Returns made on the repayment of help-buy loans following increasing house prices have, according to research from Hometrack, netted the Treasury up to £213 million in paper gains (unrealised profit in an investment).
The figure comes from research conducted by the property firm and first published in The Guardian.
With the help-buy equity scheme, potential homebuyers can take out a loan from the government worth up to 20% of the value of the property in question, so that they can take out a mortgage with an LTV of 75% with only a 5% deposit put forward.
The loan is repaid once the property is sold, at which time the same percentage of the sale price, rather than the purchase price, is due. This means that as property price go up, so too do the returns that the Treasury makes on the loans given.
Since the scheme was launched back in April 2013, the government has loaned out around £2.7 billion in help-buy equity loans. According to Hometrack ‘s findings, the total value of the properties purchased through the scheme has gone up by £1 billion. And so, if everyone who signed up took the maximum 20%, then the property firm estimates that the Treasury is sitting on £213 million in paper gains.
Hometrack ‘s research director, Richard Donnell, was quick to point out that he did not consider their findings to be demonstrative of any profiteering or anything otherwise untoward on the part of the government.
He said: “clearly the government is not doing this as a money-making scheme, it is doing it to stimulate the market.”
The scheme was intended to boost confidence in the market, and to increase the number of homeowners.
The increase in house prices can be seen as evidence of increased confidence, but Legal and General Mortgage Club director Jeremy Duncombe, did warn that this could be something that could work to the detriment of the project.
” help-buy loans can also boost demand in what is already a highly saturated market,” he said, “which in turn is likely to put upwards pressure on house price inflation.”
“As such, this could be considered as counter-productive in terms of long-term impact on affordability.”
The biggest gains have been made in Milton Keynes and in Central Bedfordshire, where house prices have increased sharply, netting the government £12.8 million (£6.4 in each area) in paper profits. However, in seven areas, the government ‘s stake actually fell, by between £40,000 and £100,000.