The Help To Buy Program Explained - With Assessment Of First Year Results

By Author: Chris Westerman
Total Articles: 272
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The Government’s scheme to help homebuyers, the Help to Buy program, is showing signs of success for buyers and builders. The numbers don’t lie.


Shareholders with homebuilder Taylor Wimpey may well be homeowners already. But they also might be celebrating the Help to Buy scheme, which is primarily designed to help first-time buyers get on the property ladder and for existing homeowners to buy something a little bigger. The scheme has helped approximately 40,000 people buy a home since it was implemented in early 2013. And as designed, the programme is goosing new-build construction activity.


The background of UK Finance Minister George Osborne’s programme is this: a reason homebuilding has been so limited in recent years is because the financial recession and other economic factors have made it hard for younger, working people to get financing for a first-time home purchase. With fewer buyers available, there was less incentive to build (although some new-build investors were steering their pounds to rental properties).


Note, this was at a time when real ...
... estate investment trusts (REITs) and land investment funds were available to investors. The interest in building was there - but the bottleneck in connecting homes with buyers was largely at the financing end. Particularly where it came to producing a 20 per cent deposit, as was often required.


But Help to Buy changed that - despite some grim prognostications of naysayers. Both first-time and existing homeowners could now access a mortgage on homes valued up to £600,000 with as little as a 5 per cent deposit. The scheme is available for primary residences only, not second home purchases. As of July 31, 2014, 15 months after the programme was initiated, here are some reported results:

27,167 properties were bought using Help to Buy.

House building is at its highest level since 2007.

The rapidity with which this is affecting house building is astonishing - according to Stewart Baseley, executive chairman of the Home Builders Federation, this is the steepest trajectory of growth seen in 40 years.

However it should be noted that this doesn’t satisfy all parties. The current level of house building fails to fully satisfy the need, a need which has been increasing for a full decade. The Census 2011 identified a 7 per cent growth in population at a time when home building was virtually nil; this deficit in housing is expected to last for a further decade or longer into the future, even with accelerated building.


And while Shelter, the housing charity, urges all forms of building to increase supply and therefore contain or lower costs of all housing - social and affordable market rate rental properties included - Labour party spokespeople are critical that new construction is not directly adding to social housing stock. Housing minister Brandon Lewis counters that average house prices rose by 214 per cent - from £58,000 to £184,000 on Labour’s watch, between 1997 and 2007.


Taylor Wimpey’s pre-tax profits rose 64 per cent in the first half of 2014, with 45 active sites in Yorkshire alone. Others, including those interested in alternative investments, are involved in the site preparation that is accomplished prior to homebuilders’ involvement, typically through strategic land partnerships. This is where raw land is purchased and use designation is changed to allow for residential development. Individual investors are advised when considering these and other real estate investments to consult with an independent financial advisor to weigh risk and opportunity relative to personal wealth building objectives and strategies.