Calls for a buyer support scheme

Although the current government’s efforts to boost housebuilding have so far been focused on the supply side, there are increasing calls from the industry for the re-introduction of some form of buyer support scheme. Developers will only invest in bringing land for new homes through the planning system when they are confident there is demand for them and, at present, sales rates in many parts of the country are not high enough to provide that reassurance.

Savills analysis has suggested that the creation of a scheme similar to Help to Buy would allow 375,000 households currently in the private rented sector (PRS) to buy a home, assuming they were able to save a 5% deposit. This would equate to around an extra 35,000 new-home sales per year when the scheme is operating at full capacity.

Housing delivery in England is very reliant on sales to individual owner-occupiers, so supporting this part of the market can have a big impact in boosting the numbers. This was the case with Help to Buy, which supported around one in three new-home sales between 2015 and its end in 2023. And in addition to helping people into home ownership, there would be a multiplier effect, as more active sites would likely also result in higher affordable delivery through Section 106 developer contributions.

The impact on house prices

The main criticisms of the previous Help to Buy scheme tend to be that it pushed up house prices and boosted the profits of large housebuilders. However, it is unlikely that Help to Buy had much impact on overall residential pricing: at just over 50,000 homes per year at its peak, it supported a small proportion of the 1.1m transactions in England at that time.

Looking at new-build values specifically, the National Audit Office found in 2019 that although the average “new-build premium” was at around 20% over the second-hand market during the early years of the scheme, this was in line with long-term average premiums, reflecting the value buyers place on low-maintenance, chain-free homes with long-term builder warranties.

In the new-build market across England, the National Audit Office found that between 2013 and 2018, homebuyers using the scheme paid less than 1% more than they might have for a similar new-build home without using an equity loan. There is, however, evidence that some market distortion did occur around the Greater London Authority (GLA) boundary. Within London, buyers benefited from a 40% equity loan, compared to only 20% in the rest of the country. As a result, new-build prices in outer London increased at a faster rate than those in similar markets just outside the GLA boundary, where less support was available. 

The positive effects of a targeted scheme

A new buyer support scheme for new build would therefore have several positive effects: boosting housing delivery, helping more people into home ownership and supporting economic growth. But care needs to be taken over the design of the scheme; it must be targeted and targeted at those who need it most, focusing on first-time buyers, possibly with an income cap. The size of the loan as a proportion of the property value should not differ across administrative boundaries, and value caps should take account of local market conditions to reduce the risk of price distortion.

Further information

Contact Emily Williams