Help to buy falters with only 13 loans issued through scheme in Camden
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Camden issued just 13 Help to Buy equity loans as Social Mobility Commission reports that Help to Buy isn’t helping those on median incomes
Help to Buy has failed to deliver social mobility according to a new report from LSE and the Social Mobility Commission released on 3 July. The Low Cost Home Ownership Schemes report found that those whom the scheme and others like it benefitted earned over 1.5 times the national working age median income.
Between April 2013 and 31 March this year, Camden issued just 13 Equity Loans as part of the Help to Buy scheme, all of which went to first time buyers (FTBs) according to the Department of Communities & Local Government.
Broken down by Parliamentary constituency, Finchley and Golders Green delivered 21 loans, Hampstead and Kilburn issued 12, Westminster North just eight and Hornsey and Wood Green one. Both the Cities of London and Westminster and Holborn and St Pancras constituencies delivered no loans.
Since the launch of Help to Buy in 2013, 120,864 properties have been legally completed through the Equity Loan scheme, with four in five going to a FTB. With average purchase prices of £236,041, unsurprisingly none of the top six authorities for completions were in the capital. The average cost of a FTB home in London has risen 66 per cent in the last five years to £409,975 according to Halifax.
In Prime boroughs like Camden, properties are too expensive even with Help to Buy. In Camden, a typical FTB property costs 11.8 times average earnings. In 2014 just five buyers in Camden had used Help to Buy via the mortgage guarantee part of the scheme.
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In Camden, where the average asking price of a flat is £788,535 according to Zoopla.com, applicants would not even be eligible for the scheme, which has a cap of £600,000 based on a 40 per cent Equity Loan on a new build. Single income households in London will not even be able to afford the five per cent deposit to buy a house even with a 40 per cent Equity Loan.
For those who have used the scheme, over 80 per cent had incomes over the average annual gross income of £30,000, whilst 48 per cent of FTBs paid over £200,000 for their home. Over a third of FTBs now rely on the Bank of Mum and Dad to finance a first purchase, with one in 10 relying on inheritance according to the Social Mobility Commission.
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The report has called for restricting availability of the scheme to those with alternative capital that could be used to buy property to cut back on wealthier young people simply using the scheme to find a better property.
The Rt Hon Alan Milburn, chair of the Social Mobility Commission, said: “This research provides new evidence that the UK housing market is exacerbating inequality and impeding social mobility.
“While it is welcome that the Government is acting to help young people get on the housing ladder, current schemes are doing far too little to help those on low incomes to become home owners.
“The intent is good but the execution is poor. Changes to the existing schemes are needed if they are to do more to help more lower income young people and families become owner-occupiers. Without radical action, particularly on housing supply, the aspiration that millions of ordinary people have to own their own home will be thwarted. ”
Help to Buy Equity Loans have generated 43 per cent of additional new build homes, although just 19 per cent of completions to date were for homes worth under £150,000. For a property priced at the cap of £600,000, buyers will need a 5 per cent deposit (£30,000), the government will lend up to 40 per cent in London (£240,000), and the owner needs a mortgage of up to 55 per cent in London for the rest (£330,000). There would also be stamp duty and additional fees to pay on top.
Fees are charged after the first five years, at which point 1.75 per cent of the value of the loan is applicable. This fee increases on a yearly in line with the Retail Prices Index plus 1 per cent.
Dr Bert Provan, from LSE’s Centre for Analysis of Social Exclusion and the Department of Social Policy, said: “Most research on low-lost home ownership schemes has focused on the age profile of FTBs and impact on supply. This research looks at whether they open up home ownership to different and more diverse groups of low income households in the UK. It finds that while there are some positive effects of such schemes – such as increasing supply – the impact on improving social mobility is small.”
With home ownership amongst those aged between 25 and 29 years old at just half its 1990 level at 31 per cent, it seems that Help to Buy to is failing to help those that it was intended for to step on to the housing ladder. The report has called for action to help those on less than average incomes and the establishment of setting regional levels to benefit those facing the financial pressures of London’s house prices.