Five-and-a-half years ago a struggling Chancellor rolled the dice on the property market, with a move that was both inspired and economically daft.
Help-to-Buy was George Osborne’s last ditch attempt to lift the economy. He was a Chancellor under serious fire for his austerity measures and a recovery from recession that was conspicuous by its absence.
It was a flawed plan – it would bump up house prices, boost builders’ profits and increase debt to name just a few problems – but it worked: more people bought homes, more got built and a revived property market helped the economy recover.
The question coming to a head now is whether Help to Buy will be stripped back, ditched, or whether Britain’s housebuilding industry is so hooked that we can’t go cold turkey?
When Help to Buy was revealed in April 2013, house prices had been flat-lining after the initial post financial crisis bounce back and the economy was stuck in the doldrums. Since then house prices have risen substantially, Nationwide BS figures show
So, how did we get into this mess?
In 2013, the economy and property market were stuck in the doldrums.
House prices had been flat-lining after their initial post-financial crisis bounce back. Not enough homes were being built and there were worries that properties were unaffordable for first-time buyers and home movers.
Help to Buy was the then Chancellor’s answer to this, lending buyers up to 20 per cent of a new-build home’s value interest-free for five years, to make it easier and cheaper to buy.
Mr Osborne is a smart man. He knew full well that much of the UK’s economic malaise can be traced back to high house prices – and it can’t have escaped his notice that lending people interest-free money to buy something would push up the cost – but he was desperate for growth.
So, like another smart man before him that you suspect should have known better, Gordon Brown, Osborne held his nose and bet on the housing market.
As I remarked at the time, Budget day of March 2013 was a good one to be a builder.
Help to Buy was George Osborne’s 2013 Budget-day boost for the property market
Your potential customers were being offered a big slug of almost free money to help buy homes – and all you had to do was build them.
Those at the top of Britain’s big housebuilders are also smart men and women.
They realised that Osborne’s plan was a godsend.
They need no longer worry about people not buying their products because they were too expensive – instead the taxpayer would bridge the affordability gap.
Homebuyers also in theory benefited, as purchasing a property got easier, even if it was really no cheaper (and the Government now owned a percentage stake and would want interest paid in five years).
It’s astonishing to think that five years down the line, we are still propping up the market with Help to Buy.
What’s even more astonishing is that you only had to turn the idea round to make it work better.
As I wrote five years ago, if we really wanted to make homes cheaper and thus easier to buy, then we should have lent money interest-free to developers instead – a Help to Build scheme.
As unpalatable as it sounds, this would have reduced their building costs and enabled them to sell homes profitably at a lower price. Funding could also have been tied into them having to build more homes.
Imagine how different the property market would look now if we had spent five years making new homes cheaper, rather than more expensive.
