Government Loan Scheme Favored High Earners, Think Tank Finds

A government loan scheme for first-time home buyers in England primarily assisted higher earners in areas with lower housing costs, according to a major think tank.

The Help to Buy scheme, introduced in England in 2013, had a limited effect on social mobility, the Institute for Fiscal Studies (IFS) found. The scheme aimed to help those without access to funds from friends and family by providing loans for house deposits and increasing mortgage availability.

Impact of the Scheme

Critics argue that the scheme drove up house prices by enabling people to spend more, while defenders claim it helped many purchase homes and boosted housebuilding. The IFS report focused on the Help to Buy policies introduced in England in 2013, which included the mortgage guarantee scheme and the equity loan scheme.

The equity loan scheme provided a government-backed 20% loan to buyers of new build properties, reducing the amount a buyer needed to borrow. However, the scheme was limited to new builds, which are relatively rare in most areas.

According to the IFS, Help to Buy made only a limited difference to housing affordability, despite supporting around a fifth of first-time buyer purchases in England at its peak in 2014-2015.

The IFS's research showed that the more a buyer earned, the more the scheme helped, meaning higher-income individuals gained the most. As Bee Boileau, a research economist at IFS, said, "Help to Buy policies can help first-time buyers get on the housing ladder, in theory, but can also push up house prices."

The scheme was less helpful to buyers in London and the South East, where homes are pricier, because fewer homes were available within the scheme. As a result, higher earners in cheaper areas benefited the most.

Reactions to the Report

Defenders of Help to Buy argue that it helped many people onto the housing ladder and led to more homes being built. The Home Builders Federation stated that the scheme was a major factor in the doubling of housing supply that occurred in the few years following its introduction, creating tens of thousands of jobs and leading to a boom in the supply of affordable housing.

A spokesperson for the Department of Housing, Communities and Local Government said an evaluation of the scheme is ongoing and that there are no current plans to introduce a new Help to Buy scheme. Instead, a comprehensive mortgage guarantee scheme will be launched to open the door to homeownership for more young families and hardworking renters.