Have we witnessed the beginning of the end of help to buy?
Shares in UK housebuilders plummeted at the end of last week after reports suggested the government has asked the London School of Economics (LSE) to review the scheme’s efficacy.
It is arguable the scheme, whose first iteration was launched in April 2013, is one of the Tory party's great success stories.
Figures by the Department for Communities and Local Government show it has been responsible for selling £17.7bn of properties, with over 100,000 people taking out loans under the scheme.
Depending on which analyst you are speaking to, it is responsible for between a third and more than half of new-build transactions, with more than 80 per cent of purchases under the scheme by first-time buyers. But some experts are not impressed.
Partly because it is deeply confusing, with potential customers having to get their heads around the Help to Buy Isa, the London Help to Buy Isa, and the equity loan scheme (and, once upon a time, the mortgage guarantee, although that has been put out of its misery).
Mainly, though, they are sceptical of the scheme’s confused sense of purpose. Its original idea was to encourage more supply, but it has done this by generating increased demand, thus pushing up house prices across the entire housing market, which in turn has put people off moving house.
Last week Liberum analysts reported many purchasers using the scheme “do not actually need it”, which suggests the government’s intention of helping hard-up buyers is not necessarily coming to pass. However, the government insisted its support for the equity loan scheme will remain until 2021, leading to analyst suggestions that rather than closing the scheme, the LSE’s review could in fact recommend lowering its much-maligned £600,000 price cap.
The worry is that despite their insistence to the contrary, housebuilders have become dependent on help to buy: more than 50 per cent of sales at Persimmon, the UK’s largest housebuilder, are under the scheme; the figure is above 40 per cent for Taylor Wimpey, Galliford Try and Redrow.
To wean them off the drug, the government will need to tread delicately. A gradual taper, as hinted at in those reports, could be one way of doing it. Either way, forcing them to go cold turkey would cause a mighty shock.