Government seeks to ease Help to Buy review concerns

The government has denied it is planning to end the Help to Buy scheme early, after confirming it is reviewing the future of its flagship homebuyer’s policy.

In the wake of Property Week’s revelation last Friday that the government was conducting a review of Help to Buy, which includes an independent evaluation of the scheme by the London School of Economics (LSE), the Department for Communities and Local Government (DCLG) sought to clarify its stance, saying it remained committed to the Help to Buy equity loan scheme to 2021.

A spokesman for DCLG said: “The department regularly reviews the Help to Buy Equity Loan Scheme, with the last review taking place in 2015. To infer from this that the Help to Buy Equity Loan scheme will be cancelled is simply incorrect. We also recognise the need to create certainty for prospective homeowners and developers beyond 2021, so will work with the sector to consider the future of the scheme.

Enthusiasm waning

There are industry experts who believe government enthusiasm for the scheme is waning.

In a note published this morning, Alastair Stewart, an analyst at Stockdale Securities, said: “Hints are emerging that the government has been adopting a more sceptical stance with Help to Buy and the housebuilders in general. Tellingly, Help to Buy was not mentioned in the Conservative manifesto, which proposes a radically different supply-side response, plus hints of a toughening position against the sector generally could be read into its recent ban on the sale of leasehold new-build houses, in our view.

“We suspect that Help to Buy has fed into land values, but lately there appears to be evidence that builders have become more cautious about buying land amid uncertainty about when and how the scheme might end.”

The LSE report will be delivered to the DCLG after it has heard the views of interested parties including the Home Builders Federation (HBF), small and large housebuilders and housing charities.

Issues under review are believed to include the introduction of a tapering system before the end of the scheme, under which assistance to homebuyers would be gradually reduced. Housebuilders have been lobbying for tapering to be introduced as an alternative to the ‘cliff-edge’ proposal, which would see demand drop sharply after the scheme ends.

The government is also understood to be considering more stringent criteria for applicants.

This could include the scheme being restricted to first-time buyers; a reduction in the maximum sale price; or a lowering of the maximum household income. Tougher affordability hurdles could also be introduced.

Impact on pricing

The government may also implement closer independent monitoring of prices charged for Help to Buy properties to ensure they match those of equivalent non-Help to Buy homes.

Shares in housebuilders saw significant falls after news of the Help to Buy review broke on Friday morning. Persimmon fell 3.98%, Taylor Wimpey was down 3.74% and Barratt Developments dropped 4.69%.

Builders have become more cautious about buying land amid uncertainty about when and how the scheme might end

Gregor Kuglitsch, head of European building and construction research at UBS, said the impact of the review on housebuilders would depend on how it is wound down in the approach to the April 2021.

“Assuming around 40% of private volumes use Help to Buy and these have not incurred a 400-500bps incentive costs, we estimate this would result in a 2% margin impact or 10% of earnings,” said Kuglitsch. “Volumes could also be impacted. Industry estimates suggest this scheme has resulted in around a 15% boost to volumes.

“The final variable which is hard to estimate is the impact on pricing, to the extent new build prices have benefitted from the existence of the subsidy. The impact will depend heavily on whether there is an unexpected abrupt end to the scheme or a taper or an end which has long lead times, which would allow the industry to adjust well in advance by pricing in a new environment into new land purchases.”

Anthony Codling, an analyst at Jefferies, added he felt it was fair for housebuilders to assume Help to Buy will not be extended beyond 2021 and factor that in to making new land purchases until the government completes its review.

“If housebuilders are buying land now they will be developing it beyond 2021, and they don’t know whether Help to Buy will be extended or not,” said Codling. “I don’t think it will be a bad thing for housebuilders if the government comes back and says Help to Buy is continuing, but that it’s going to be for first time buyers only, who currently make up 80% of purchases under the scheme, that there will be a cap of £350,000 on purchases under the scheme, and that affordability checks will become more stringent.”

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