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Economic benefits of government's help to buy scheme 'unclear' - NAO

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Economic benefits of government's help to buy scheme 'unclear' - NAO

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Published by Jon Land for 24dash.com in Central Government and also in Housing

Economic benefits of government's help to buy scheme 'unclear' - NAO Economic benefits of government's help to buy scheme 'unclear' - NAO

The government's help to buy policy is making homes more affordable to buyers but the costs of the scheme will be substantial and it is unclear whether it will provide value for money to the taxpayer, the National Audit Office (NAO) said today.

Help to buy was introduced in March 2013 as part of a package of measures to address some of the barriers to home ownership, such as the unaffordability of mortgage finance. Early demand for the scheme has been strong, with 12,875 buyers completing purchases through help to buy during its first nine months.

The Department for Communities and Local Government (DCLG) has loaned £518 million to buyers for these purchases with 89% of sales going to first-time buyers.

But the NAO has concerns that DCLG is yet to robustly quantify the economic benefits of the scheme, which will ultimately tie-up £3.7 billion in the UK housing market long-term.

Overall, the NAO says, the scheme appears to be helping buyers as intended, though the spending watchdog cannot say how many of those accessing the scheme would have bought a home anyway.

The scheme was successfully introduced in time to take advantage of the traditionally busier Easter and summer markets, using existing structures. Because they introduced the scheme quickly, DCLG and the Homes and Communities Agency had to address some issues after launch.

Among these is the fact that some buyers – 205 at December 2013 – are purchasing homes with a deposit contribution of less than 5%. The NAO recommends that DCLG monitor the effectiveness of its actions to minimise the number of buyers accessing the scheme with a deposit of less than 5% and take further action if required.

The DCLG expects to recoup its investment in cash terms after around 15 years, and to go on to recoup £4.8bn – more than it is investing in the scheme. This depends, however, on when buyers redeem their equity loans and the value of the Department’s stake at the time.

During this time, cash flow is likely to vary between years and the impact of this in some years could be unaffordable for the Department. Both DCLG and the HCA have used their previous experience to develop a credit risk model to monitor this situation.

DCLG estimates that the scheme’s cost in today’s terms is £494m. For the economic benefits to exceed the costs, the Department calculates that over a quarter of sales under the scheme would have to lead to a new home being built. Assessing whether this happens is therefore crucial to deciding whether the scheme is value for money.

Amyas Morse, head of the National Audit Office, said: “The help to buy equity loan scheme is improving access to mortgage finance and for the most part is running smoothly. But the scheme’s costs, which come in large part from tying up £3.7bn long-term in the housing market, will be substantial.

"If the help to buy equity loan scheme is to protect public value, the Department and the HCA need to quantify the scheme’s impact on construction and homebuyers, and manage as far as possible the risks to taxpayers’ money which is now exposed to the housing market.”

Responding to the NAO report, Housing Minister Kris Hopkins said: “The help to buy equity loan will help 74,000 hard-working households buy a new build home without costing taxpayers a penny. The £3.7 bn programme is already delivering significant economic benefits across the country, and is expected to generate repayments of £4.8bn over its lifetime.

“Over 25,000 people have reserved a new build home in just 10 months, with 89% of those first time buyers. More homes are being built as a direct result of the programme, with housing starts up by 23% in 2013, the highest level since 2007.

“The surge in housebuilding is creating jobs, and orders for construction materials are growing at the fastest rate for 10 years, providing a boost to thousands of small businesses that supply developers, from timber traders to tile makers.”

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