The Budget may not have contained any measures to help first-time buyers. But it’s almost guaranteed that each of the main political parties will head into the general election offering schemes to make it easier to climb onto the housing ladder.
These schemes will, of course, reflect the political priorities of the party concerned. But we expect that the schemes will also lean on the Competition and Markets Authority's (CMA) recently published report into the factors holding back housebuilding in Britain.
This extensive report, published in February, sets out what the CMA believes should be the four underlying principles with which future measures to help first-time buyers should comply with.
| THE FOUR PRINCIPLES OF A FUTURE SCHEME TO HELP FIRST-TIME BUYERS |
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|---|---|---|
| PRINCIPLE 1. | A scheme should incorporate supply-led reforms to weaken its potential to push up house prices. Which would benefit housebuilders more than buyers. | |
| PRINCIPLE 2. | New demand reduces the incentive for housebuilders to cut prices. In light of this, the scheme should be designed to attract only those who would not otherwise be able to buy. | |
| PRINCIPLE 3. | The scheme’s design should also consider that reducing deposit requirements leaves buyers vulnerable to higher mortgage rates and falling house prices. This raises the risk of negative equity. | |
| PRINCIPLE 4. | It must be remembered that any temporary scheme creates winners and losers. This has the potential to make it harder for others to buy. | |
Based solely on these criteria, it’s hard to see, in retrospect, how Help to Buy or some of its predecessors could have gotten off the ground.
Unlike its forerunners, Help to Buy did not have an income cap. This meant anyone could use it, exposing the scheme to criticism that some beneficiaries could probably afford a home without government support.
Meanwhile, from 2022 onwards, the 5% deposit requirement potentially left buyers more exposed to higher mortgage rates and falling prices.
"The government is probably further than ever from delivering its 2019 manifesto target of 300,000 new homes a year"
But the relative openness of Help to Buy was also a big strength. During its first nine months, the scheme enabled more people to buy homes of their own than FirstBuy or NewBuy did during their lifetimes of two and three years respectively. This is predominantly because the latter schemes were more restrictive, with income caps in place.
Over a decade, a total of 387,000 buyers used Help to Buy. Their average household income was £50,000, and they spent an average of £259,000 on their property.
These figures do not particularly paint a picture of a scheme that was used in large numbers by those with many other options. But it is also true that many who took advantage of Help to Buy would have been able to buy without its support. As a consequence, the scheme stood accused of boosting buyers’ borrowing power, pushing up prices.
At the same time, Help to Buy may have persuaded some who would otherwise have bought a second-hand property to opt for a new-build home. This gave a boost to sales - and so the construction of new homes. This meant that the number of new homes sold, relative to the number of second-hand sales, increased over the course of the scheme. This increased the number of sales built to a number closer to government targets.
At the start of Help to Buy in early 2013, one new-build home was sold for every 11 second-hand homes. While the scheme was in operation, this figure peaked at one for every eight. It is unlikely that a scheme targeted solely at a narrow group of lower-income borrowers who were frozen out of the market would have stimulated housebuilding in such a way.
The design of any first-time buyer scheme will very much depend on its objectives. A scheme set up to help relatively small numbers of lower-income first-time buyers is unlikely to stimulate large amounts of housebuilding - relative to the wider market. This was the case with FirstBuy and HomeBuy Direct.
But we should acknowledge that higher interest rates have suppressed the demand - but not the need - for new homes. Against this background, a more open-ended scheme would help first-time buyers from a wider range of backgrounds. It would also boost housebuilding.
Most major housebuilders are reporting falls of 20-30% in the number of new homes completed during 2023 on the back of squeezed profit margins. As a consequence, the government is probably further than ever from delivering its 2019 manifesto target of 300,000 new homes a year. But, as Help to Buy has shown us, the politics of a more open-ended scheme can be difficult.
