Scheme under scrutiny

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THE Government has failed to demonstrate whether its £3.7 billion Help To Buy equity loan mortgage scheme is giving value for money, the spending watchdog has warned.

The scheme was launched in England last April with the aim of offering credit-worthy buyers with a deposit of at least 5% a helping hand onto the property ladder as well as increasing the housing supply by being targeted at new-build properties only.

But the National Audit Office (NAO) found there is no method in place to measure what the “joined up” impact of a string of recent Government’s initiatives aiming to inject new life into the housing market will be.

Margaret Hodge, chairwoman of the Public Accounts Committee, said she is “shocked” that the Government is ploughing billions of pounds into the scheme without fully understanding its effects.

The NAO also found that in around one in 62 (1.6%) sales completed under the equity loan scheme last year, the home buyer actually had a deposit of less than 5% and in one case the buyer did not stump up any of their own cash for a deposit, potentially increasing the taxpayer’s exposure if the property is later repossessed.

Amyas Morse, head of the NAO, said that Help To Buy is generally “running smoothly”.

But he warned: “The scheme’s costs, which come in large part from tying up £3.7 billion long-term in the housing market, will be substantial.”

The Government expects to make equity loans to 74,000 households over three years - and the NAO found that based on “strong” early take-up, it is on target to do this. The Government expects to make back its investment in cash terms after 15 years and go on to recoup £4.8 billion.

But the NAO said the Department for Communities and Local Government (DCLG) cannot yet “robustly” quantify the benefits of the scheme.

It said: “The Department provided us with an overview of the range of different initiatives but cannot say how the impact of each scheme affects the others.

“There is, therefore, a risk that the Department does not understand the combined impact of its initiatives or their effects, positive or negative, on one another.”

The report said the Department cannot say firmly how many of the people accessing the scheme would have bought a home anyway, or how many extra homes will be built as a result.

It said: “For these reasons, we cannot yet say whether the scheme will provide value for money.”

The NAO’s probe covers the first part of the Government’s flagship Help To Buy programme which was launched in England last spring and not the second UK-wide phase which kicked off last October.

Under the first phase of Help To Buy, the Government offers buyers of a new-build homes an equity loan of up to 20% of the purchase price, in addition to the buyer’s own deposit, which is normally required to be at least 5%.

The borrower then takes out a mortgage on the remaining 75% of the property’s value.

The equity loan is interest-free for the first five years and borrowers taking part must pay the Government back after 25 years, or when the mortgage is paid back, for example if the home is sold.

The cash amount the borrower will eventually pay back also hinges on the wider performance of the housing market. If the value of the property increases, the value of the equity loan will also grow in proportion with the rising house price and the reverse is also true.

Some 12,875 buyers completed purchases through Help to Buy during its first nine months, with £518 million worth of Government loans handed out.

But in 205 cases last year, representing 1.6% of the completions so far, the buyer’s contribution was a deposit of less than 5%.

One borrower got through the scheme despite not putting any of their own cash into a deposit. The NAO said mortgage lenders may still give applicants with sub-5% deposits the go-ahead because they still have the Government’s 20% equity loan as a fall-back.

It said the Government is “aware of this issue” and is committed to monitoring the impact but has not yet resolved it.