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The Public Accounts Committee publishes its report into the Help to buy equity loans scheme. 

• Report: Help to buy equity loans
• Report: Help to buy equity loans (PDF)
• Inquiry: Help to buy equity loans scheme
• Public Accounts Committee

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"The Government has yet to demonstrate that the Help to Buy scheme provides value for money.

The Scheme was up and running quickly, with nearly 13,000 homes purchased with the support of Help to Buy in its first nine months.

Its aims are ones we all support: improving access to mortgage finance, increasing housing supply and contributing to economic growth.

However, the Department for Communities and Local Government does not understand the overall impact of its housing strategy and the combined effectiveness of its different initiatives.

In the case of Help to Buy, it did not carry out any assessment of alternative, potentially more effective options before going ahead with the Scheme – a violation of Treasury guidelines.

This means it has committed to spending up to £10 billion on supporting Help to Buy without establishing whether it represents the most effective way of using taxpayers’ money to achieve its objectives.

The Department will not carry out a comprehensive evaluation of the Scheme until 2015, by which time billions of pounds will already have been spent.

That evaluation needs to ask three things: whether more people purchased properties than would have done without the Scheme; whether builders built more houses than they would have built otherwise; and what effect the Scheme could be having on house prices.

Any future assessment of the Scheme must also assess its impact on different regions.

The Scheme has proved popular in the North and Midlands, and in areas that have already seen regeneration or major housing expansion, such as Milton Keynes.

So far the Scheme had had less traction in London and the South East despite the fact that these are the regions with the greatest need for new housing. Only 6% of equity loans made had been for properties in London at the time of our hearing.

The Department should assess the Scheme’s effectiveness in different local and regional housing markets and tailor the Scheme so it is effective in all regions.

The Scheme creates a medium- and long-term risk to the Department by building a £10 billion portfolio of equity loans that will require careful management. Managing such a portfolio is new territory for both the Department and the Homes and Communities Agency, and the ongoing monitoring required will create a heavy administrative burden for both organisations, potentially over decades.

There are also more immediate risks, particularly the fact that some buyers have accessed the Scheme with deposits of less than 5%, which increases taxpayers’ exposure to risk.

The Department must be mindful of these risks – and it must demonstrate that the Scheme is value for money to the taxpayer."

Margaret Hodge was speaking as the Committee published its 2nd Report of this Session which, on the basis of evidence from Sir Bob Kerslake, Permanent Secretary, Peter Schofield, Director General for Neighbourhoods, Department for Communities and Local Government and Andrew Rose, Chief Executive, Homes and Communities Agency, examined The Help to Buy equity loans scheme.

The Department for Communities and Local Government (the Department) introduced the Help to Buy equity loan scheme (the Scheme) smoothly in April 2013, drawing on its experience of having run similar schemes in the past. The Scheme was up and running quickly, and, as a result, the Department has supported the purchase of nearly 13,000 homes through the Scheme in its first nine months. However, the Department did not assess whether there were alternative, more effective options that would have delivered the Scheme’s policy objectives of increasing demand for new homes, making mortgage finance more accessible and affordable, and encouraging developers to build more new homes. The Department will only truly be able to prove the Scheme provides value for money to the taxpayer once it has completed a comprehensive evaluation. The Scheme is one of a number of government interventions addressing wider housing market failures. The Department needs to develop a way to assess the combined effectiveness of its schemes.

Conclusions and recommendations

The Department introduced the Help to Buy equity loan scheme in April 2013, with the objectives of increasing demand for new homes, making mortgage finance more accessible and affordable and encouraging developers to build more new homes. Under the Scheme, the Department makes equity loans to buyers financing up to 20% of the purchase price of newly-built properties that cost £600,000 or less, which supplements the buyers’ own deposit of, normally, at least 5%. Buyers then raise a repayment mortgage of, typically, 75% of the property’s value. The equity loan is interest-free for the first five years, and is paid back within 25 years, or when borrowers redeem their mortgage, for example when they sell their home. The Department initially aimed to spend up to £3.7 billion to help 74,000 households buy a new home by 2015-16. In the 2014 Budget the Government decided to extend  the Scheme to March 2020, and was providing an extra £6 billion to support the purchase of a further 120,000 homes. The Scheme is administered by the Homes and Communities Agency (the Agency), through its network of Help to Buy agents.

The Department managed the Scheme’s implementation effectively and got it up and running quickly. The Department and the Agency built on their experience of running previous home equity schemes, such as FirstBuy, to implement the Help to Buy equity loan scheme. For example, they used delivery and administrative mechanisms already in place from similar schemes, for example rebranding the existing network of HomeBuy agents as Help to Buy agents. As a result, the Scheme was put in place quickly, and the Department had supported nearly 13,000 completed sales in the first nine months to December 2013. In July 2013, the Agency successfully negotiated down the fee it pays agents for administering each sale, from £1,000 per case to £600, and it told us that it has since secured a further reduction in the fee.

Recommendation:& nbsp;The Department must:

• Maintain downward pressure on the Scheme’s costs, and
• Make full use of the skills and experience it has gained from running this and other similar schemes when implementing its future programmes.

Before introducing the Scheme, the Department did not consider alternative ways to deliver its objectives, which goes against HM Treasury guidance. HM Treasury states that it is good practice to assess a range of options to achieve the intended policy objectives when appraising any new policy initiative. The Department acknowledged that its business case for Help to Buy, which underpinned its decision to introduce the Scheme, did not contain any such assessment of alternative options. Yet the Department will now spend nearly £10bn supporting this scheme up to 2020. The Department cannot say whether its chosen Scheme is the best way to achieve its intended objectives of increasing access to mortgage finance, increasing housing supply and contributing to economic growth.

Recommendation:& nbsp;In future, the Department must follow the guidance in the HM Treasury Green Book, by assessing a range of alternative options and presenting this analysis in its business case, to ensure it selects the best option when launching new schemes.

Managing this Scheme will bring new challenges for the Department and the Agency, creating both risks and opportunities. The Scheme creates a medium- and long-term risk to the Department by building a £10 billion portfolio of equity loans that will require careful management. Managing such a portfolio is new territory for both the Department and the Agency, and the ongoing monitoring required will create a heavy administrative burden for both organisations, potentially over decades. Government has sold similar investment portfolios to the private sector in the past, such as the final tranche of the old 'mortgage-style' student loan book in November 2013. Though the Department said it had no current plans to follow suit, it did not rule out the possibility of selling the Help to Buy portfolio in the future. The Department and the Agency also acknowledged that there are more immediate risks, particularly the fact that some buyers have accessed the Scheme with deposits of less than 5%, which increases the taxpayers’ exposure to risk.

Recommendation:& nbsp;The Department and the Agency must set out how they will protect the taxpayer and ensure they have the skills and capacity both to monitor and manage the loan portfolios effectively in the short and the longer terms. They need to demonstrate how they will maximize repayment and how they will respond to changing commercial circumstances.

The Department should be mindful of the need to demonstrate that the Scheme is value for money to the taxpayer. We welcome the Department’s commitment to a full evaluation of the Help to Buy equity loan scheme in 2015, particularly as the Department has failed in the past to conduct proper evaluations of similar schemes’ impact on the demand for, and supply of, new housing. We expect this evaluation to address fundamental questions about the Scheme’s impact and its value for money, including whether more buyers purchase properties than would have without the Scheme, whether builders build more houses than they would have built otherwise, and what effect the Scheme could be having on house prices. The Department has made some early estimates of these factors.

Recommendation:& nbsp;For its planned evaluation of the Scheme, the Department must develop a robust methodology to assess the Scheme’s impact on both demand for, and supply of, new homes. To do so, it must collect sufficient data directly from buyers to quantify how many would not have bought a property without the Scheme, and from builders on how many additional homes they are building because of the Scheme.

In any future assessment of the Scheme, the impact on each region of the Scheme should be examined in detail.  The Department did not set regional objectives for the Scheme, but evidence from the first nine months of operation suggests that it is working differently in different parts of England. It is more popular in the North and Midlands, and in areas that have already seen regeneration or major housing expansion, for example, Milton Keynes. It has had much less traction in London and the South East (only 6% of equity loans made have been for properties in London), despite the fact that these are the regions with the greatest need for new housing.

Recommendation:& nbsp;The Department should assess the Scheme’s effectiveness in different local and regional housing markets, and tailor the Scheme so it is effective in all regions.

The Department has not evaluated the combined effectiveness of its various interventions to address housing market failures. The Department acknowledged that there is a wide range of complex problems in the housing market, and it explained that Government only intervenes where it thinks there is a market failure. The market has failed consistently for many years to supply enough new homes to meet both need and demand. This Scheme supports only a relatively small proportion of the market, and other fundamental housing market problems are beyond its scope. The Department has a number of other initiatives that address other market failures, for example the New Homes Bonus, through which it makes non-ring-fenced payments to local authorities for every home added to the council tax register. The Department, however, does not yet know what the combined impact of its initiatives will be on increasing the supply of new homes.

Recommendation:& nbsp;To understand how it can improve its effectiveness in stimulating housing supply where it is needed, the Department should carry out a wider and integrated evaluation, assessing the combined impact of its major interventions in the housing market.