Stop the presses! Hold the front page! ‘Help to Buy’ is actually doing what it says on the tin. Figures released last week by the Department for Communities and Local Government show that in the first two quarters of it’s difficult birth, the governments flagship policy has allowed 5,375 brand spanking new properties to be purchased.
In it’s first incarnation ‘Help to Buy’ is an equity based scheme which basically means that taxpayers actively parted with the cash to fund 20% of the deposits for 5,375 applicants that qualified. Here at Generation-rent.com we ran over the figures and put them in a more understandable format.
Number Of Loans
So here’s the amount of loans that where granted in Quarter 2 and Quarter 3 of 2013. The first thing that struck us was the very low uptake in the London boroughs, it would seem that the biggest beneficiaries have been the folk everywhere else in the UK. Even ‘Help to Buy’ cannot help the beleaguered Londoners. This, in turn, is showing an accidental ‘non London centric’ effect that exists within the scheme. Sorry London.
The most important thing to see in this chart is the uptake rate. The uptake in these loans has increased 257.45% between the last month of Q2 and the last month of Q3. We suspect that is the effect of the marketing machine seeing what happens in Q2 and crankint up the sales in Q3. Anyone else started to see ‘Help too Buy’ signs springing up on developments everywhere?
Ok, So what’s it literally cost taxpayers so far…?
Value Of Equity Loans
We’ll come back to how this all adds up to in the conclusion but for now here is what you, the taxpayer, have lent so far. On average the taxpayer has loaned each successful applicant £38,703.26 which works out at around £645.54 for each month of the 5 year interest free loan period – the bit where you, the taxpayer, has no return on that investment whatsoever.
It’s up to the applicant how and when they pay this money back but that, at least, is a figure they don’t have to find every month in the real world. Of course once interest rates rise and they attempt to pay that money back on top of the rise provided by their mortgage company we will begin see financial cracks appear in their monthly income balance along with the possibility of negative equity.
So How Much Do You Have To Earn To Qualify?
Now here is the part where we think it’s working. You can see from the pie chart that the largest share of loans go to household incomes between £20,000 and £50,000. Don’t read that wrong as it’s the household incomes combined meaning two salaries.
So a couple or family with each partner earning £10,000 per year are benefiting as is the top end with each partner earning £25,000. That is where the majority of the loans have gone and thus the system is actually working. It’s clearly not the government recklessly lending money to those who cannot afford it or to those who have plenty of money and looking to hold onto it. I guess there are issues with people over £80,000 being granted the loan but as they add up to 5.72% of the pie its a very small amount. Basically if you pay the loan off over the 5 year interest free period then it is a lot like getting the deposit up-front and then saving for it in reverse whilst having your own roof above your head.
So What Did Our Lucky Householders Buy?
It’s a relatively even split with the good old trusty terraced house getting it’s nose in front! So we can surmise from this chart that it’s middle Britain taking advantage of the scheme and that they see this as an opportunity to get out of flats and into homes. Sarah Beeney will be excited!
Now remember, the equity loan scheme is only available to new build properties. We where very surprised that flats did not feature more strongly, after all generation rent would be simply happy to buy a starter flat and get a foot on the rung. Developers tend to make less detached homes but build more flats however the government other scheme (one of so many schemes) ‘build to Let’ can probably explain some impact but that’s for a whole other blog post. Suffice to say people are moving into homes and that can never be a bad thing and a surprising statistic.
Now let’s not start some kind of socialist agenda about what this money could buy, we could have chosen trident missiles but it’s important to get this spending in perspective. We the taxpayer are lending homebuyers their deposit with the expectation it will, at the very least, be paid back.
It’s highly unlikely that all 5,375 borrowers would all just hand the keys back and walk away from the whole deal. However, this is real cold hard cash – be under no illusion – this IS money from your tax deductions.
UK plc is an economy based on credit, unlike Germany we manufacture very little and quantitative easing (aka money printing) has dumped a lot of extra cash into the economy. At some point the Bank of England will need to pull that money out of that economy and their tool will be interest rates. Once those go up the game changes as we have said all along.
Not to mention the fact the governments flagship policy has helped a massive 0.08500711687490115% of the UK population which is hardly game changing.
‘Help to Buy’ is a very serious case of ‘you can have it all now and pay tomorrow’ and, boy, will you pay. If you treat it as an upfront deposit then that’s fine, it works and you are home (literally) and dry. If you don’t the governments interest rate will kick in at the level of the retail price index plus 1%. Your 20% deposit will get more and more expensive year on year like being tied to a pay day lender in an ever downward circle.
The next figures we get are for stage two. Here the taxpayers underwrite £30,000 on a £200,000 95% mortgage, meaning the treasury only pays out on a re-possession to the banks. Yet Stage 2 is for every kind of property property – both old and new.
Remember, demand for the equity loan in only 2 quarters increased 257.45%…
You can see all the figures yourself on the Department for Communities and Local Government site here