James Pendleton

Remove the Help to Buy cap to avoid stinging consumers



When ministers first rolled out the Help to Buy scheme, it was a red carpet for those struggling to get on the housing ladder.

After a period of time in which a housing crisis made it incredibly difficult for people to save for a deposit, hundreds of thousands of people suddenly had the opportunity to buy. Fresh from a financial crisis, the government also knew developers needed cash to keep building the homes the country needed.

It all appeared positive – but that is now changing. For the first time, those on the front line are beginning to observe how one of the country’s most revolutionary housing schemes is turning consumers into victims of its success.

Help to Buy is actually transforming the housing industry in two ways and the common cause is the scheme’s unhelpful price cap.

First, new-build homes are condemned to shrink over time. This isn’t the fault of developers. Help to Buy limits buyers to homes worth up to £600,000, and this sum is going to buy less over time because of inflation.  

Developers, therefore, have no choice but to gradually reduce the size of new builds to continue delivering prices of sub-£600,000 while maintaining margins.

Consumers lose out because an expanding tranche of housing stock is made up of smaller properties, hurting the quality of living.

The second twist in the Help to Buy house of cards is the way thresholds such as this squeeze buyers into a tight funnel.

On the one hand, extra demand for limited new builds from buyers with extra financial firepower means fierce competition for homes between £500,000-600,000. This pushes the prices of these properties up towards the £600,000 cap, diminishing value for money. It also means demand for homes that were expected to sell for between £600,000-700,000 evaporates, forcing developers to discount them heavily.

In short, some people are getting a great deal – others less so.

For example, we’re currently marketing two adjacent developments in Battersea. At one, two-bed properties are being marketed at more than £650,000, while at the scheme just down the road, they’re being marketed for between £575,000-600,000.

Despite this, sales are typically being agreed at both for... you guessed it, £600,000.

Buyers rarely get the chance to see these discrepancies in achieved sale prices. That’s what I think will change as early adopters of the scheme pass the five-year anniversary and interest payments on their government loans begin to climb sharply – creating a glut of second-hand Help to Buy homes.

Too much supply then threatens to push prices down on homes that people paid over the odds for at exactly the moment they are forced to compete on the open market with larger properties that were snapped up for a discount.

This is the looming Help to Buy threshold trap that threatens to expose those who got less for their money. It’s time to remove the threshold altogether and kill two birds with one stone.


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