Help-to-buy helps developers much more than buyers

Owl says: But isn’t that what this government and our council wants?

Housebuilder Redrow says it’s looking forward to working with government to consider the future of the help-to-buy subsidy scheme beyond 2021. You bet it is. Since former chancellor George Osborne in 2013 committed to helping homebuyers purchase new properties with a deposit of only 5%, Redrow has reported record profits every year.

The latest annual numbers – and a share price that has improved threefold since 2013 – shows how wonderful life has become for big housebuilders. You’d almost think Redrow was producing high-tech consumer gadgets. Operating margins are running at 19% and return on capital employed has hit 26%. About 40% of its private sales are to help-to-buy purchases, which is typical for the sector.

After an improvement of a quarter in pre-tax profits to £315m, the company hiked its dividend by 70% and said there’s plenty left in the tank. Profits will rise to about £430m by 2020 and the dividend can be almost doubled again “subject to market conditions remaining unchanged”.

The obvious question is why on earth the government, having spent £4.6bn already, would wish to continue with help to buy after 2021. Yes, the scheme has allowed some people to buy homes who would not otherwise have been able to do so, but the clearest beneficiaries of the stimulus to prices have been housebuilders’ shareholders and executives.

Back in 2013, one justification was the limp state of the mortgage market. That no longer applies. The banks are well-capitalised, high loan-to-value mortgages have returned and the Bank of England these days frets about too much lending, not too little.

Osborne’s other argument was that more demand for houses would increase supply. The numbers suggest modest success, even if some of the increase would have happened anyway. But the point now is that withdrawing help to buy overnight wouldn’t obviously cause the housebuilders to down tools for fear that non-subsidised houses would sell for slightly less. A return of capital of 26% is splendid but it is still worth getting out of bed for 15%.

Before ministers commit to renewing help to buy on the same terms, they should recall the warning by Lord King, former governor of the Bank of England, in 2014: “This scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis, and we need to get back to that healthy mortgage market … We mustn’t let this scheme turn into a permanent scheme.”

Ditching help to buy outright in 2021 may be undesirable since there is a fair case that first-time buyers still deserve a leg-up. But, as even wiser housebuilders concede, too many houses qualify for help to buy. Current ceilings are set at £600,000 and 20% of the value of mortgage. Both figures could usefully be cut in half before the scheme becomes an addiction.”