Hurrah for Help to Buy!

Government initiatives which seek to intervene in the commercial market don’t have a sparkling record – they usually turn out to be damp squibs, or else so badly targeted that they end up doing more harm than good.  So it must be particularly galling for a politician to receive criticism because their idea has been too successful.

Not everybody warms to George Osborne as a person, but you do have to feel a little sympathy for him over Help To Buy, for this very reason. The scheme, lest we forget, was designed to create activity in the housing market, and in particular to boost the construction of much-needed new homes.

Since it became clear that the scheme was doing just that, commentator after commentator has been calling for it to be reined in, claiming that it is leading to an over-heating of the market.  If only these ‘experts’ stopped for a moment to think about what they were saying.

Help To Buy is a simple scheme which supplies government-backed loans to assist people who can afford mortgage repayments, but who are struggling to raise the kind of deposit demanded by lenders nowadays. These are loans, not grants, and they have to be paid back (albeit that they are interest free for the first five years). And they are only available to those who can secure a mortgage for the rest of the purchase, so they are certainly not reinventing a ‘sub-prime’ mortgage market.

They have proven very popular with first-time buyers, who through the scheme are able to get a leg on the home-ownership ladder - in many cases reducing the cost of their housing, because low mortgage rates mean that owning a home is generally cheaper than renting one.

The scheme has been particularly successful in the new homes market, and this is the key point. Far from driving up prices by increasing demand, the biggest effect of Help To Buy has been to encourage house builders to bring schemes forward, because people are now able buy their products. 

This in turn is leading to an increase in the number of new homes being built, boosting the supply. And you don’t need a degree in economics to realise that increasing the supply of homes is an excellent way of preventing the market from overheating.

So Help To Buy has been good for responsible borrowers looking for help to buy their first home; it has been good for the construction industry; good for the wider economy, it has helped much-needed new homes to be built; and it hasn’t been that costly, because those loans will all be paid back. And whilst the market is healthy, there is no sign of an unsustainable ‘explosion’ in prices.

A political initiative that has worked in the real world – this is an all-too-rare occurrence, we should be cheering.

Tony Abel is managing director of Abel Homes. Twitter: @tonyabel