Help to Buy "not stoking a boom," data shows
Published: 4 June 2014 | Author: Bernard Clarke
The combined impact of both the Help to Buy equity loan and mortgage guarantee schemes so far seems to be on target. Confounding some commentators' expectations, new figures appear to show that the policy is having no amplifying effect on the more active parts of the UK housing market - but it does seem to be helping parts of the market where recovery is weaker.
Last week (29 May), new government statistics were published showing that, up to the end of March, nearly 27,000 households had bought a property using either the equity loan or mortgage guarantee elements of the scheme.
But how do mortgages taken out under Help to Buy compare with the characteristics of the wider market? By comparing government figures on Help to Buy loans with our own data on the wider mortgage market, we can see some notable differences. This article outlines the comparisons on a national and regional basis.
The national picture
The UK picture from April 2013 to March 2014 shows that Help to Buy (in both forms) accounted for around 4% of all home-owner mortgages for house purchase. The overall average property value for first-time buyers over this period was £188,600 - very similar to the overall Help to Buy property value of £190,200.
The table below shows the national summary, on a UK-wide basis.
Table One: Help to Buy and wider mortgage market summary, April 2013 - March 2014
|SCHEME||HTBMG||HTBEL||ALL HTB||ALL HOUSE PURCHASE|
|Number of completions||7,313||19,401||26,714||636,100|
|Average (mean) value of property||£151,597||£204,805||£190,200||£243,600|
|Percentage of FTBs||79%||88%||85%||45%|
|Percentage outside London and SE||80%||76%||77%||70%|
Equity loan, mortgage guarantee and the wider market
The equity loan scheme began earlier than the mortgage guarantee scheme, and to date has had the far higher level of take-up. In total, to the end of March there had been 20,222 equity loan mortgage completions.
By contrast, the number of mortgages that have been completed with the backing of a Help to Buy mortgage guarantee has reached 7,313. In every region except the South East and the North West, the number of mortgage guarantee completions to date has been less than 1,000. It is therefore important to keep in perspective that the number of first-time buyers in the UK over the same period was around 286,400, while the total number of loans for house purchase was 636,100.
The regional perspective
The impact of Help to Buy varies considerably on a regional basis. For example, the active London market accounted for 13% of all loans for house purchase between April 2013 and March 2014. However, London accounted for only 6% of all Help to Buy (equity loan and mortgage guarantee) transactions.
Although the South East accounted for the highest share of Help to Buy lending - 15% of the UK total - this is lower than the South East's share of the home-owner mortgage market overall, at 16%. Even more of a contrast is the fact that, within the region, only 4% of all house purchase lending was undertaken using Help to Buy.
By contrast, the North East accounts for only 5% of the UK's Help to Buy lending, yet tops the list in terms of regions where Help to Buy accounts for the largest proportion of all loans for house purchase, at 10%.
Overall, the North East accounts for only 3% of all UK house purchase mortgages, and only 3% of all UK first-time buyers, so it is clear that the Help to Buy effect is more significant as a market influence there than in the South East, for example.
The table below shows the relative regional performance of Help to Buy, both as a proportion of the UK total Help to Buy business, and as a proportion of total business in each region between April 2013 and March 2014. The final column sets out each region's overall share of UK house purchase mortgages over the same period.
Table Two: Cumulative HTB scheme volumes by region1, all loans advanced between April 2013 and March 2014
|% of total HTB||All HTB as a % of all home-owner house
purchase lOAns in region
|% of total UK house purchase mortgages|
|Yorks & Humber||10%||5%||9%|
Source: DCLG, HMT, Scottish Government, Welsh Government, CML Analysis
1 Figures are presented by former Government Office Regions. Figures for all home-owner house purchase loans and all FTB loans will not be consistent with those in tables ML1R and ML2R which use Standard Statistical Regions
2 Includes HTB: Equity Loan, HTB:Scotland & HTB:Wales
3 Loans advanced in the period April 2013-March 2014
Broadly, we think that commentators should be reassured by the latest data on Help to Buy. The policy appears to be reaching the geographical parts of the market where recovery has been weakest, while accounting for only a small proportion of business in those areas where the market is more active. On the basis of these figures, the scheme appears to be successfully reaching its target group of creditworthy borrowers who would otherwise be unable to buy until they had accumulated a more significant deposit. Lenders are always mindful of what their customers can afford.
Throughout the UK, the proportion of business accounted for by Help to Buy has to date been modest overall. Any worry that the scheme risks stoking a housing boom fortunately does not seem to be playing out in practice so far.
Of course, this is a moving picture, so we cannot assume that the current snapshot gives a complete understanding. It will be interesting to see whether Help to Buy continues to influence the regional pattern of activity in the way that it has started. The equity loan element is very different to the mortgage guarantee part of the scheme, so it is also vital to differentiate between their respective impacts, too.
We think the varied nature of the different regional and local markets in the UK is an important point for policymakers and commentators to keep in mind when considering possible amendments to the scheme, or to other housing market interventions. Outside London and the South East, many of the regional markets are far less active. By contrast, inside London and the South East, the direct effects of Help to Buy so far appear muted.