Help to Buy scheme poses long term risks and yet to provide value for taxpayerís money, says Public Accounts Committee
The government has yet to exhibit that its flagship Help to Buy scheme is providing taxpayers with poor value for its money, according to an efficacious and prominent committee of MPs.
The Commons Public Accounts Committee (PAC) has argued that the Equity Loan scheme- an initiative which involves the government providing homebuyers with equity loan finance totalling 20% of the price of the property they are buying, up to £600,000- is currently posing severe long term risks to British taxpayers in the form of a £10 billion portfolio of finance loans which will see future governments for years to come struggle to manage the administrative burden of liabilities being accumulated today.
In their latest public disclosure, the PAC argued that the initial effects of the scheme when it was first officially launched back in 2013 was positive, with an estimated 13,000 prospective homeowners given the help they required in order to acquire their desired property during the policyís first 9 months.
However, their official report also identified that Eric Pickleís Department for Communities and Local Government (DCLG) breached Treasury protocol by neglecting to undertake a comprehensive evaluation of different and viable alternatives to the scheme before deciding to push ahead with its implementation.
Committee chair Margaret Hodge has promised to perform a ëcomprehensive evaluationí of the schemes performance and effectiveness, but has warned that no such measure will be taken until next year, by which time taxpayers could have shafted out of millions and a future government could be left with an administrative burden that will take years to overcome and get under control.
Ms Hodge said: "This means it has committed to spending up to £10bn on supporting Help to Buy without establishing whether it represents the most effective way of using taxpayers' money to achieve its objectives.
"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 evaluation needs to ask three things: whether more people purchased properties than would have done without the scheme; whether builders built more houses than they would have built otherwise; and what effect the scheme could be having on house prices."
ëLong term risksí
The Public Accounts Committees identification that the Equity Loan scheme could be providing poor value for money is one of the few occasions in which this phase of the governmentís flagship initiative has been cast into the spotlight, with the second phase, the Mortgage Guarantee Scheme, being far more controversial and heavily scrutinised in recent times.
Help to Buy was launched in two stages last year, with the initial phase, the Equity Loan scheme, officially instigated back March 2013. Whilst this element of the scheme has garnered widespread praise for encouraging and assisting people to build their own home, it is the second stage, the Mortgage Guarantee scheme, which has been subjected to severe criticism for lowering deposit requirements for prospective homeowners to just 5%, and encouraging prospective homeowners to obtain huge levels of debt through mortgages as high as 95% loan to value.
Market analysts have argued that the nature and allure of the Help to Buy has artificially inflated the prices of homes in the county by raising demand at a rate in which supply simply cannot keep up.
This alleged reality has already led to a growing contingency calling for the schemes removal from the property landscape, with critics arguing that it is now serving a counter-productive function to its initial purpose by inflating property prices out of the reach of young aspiring homeowners who are now faced with the choice of either taking on huge levels of debt at cheap borrowing costs with interest rate rises on the horizon, or being condemned to years of renting homes as the overall costs of buying a home are now well out their finances reach.
However, the government will now feel added pressure to reconsider their scheme, after the PACís report suggested that the Equity Loan scheme is failing to have a considerable effect on the areas which vitally require new homes- such as London and the South East.
The report reiterated previous government forecasts that between 25% and 50% of homes bought via the Equity Loan scheme since its introduction resulted in the construction of properties that would otherwise not have been erected. It also gave credence to previous research conducted by the National Audit Office which concluded that the scheme ìmay be improving the confidence and appetiteî of house building companies to construct more new-build houses.
However, it also stressed that the overall effect the scheme has had in the UK has widely differed from region to region, with the North, Milton Keynes and the Midlands being identified as the areas which have benefitted the most from the equity loan policy but more troublesome areas such as London and the South East-which severely require a fresh plethora of new-build homes- are yet to be meaningfully impacted by the initiative.
"The department should assess the scheme's effectiveness in different local and regional housing markets and tailor the scheme so it is effective in all regions," said Hodge.
"The scheme creates a medium and long-term risk to the department by building a £10bn portfolio of equity loans that will require careful management [and create] a heavy administrative burden Ö potentially over decades.
"There are also more immediate risks, particularly the fact that some buyers have accessed the scheme with deposits of less than 5%, which increases taxpayers' exposure to risk."
The housing minister Kris Hopkins said: "The Government completely rejects this report Ö the Help to Buy equity loan scheme is building more homes and supporting the economy ñ in fact we estimate the wider economic benefits could
be as much as £1.8bn.
"It is also offering excellent value for money for taxpayers Ö since the scheme's launch house building is up a third and now at its highest level since 2007."
Labour housing spokesperson Emma Reynolds argued that the PAC findings heightened public concerns that the government failed to adhere to ethical protocol and evaluate the long term risks of the scheme before its official implementation. Ms Reynolds added that the government should have comprehensively assessed whether it would provide taxpayers value for their money and whether it would end up being effective, considering the endemic housing problems troubling the country at present and the reality that house building levels at present are at their lowest point since the 1920ís.
The Labour housing spokeswoman Emma Reynolds said the report raised concerns that the government had not fully assessed the scheme's value for money or how many new homes it would build, with the number of homes being built still at the lowest level in peacetime since the 1920s.
Compare mortgages with MoneyExpert.