Help to Buy mostly helped high earners, IFS says

A government loan scheme for first-time home buyers in England mostly helped higher earners in areas where homes are cheaper, a major think tank has said.

The Help to Buy scheme which was introduced in England in 2013 by the Conservative government also had "limited impact" on social mobility, according to the report from the Institute for Fiscal Studies (IFS).

The scheme was intended to help those without access to money via friends and family by loaning them some of the funds for a house deposit and increasing mortgage availability.

Critics say it pushed up house prices by allowing people to spend more, but defenders say it helped many people buy homes and boosted housebuilding.

The IFS report specifically focuses on the Help to Buy policies introduced in England in 2013, which comprised the mortgage guarantee scheme and the equity loan scheme.

The former increased the availability of mortgages with 5% deposits. The latter provided a government-backed 20% loan to buyers of new build properties, reducing the amount a buyer would need to borrow.

Help to Buy equity loan schemes are closed to new applicants in England and Scotland. The Welsh scheme will close in September.

There was never a similar equity loan scheme introduced in Northern Ireland.

Meanwhile, the mortgage guarantee scheme has been made permanent across the whole of the UK.

There are also a variety of other home buying schemes and support in different devolved countries.

Despite the fact that by Help to Buy's peak in 2014–15 around a fifth of first-time buyer purchases in England were supported by it, the IFS said "Help to Buy made only a limited difference to housing affordability".

The IFS's research was conducted "given calls for the reintroduction" of the loan scheme.

Its findings also echo previous criticisms from the official government watchdog.

The IFS said Help to Buy did not, as intended, help make homes affordable for many because it was limited to being used on new builds, which were "relatively rare in most areas".

In its research, the IFS also showed that the more a buyer earned, the more the scheme helped, meaning higher-income individuals gained most.

It said it "increased maximum affordable prices most among those who could already afford higher prices".

The IFS's research found that people in the early 2010s were constrained by income-based limits on mortgage lending, so the loaned deposit had a "limited effect" on housing affordability for scheme participants who often got help from friends and family at the last minute.

"Help to Buy policies can help first-time buyers get on the housing ladder, in theory, but can also push up house prices," said Bee Boileau, a research economist at IFS.

The IFS also said the scheme was less helpful to buyers in London and the South East, where homes are pricier, because fewer homes were available within the scheme. As such, higher earners in cheaper areas benefitted most.

However, defenders of Help to Buy said it helped many people onto the housing ladder and led to more homes being built.

"The scheme was a major factor in the doubling of housing supply that occurred in the few years following its introduction, creating tens of thousands of jobs and leading to a boom in the supply of affordable housing provided through private sector cross-subsidy," the Home Builders Federation said.

Shadow housing secretary James Cleverly said the Conservative policy "gave many thousands of people the chance to realise the dream of homeownership".

A spokesperson for the Department of Housing, Communities and Local Government said Help to Buy was both introduced and closed by the previous government, and that "an evaluation of the scheme is ongoing".

"While we have no current plans to introduce a new Help to Buy scheme, we have launched a comprehensive mortgage guarantee scheme that will open the door to homeownership for more young families and hardworking renters," the spokesperson said.