The influential parliamentary Public Accounts Committee (PAC) is the latest to join the long line of critics of the government’s Help to Buy policy, pointing out that the coalition doesn’t really have any idea what it’s doing. By being made up as it goes along, the flagship scheme could well be doing more harm than help to the economy.
1. The housing department has no experience of managing a £10bn loan portfolio
PAC chairman Margaret Hodge have described Help to Buy as a ‘medium and long-term risk’ to the Department for Communities and Local Government (DCLG). ‘Managing such a portfolio is new territory for both the department and the Homes and Communities Agency, and the ongoing monitoring required will create a heavy administrative burden for both organisations, potentially over decades,’ she said.
In other words, the DCLG is pretty much making things up as it goes along. Fills you with confidence doesn’t it?
2. The government didn’t look into alternatives
The DCLG, led by Eric Pickles, ignored Treasury guidelines and didn’t actually investigate alternatives to Help to Buy. As Hodge points out, ‘The department will not carry out a comprehensive evaluation of the scheme until 2015, by which time billions of pounds will already have been spent.’
That’s not to say Help to Buy wasn’t the best of a bad bunch of policy options to stimulate the economy and help people access the housing market. Nonetheless, as with the point above, it kind of seems like the government is groping in the dark. It means Help to Buy risks ending up being a waste of money, rather than securing the economy’s recovery.
3. Buyers have managed to access Help to Buy with deposits of less than 5%
The PAC hasn’t said how many Help to Buy loans and mortgage guarantees are being approved for buyers with deposits of less than 5%. Nonetheless, for a start, it means the scheme is circumventing its own rules. More importantly, it means more risk piling on the taxpayer. If buyers lose their jobs or struggle with repayments when interest rates eventually rise then the bailout wagon will start rolling once again.
4. It isn’t being used in the areas where houses are needed most
Housing demand is greatest in London, where prices leapt 18.7% in the year to April, and the surrounding South East. However, the take up of Help to Buy (which applies to new homes worth less than £600,000) has been biggest in the North and Midlands. That means the scheme hasn’t been much use addressing the chronic shortage of new builds and pent-up demand around the capital.
5. But it still could be fuelling a housing bubble
Excluding London and the South East, house prices in the UK have still risen 6.3% in the last year, according to the Office for National Statistics. In the North West, prices boomed 12.8% year-on-year in the first quarter of 2014, according to Lloyds figures. Unless Help to Buy really is encouraging a surge in new homes (which of course the government doesn’t yet know, as per point 2), it is probably adding fuel to the fire.