The UK's ‘Help to Buy' schemes in the 2010s aimed to relax
borrowing constraints for homebuyers. The two main schemes were
introduced in 2013: the mortgage guarantee scheme increased the
availability of high loan-to-value (LTV) mortgages, while the
equity loan scheme provided a government-backed 20% loan to
buyers of new-build properties, reducing the mortgage necessary
for a given property.
In new IFS research, which develops a new methodology for
estimating affordability, we assess the impact of these schemes
on housing affordability – a question particularly
important given calls for the reintroduction of an equity loan
scheme, and given that a mortgage guarantee scheme has been made
permanent. We find the following:
- In the early 2010s, most non-homeowners were constrained by
income-based limits on mortgage lending, rather than by the
deposit they could potentially raise. We find that people had
access to larger deposits than suggested by previous work because
we account for the fact that people commonly save more and get
parental transfers close to the time of a house purchase.
- Because most people were constrained by their incomes, the
mortgage guarantee scheme had limited effect on housing
affordability for first-time buyers, since this scheme only
relaxed the deposit constraint on mortgage lending, while the
equity loan scheme had more effect on affordability for this
group.
- Overall, and despite the fact that, at the schemes' combined
peak in 2014–15, around a fifth of first-time buyer purchases in
England were supported by them, Help to Buy made only a limited
difference to housing affordability. This is largely because, for
most people, the set of houses they could afford was not affected
by the mortgage guarantee scheme, and because the equity loan
scheme only applied to new-builds, which are relatively rare in
most areas.
- Affordability gains from the Help to Buy schemes were
concentrated amongst higher-income individuals. It is likely
that, for these individuals, the schemes would have accelerated
their first home purchase by a few years, rather than making the
difference between getting on the housing ladder or not.
- Those in London and the South East saw larger increases in
the price they could pay for a house but smaller increases in the
share of local properties affordable, compared with those living
in cheaper areas.
- The relaxation of borrowing constraints seems neither to have
entrenched inequalities in homeownership by parental background,
nor promoted social mobility – those with different parental
backgrounds saw similar affordability gains conditional on their
other characteristics and the areas in which they were living.
Bee Boileau, a Research Economist at IFS and coauthor of
the briefing, said:
‘Help to Buy policies can help first-time buyers get on the
housing ladder, in theory, but can also push up house prices and
require the government to assume the risk on loans that the
private sector is not otherwise willing to make. Our research
indicates that the Help to Buy schemes introduced in 2013 had the
largest impact – in terms of making more homes affordable – on
higher-income households. If policymakers wanted to boost
affordability for those with lower incomes, they could offer more
generous subsidies to this group. This would involve a difficult
trade-off, however. It could increase social mobility and reduce
inequalities when getting on the housing ladder, but would also
increase the exposure of both the government and potential
borrowers to housing market downturns.'
ENDS
Notes to Editor
Who benefits from ‘Help to Buy' schemes? is an IFS
briefing by Bee Boileau, Lucas Conwell (UCL) and Peter
Levell.
