Help to buy scheme had ‘limited impact on social mobility’

Previous help-to-buy schemes did little to improve social mobility and mainly benefited high earners, the government has been warned, as it mulls reviving the programme.

Help-to-buy, which offered equity loans to first-time buyers, had a “limited impact on social mobility,” the Institute for Fiscal Studies (IFS) has said. 

The government is reportedly considering revising help-to-buy, as leading housebuilders call for a new equity loan scheme to revive demand for homes and boost the construction industry.

The previous equity loan scheme ran from 2013 to 2023 and offered loans for new-build house purchases of up to 20 per cent of the sale value. 

This programme handed out 390,000 loans to the tune of £25bn in its 10 years of operation, a report by the IFS has found. 

A second scheme – which initially ran from 2013 until 2016 and was later permanently revived – offered 105,000 mortgage guarantees during its initial lifetime, to a total value of £15.8bn. 

Effects of help-to-buy scheme ‘muted’

The mortgage guarantee scheme had “limited” effects on the affordability of housing because most Brits are barred from homeowning by their incomes, rather than the price of a deposit.

The report’s authors said the equity loan scheme had more of an impact on affordability, though this remained “muted” because the programme was limited to new-build properties.

Housebuilders support equity loan schemes because they say Brits face a first-time buying affordability crisis, claiming extra government support would stimulate demand while helping people onto the property ladder.

While the equity loan scheme was designed to increase the value of homes that were affordable to aspiring homeowners, the IFS claims the scheme had the biggest impact on high earners living in affluent areas.

The two help-to-buy schemes were most beneficial to people living in London and the South East, and those among the higher income percentiles, the think tank’s report found.

Scheme ‘failed to boost social mobility’

The report’s authors said: “Since these individuals would normally be expected to be able to save for a minimum deposit […], it is likely that these schemes accelerated their first home purchase by a few years rather than making the difference between becoming a homeowner or not in the longer term.

“The schemes seem neither to have entrenched inequalities in housing affordability based on parental background nor to have boosted social mobility.”

Bee Boileau, a research economist at the IFS said a new scheme which offered more generous subsidies to low-income households would require a “difficult tradeoff”.

She said: “[A new scheme] could increase social mobility and reduce inequalities when getting on the housing ladder, but would also increase the exposure of both the government and potential borrowers to housing market downturns.”

Last month, a commission backed by cross-party politicians and leading housebuilders called on the government to offer more support for first-time homeowners. 

The commission’s proposals included a return to help-to-buy, as well as a novel plan to write off graduates’ student debt in exchange for a stake in their first home. 

Chris Curtis, the Labour MP who chaired the group, said: “Given the tough economic headwinds, we also need to think seriously about how to better support first-time buyers and manage the demand side more effectively.”