buy Equity Loans will only be made available if the ground rent terms are reasonable.”

Read more: One in five first time buyers have been given a hand by Help to Buy