The Scottish Government is being urged to drop a “dysfunctional” subsidy for home-buyers after new data obtained by The Ferret revealed how it benefits big house-builders.
Around £189m in subsidised mortgages has gone to three high volume house-builders: Persimmon, Taylor Wimpey and Barrat, through the Scottish ‘Help to Buy’ scheme to date. The firms have built nearly half of the homes under the scheme.
Experts, housing charities and Green MSP Andy Wightman, who also chairs the cross-party group on housing at Holyrood, say that the Scottish Government should end the controversial scheme in the next Scottish budget.
Help to Buy enables the government to subsidise the cost of home-buyers’ mortgages with prospective buyers getting up to 15 per cent of the purchase price of a new home.
Typically, this means that the government provides about £27,000 in equity for each home, although the average stake has been higher in the past. So far 11,809 homes worth £2.2 billion have been purchased with support from the scheme.
But critics say it does little to benefit those on low incomes, claiming it makes housing more expensive for everyone else by pushing up prices generally.
“The Help to Buy scheme is dysfunctional and should be scrapped,” said Wightman. “Across the UK it has been responsible for increasing house prices and subsidising the private interests of the speculative volume housebuilding industry.”
He added: “For too long now, boosting profits for senior management and shareholders has taken precedent over delivering homes that can properly be called affordable. Housing policy should focus on the supply side rather than demand.”
New figures obtained by The Ferret using freedom of information legislation show that a small number of large housebuilding firms have sold thousands of houses through the scheme.
York-based Persimmon Homes, has benefited most from the scheme. It has sold 2,308 homes with the Help to Buy subsidy – accounting for nearly one fifth of all the homes sold through the Scottish programme.
Based on the average equity stake per home provided by the Scottish Government, The Ferret estimates that the Scottish Government has put around £77.4m into the purchase of Persimmon built homes.
It was reported recently that 150 managers at Persimmon are to split shares worth £837m between them.
Other major housebuilders to benefit from multi-million pound mortgage subsidies from the Scottish Government include London-based Taylor Wimpey, which has received an estimated £57m worth of mortgage support.
BDW Trading, which is part of Leicester-based Barrat Homes, has benefited from around £54.8m worth of subsidised loans.
In early 2016, the Scottish Government announced it would ring-fence one third of its Help To Buy funding for smaller developers.
But the figures show that in the 2016 – 2017 financial year, Persimmon, Taylor Wimpey and Barrat built 52 per cent of the homes supported by the scheme. So far in the current financial year, these three firms have accounted for 50 per cent of the 1,264 homes which received Scottish Government subsidy.
In response to our new data, Graeme Brown, the director of housing charity Shelter Scotland, has called on Scottish ministers to end Help to Buy. He argued that the money would be better spent on supporting affordable housing for social rent.
“Help to Buy is not the right way of addressing the housing crisis. It adds public money into the market rather than lowering prices for everyone,” he said.
It would be better to direct resources to increasing the supply of affordable housing for social rent, he argued. “This would reduce the threat of homelessness to many people who are currently struggling to keep a roof over the heads due to a combination of high rent, stagnant wages and welfare reform.”
A minute from a meeting of the Scottish Government “Help to Buy Monitoring Group” shows that civil servants believe the scheme supports 1,200 jobs per year and the construction of 900 extra homes per year.
The same document includes an “action point” for industry representatives on the group to provide government officials with more evidence to support the scheme.
In England, where the equivalent scheme operates slightly differently, a 2014 National Audit Office assessment showed uncertainty over the long-term costs. This is because taxpayers only stand to get their money back from homeowners if those borrowing can keep up repayments and property prices stay static or rise.
A Shelter analysis of the English scheme published in 2015 found that the scheme had added £8,250 to the average house purchase price.
A more recent analysis by Morgan Stanley also concluded that Help to Buy schemes had pushed up the price of new build homes. According to the Guardian, the bank said: “Help to Buy (and broader house price inflation, among other things) have helped house-builder earnings triple since its launch.”
But these may not be the only effects the scheme has on the market. Research into the Welsh Help to Buy scheme found it benefited individual buyers, and the building firms themselves, but may have made it harder for some people with small homes to sell their houses.
This is because the scheme may have resulted in people buying larger, new-build homes instead.
According to Dr Peter Mathews, senior lecturer in social policy at Stirling University, Help to Buy could have inflationary effects on the housing market. “It is a regressive policy as most households who use it would have been likely to achieve their aspirations from home-ownership anyway as they are affluent,” he said.
“It just would have taken them slightly longer to save a deposit. The issues of housing supply and housing affordability are far more complex than the policy allows for.”
Scottish Government figures show that 60 per cent of the households who bought a home using the Scottish scheme up to 2016 had an income of £40,000 or more.
Mathews argued that the institutions of land ownership, the planning system, and mortgage finance in the UK and Scotland, have persistently favoured high volume house-builders. “It has been long recognised that the lack of diversity in the market for new house building reduces competition and choice for consumers.”
“However, the structure of the market mitigates against smaller companies and self-build entering the market to increase competition, driving down price and improving quality.”
Supporters of Help to Buy schemes point to research suggesting that it has helped to stimulate new house building. A study commissioned by the Department for Communities and Local Government found that the English scheme had helped to increase the number of new homes that had been built there by around 14 per cent.
Nicola Barclay, chief executive of industry body Homes for Scotland, said: “With housing completions still 36 per cent down on pre-recession levels, Help to Buy has played a hugely important role in sustaining the construction of new homes, supporting tens of thousands of jobs and contributing £1bn in Gross Value Added to the wider economy since launch.”
She emphasised that taxpayers were likely to get their money back over the long term, and could even profit, provided house prices rise, as the loans were repaid.
Persimmon Homes, Taylor Wimpey, and Barrats are all members of Homes for Scotland.
Scottish Government meeting minutes show that Barclay opposed a proposal from Scottish Government officials that could see the Help to Buy scheme limited to smaller developers only.
Minister for Housing, Kevin Stewart, said that the Scottish Government was investing £3bn in building 50,000 affordable homes and that the Help To Buy scheme was in addition to this.
He said: “We are committed to help struggling buyers purchase their own home through our shared equity schemes.
“Over 10,000 households have benefited from our Help to Buy programme since its introduction – two thirds of these were first time buyers and three quarters were aged 35 or under. The evidence also shows the scheme has had success in helping people move from social housing and from waiting lists into sustainable home ownership.
“Shared equity support is provided directly to buyers and builders receive no support from the Scottish Government. Help to Buy is led by demand from buyers and the Scottish Government has no control over the number of developments made available by each builder or where these developments are located.”
The full Help to Buy data can be found on The Ferret’s github page.