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Government Warned Help To Buy Boost Would Push House Prices Even Higher

Critics have warned that without more homes being built, a return to Help to Buy would fail to boost homeownership (Alamy)

5 min read

Reports that Help to Buy could be revived by government to enable more first time buyers have been met with concern by MPs and experts that a return of the scheme would actually push prices higher and fail to address affordability.

Help to Buy was first introduced in 2013 by then-chancellor George Osborne with the aim of opening up the property market to first time buyers on lower incomes, but ended in March 2023 after a decade in place, with Government facing criticism that the increase in demand that wasn't matched by supply had artificially inflated house prices.

Under Help to Buy, buyers needed a five per cent deposit and could borrow up to 20 per cent of the value of a home from Government with the remaining cost plugged by a mortgage from a bank. A price cap, which was set at 1.5 times the average cost of a property in the region, meant prospective homeowners could only use the scheme if they bought a home within the price limits. 

New homeowners do not have to pay interest on the Government backed loan for five years, but in the sixth year pay an interest rate of 1.75 per cent. The scheme was more generous in London, which gave people the option to borrow 40 per cent of the property’s value.

According to The Times, Downing Street is now considering whether to reopen the programme in a bid to allow more first time buyers access to the housing market. 

But critics have warned that without more homes being built, a return to Help to Buy would fail to deliver on aims to boost the number of young first time buyers, which have reached record lows in recent years. Research from the Resolution Foundation found home ownership among people aged 25-34 fell from 51 per cent in 1989 to 28 per cent in 2019. 

Former minister and Conservative MP for Whitney Robert Courts, who is a supporter of Next Gen Tories, a campaign group aiming to tackle the generational divide and unlock the support of the under-45s for the Conservative Party, told PoliticsHome he welcomed measures to boost homeownership, said Help to Buy should not be seen as the "whole answer to the housing crisis". 

Courts insisted that the policy stokes demand while failing to tackle supply, which would likely lead to further spikes in average house prices. 

"[Help to Buy] won’t solve the housing affordability crisis which is at the root of the problem," he explained.  

"We need to be addressing the structural problems in the housing market – improving the build-out rate, access to finance, place-making, infrastructure provision, small housebuilders, and self-build – if we really want to make peoples’ dreams a reality.” 

Historically, an increase in demand for housing has not led to more houses being built due to the UK's "extraordinarily inflexible planning system", according to research from LSE

Senior Analyst at Centre for Cities Anthony Breach said Help to Buy "made sense" when it was in the low interest rate era of the 2010s, but argued this economic environment "no longer exists". As the Bank of England continues to hike interest rates to tackle soaring inflation, the cost of holding a variable rate mortgage has increased and become financially unviable for some households.

“Instead, the government needs to fix the supply-side with planning reform to make the process of building homes and infrastructure more certain and less subject to delays and bottlenecks,” Breach told PoliticsHome

The Institute for Economic Affairs' director of public policy and communications Matthew Lesh said Help to Buy gives the “illusion of affordability” and only adds fuel to the housing market.

“The only way to address the housing crisis is through policies that enable more houses to be built where people want to live; allowing people to borrow more money to buy one of the few existing houses just bids up prices,” he told PoliticsHome.

Under successive governments the average house price nationally has soared from £150,000 in 2005 to £287,000 in 2023. Although typical property prices fell for a third consecutive month in April, according to the Office for National Statistics, they have only dropped from £293,000 in November to £287,000 in February. 

Research from Centre for Cities found Britain has a backlog of 4.3 million homes which are missing from the national housing market. It said it would take half a century to fix the current housing deficit if the Government stuck to its advisory target of building 300,000 homes a year.

Maxwell Marlow, Director of Research, Adam Smith Institute, said rather than extending Help to Buy, the way to support young people was to build more homes. 

“The most basic economics should tell anyone that we do not have enough supply of housing – a subsidy will be a waste of money, a concerted effort to build more houses, will not,” he told PoliticsHome.

Rishi Sunak has diluted plans to liberalise UK planning laws after up to 60 Tory MPs wanted the Prime Minister to scrap mandatory house building targets to enable more homes to be built. In a letter to MPs last year, Levelling-Up Secretary Michael Gove confirmed housing targets would only be "advisory". 

Over the weekend Labour leader Keir Starmer told the Guardian he wanted the Labour party to become “the party of home ownership”. He told the paper the Prime Minister had "killed" the prospects of many getting onto the property ladder when he abolished mandatory housing targets.

In a series of proposals last month, Labour promised to give “first dibs” to first-time buyers in their local area, reform planning laws and stop “entire developments” from being sold to foreign investors.

Lisa Nandy, Shadow Secretary of State for Levelling Up, Housing and Communities, promised in September to build more homes in order to ensure 70 per cent of Britons owned their own property.

Priced Out, a campaign for affordable houses, criticised both parties' policies and claimed the only way to fix the current crisis was to "overhaul our dreadful planning system".

“Supply-side solutions are the way forward. We urge the Prime Minister to bring back housebuilding targets, and build more homes," a Priced Out spokesperson told PoliticsHome

“Help To Buy is just sweeping a gargantuan crisis under the carpet for the next Prime Minister to deal with, while allowing yourself to say you did something on housing as you make the post-premiership speech rounds."

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