In the five years since its inception, the Government has committed over £8.9 billion to Help to Buy, a scheme designed to help first-time buyers onto the housing ladder and home movers up a rung. Our analysis shows that both the rate of take-up and the size of equity loans being given are growing.

The Government granted 48,244 equity loans in the 12 months to the end of Q1 2018. That’s over 20 per cent up on the previous year and almost two and a half times (+146 per cent) the number of loans granted in the first year of the scheme.

The sharpest increase in take-up was in London – hardly surprising, given that since February 2016 households in the capital can now access an equity loan of 40 per cent of the property value, up to a maximum of £240,000. Across the rest of England, the maximum equity loan is 20 per cent.

The number of equity loans advanced in London grew 58 per cent last year, from 2,993 to 4,729. Significantly more loans were also granted in the South East (32 per cent).

Help to Buy appears to have helped increase the number of homes being built in what has been a slower moving market. Historically, the rate of new housebuilding has moved in line with the number of transactions – developers will only build as many homes as they think they can sell.

In the years since Help to Buy that relationship has broken down, helping to insulate housing delivery from its traditional reliance on a high transaction market. When Help to Buy was announced we were building one new home for every 6.4 transactions. In the first quarter of 2018, there was one new home for every 4.5 sales. While housing transactions have marked time for the last year, housing delivery has continued to rise.

Link between transactions and new build volumes

Source: Savills using Land Registry, LHCLG

But we’re not just seeing more people using Help to Buy. The loans are getting bigger. Back in the first quarter of 2014, the average Help to Buy loan in England was £42,145. In Q1 2018, it was £65,495. That’s a 55 per cent increase.

London has driven some of that shift. Increasing the equity loan from 20 per cent to 40 per cent led to a corresponding doubling in average loan size, to £132,180 in the quarter the scheme was extended from £68,721 the previous year. The average equity loan in London now stands at £162,641 against an average purchase price under the scheme of £404,050.

Help to buy has undoubtedly given a great boost to households looking to get onto the housing ladder in London. But it’s important to remember that this isn’t free money – they’ll be expected to pay a 1.75 per cent fee on that loan after five years, increasing with inflation. At the maximum loan size in London, those households will need to stump up another £4,200 a year five years into their ownership. This may come as a nasty shock if they don’t start to prepare their finances now.

Further information

Contact Savills Research