Drop in Help to Buy numbers highlights first-time buyer challenges

The fanfare around Help to Buy seems to have died down over the last twelve months and this might be explained by the substantial drop in numbers the scheme has experienced since its reinvention in April 2021.

Completions were down 65% in Q1 2022 compared to Q1 2021 and 48% on Q1 2019 – the last comparable figure pre-covid. By its own admission, the Government in part, attributes this large fall to the regional price caps it introduced in April 2021.

Under Help to Buy the Government provides up to 20% of a new-build property’s value via an equity loan - 40% in London - repayable when the property is then sold. The original scheme had a price cap of £600k across all regions and was open to anyone, although first-time-buyers who made up 82% of all purchases.

In April 2021 however, this changed and price caps across all regions – excluding London – were introduced, ranging from £186,100 in the North East to £437,600 in the South-East, with the scheme also limited to first-time buyers.

It is perhaps not surprising then that the North East has seen the greatest slide with completions down 85% in Q1 2022, compared to Q1 2021 and 77% on Q1 2019. The decrease in London – where no price cap was introduced - was comparably the least of all regions, with completions decreasing by 32% compared to Q1 2021 and 15% on Q1 2019.

When we look at the average house price in the North East, it is likely a number of first-time buyers simply could not find a new-build property within the cap.

The average house price in the North East sits at around £174,877, according to Rightmove, and £458,397 in the South East. While Rightmove’s figures do not differentiate between new and existing properties, the average new-build price is likely to be higher.

The latest figures from the Land Registry show the average price of a new build was £378,499 in April 2022 – up 16.9% on the previous year. This compares to £273,767 for an existing resold property, which saw a 11.7% annual increase.

The fall in completions is a stark reminder of the costs first-time buyers face. Average first-time buyer asking prices are at a record £224,943 - 13% higher than two years ago, according to Rightmove, equating to a 10% deposit of £22,493.

The withdrawal of the Help to Buy scheme - or at least the historic version of it – will leave a hole in the market that will need filling. Since its launch in April 2013, some 361,075 properties have been bought through the scheme, equating to £22.5bn in equity loans.

There are a number of active schemes in the pipeline or staring to emerge but as yet, no obvious substitute. First Homes, for example, which offers a 30% to 50% discount on new-build properties to first-time buyers is still in the early stages. As are other schemes such as Deposit Unlock, which offers homebuyers with just a 5% deposit, a mortgage on a new-build property.

Even with high LTV and shared ownership mortgages available, there is nothing currently of the same size and scale as Help to Buy.

It is likely for the foreseeable future that we will continue to see an increased reliance on the Bank of Mum & Dad. Recent research from Savills estimates that in the three years to 2024, nearly half a million first-time buyers, or almost one in two, will get financial help from a parent or other family member.

Speaking from personal experience, the cost of helping children onto the housing ladder can be a worthwhile investment when it is weighed against the cost of having them live at home. As we’ve seen housing equity shoot up, those parents who are able to help their children will likely continue to do so.

While parental help will prop up the market, it is not necessarily the best long-term solution for a sustainable first-time buyer market – especially as the Bank of Mum & Dad will also be hit by the increased cost of living.

As such, it is pivotal the industry and Government continue to invest and innovate to help this cohort of borrowers, who form the base of a healthy mortgage market both now and in the long-term as they move through the phases of property ownership.