The Treasury has almost £2 trillion in profit from loans it received under the Help to Buy home purchase program, which officially ends tomorrow.
The government has provided more than 375,000 loans to first-time homebuyers since its launch in 2013. It was started by George Osborne, who was then chancellor. They borrowed an average of £62,000.
Homes England says that the UK Treasury makes an average profit of £4,700 per loan. This is despite the fact that the UK Treasury’s “housing accelerator” is the government’s housing program. If house prices remain roughly the same, then that would mean that the government could make around £1.8 billion from Help To Buy.
Equity loans are used in the scheme. This means that the Treasury and taxpayer own a portion of the houses and have the right to any price rise proportional to its loan amount. A borrower with 20% equity would have to pay £2,000 in addition to the initial loan amount to repay the loan. If they sell their home for PS10,000 less than they borrowed, the lender would be liable to any increase in prices.
Nationwide data shows that house prices have increased by approximately 54% since Help to Buy was implemented. The average price of a house has risen by almost 20% since the outbreak of the pandemic three-years ago.
About 25% of all Help to Buy loans were repaid as of March 2013. The Treasury received £5.52billion for this loan, which was originally lent £5.05billion. Nearly £24 billion in Help to Buy loans have been written by the Treasury, which has been used to purchase homes worth £105billion. These figures are from September so the final totals will be higher. In addition to the capital gains, the government has also received millions in interest payments. These amounts reached £34.3million in the 2021-22 fiscal year.
Help to Buy was designed to assist first-time buyers in obtaining a property. However, a House of Lords report stated that the scheme increased the price.
To increase the number of people living in homes, and stimulate the economy, Help to Buy was created. It worked, developers say. Hundreds of thousands used it to climb the property ladder. Last year saw twice the number of houses built than 2013, and Help to Buy generated £63 billion of economic activity according to the Home Builders Federation.
Some critics called it “Help To Profit”, referring to the financial performance of developers and the bonuses given to certain executives. Most notably Jeff Fairburn was the former chief executive at Persimmon who was paid more that £75 million. Last year, a House of Lords report criticized Help to Buy for driving up house prices. It concluded that the money could have been better spent on increasing housing supply.
There will not be an incentive program for first-time buyers starting Saturday. The HBF stated that builders can only build if buyers are able to buy. The HBF stated that the scheme’s withdrawal would mean that potential buyers would lose their ambitions.
According to the Treasury, Help to Buy loans have “helped thousands get on to the property ladder and provided additional revenue for public services”.