Housebuilders have been keen to say post-referendum that Help to Buy has helped to prop up their sales. But should the government be weaning them off it?
The policy, which effectively gives buyers 20% extra spending power, was extended in this year’s Budget to 2020 and Theresa May’s new government is unlikely to scrap it. But if it did, would doing so plunge the housing market back into the doldrums?
Quite a big deal
The consensus seems to be that removing Help to Buy would have a significant effect on housebuilders. According to a Jefferies note last week for Redrow’s results: “Help to Buy… appears to be as instrumental to housebuilders’ success as the National Lottery is to our Olympians.”
David Fenton, partner at Knight Frank, agrees: “Help to Buy has had a dramatic effect on sales across the country. All housebuilders are judged on return on capital employed, and the sales rate is a key driver of that,” he says. “I think Help to Buy has doubled the sales rates of the major housebuilders.”
Those major builders have said it supports 30-40% of their sales. A government report in February said 43% of new-build purchases would not have happened without it.
“If you were to just remove it outright, sales would plummet,” says Neal Hudson, associate director of residential research at Savills. “Ignoring the EU referendum, they would be selling fewer homes, and average selling prices would also fall. You would probably see new-build prices come down.”
Clearly the policy has had a big impact on new-build demand and pricing. But its removal could lead to falling supply, according to Faisal Durrani, head of research at Cluttons. He says that if the policy were ended, supply would be squeezed, which would send prices up. But if you continue to offer the finance, more people can afford to buy, and prices go up.
“It’s a catch-22. Whatever you do, prices will continue to rise,” he says.
Not that big a deal
But Nick Whitten, associate director of UK residential research at JLL, says: “I don’t think there would be a lot of change if it went, and I would argue that Help to Buy is not really necessary anymore.”
He points out that it was used about 81,000 times to the end of 2015, out of 2.8m transactions in total, representing just 2.9% of the market. Even in the new-build market it was only about 15%.
He adds that, with increased lending availability, and the overall supply problem, the percentages are not significant. “In the bigger picture, the market does not rely on it. It’s probably just more ‘help to speed people onto the ladder’ than what had happened before,” he says.
It is important to remember that new-build pricing and the wider housing market are two separate entities. While taking Help to Buy away could hurt housebuilders, it would probably not affect wider pricing.
“It’s a significant number, but it’s not a market-changing number, particularly in the context of secondhand homes selling every year,” says Savills’ Hudson.
Weaning the sector off a bad habit
The difficulty is determining the policy’s importance to the post-referendum market. Arguably, if it is providing support to housebuilders at an uncertain juncture and encouraging supply, it is a good thing.
“If you took Help to Buy away, you would ultimately slow the amount of plots being built per year. I think it would lead to a significant development volume reduction,” says Knight Frank’s Fenton. “It would not be an intelligent thing to do, when we are trying to build.”
But some people doubt that it is the best way to support the market. JLL’s Whitten thinks housebuilders would be concerned if it were taken away, but would find other reasons to remain positive. He, like others, argues that the government should switch to policies that boost supply, rather than demand.
“The housebuilding industry should be standing on its own two feet, and government should focus on affordable housing and on structural challenges such as the shortage of workers and innovation,” he says.
“Government should find ways to invest in new supply and other tenures, rather than just backing up demand.”
Hudson says that, referendum aside, the industry ought to think about how to wean itself off the policy, if only to be able to re-introduce it if there are further shocks.
“The best thing for us would be to not have Help to Buy, so we could bring it into play,” he says. “Instead what we are going to see is subsidy layered onto Help to Buy.”
What the housebuilders say
Redrow
“Our growth in output has benefited from the government’s Help to Buy scheme, which has continued to be a major support, not only to Redrow, but to the industry as a whole.”
Barratt
“There remains an undersupply of new homes, strong government support including Help to Buy, and a mortgage market willing to lend. As a result, we remain confident in the underlying fundamentals of both the housing sector and our business.”
Taylor Wimpey
“Help to Buy has continued to be a differentiator for new-build housing, and remains popular with our customers.”
Bovis
“Strong housing demand has led to overall market pricing improvements, with the group having experienced pricing ahead of expectations with Help to Buy continuing to be a significant driver of sales.”
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