Equity loan schemes seem to have a marmite-like quality: people either love them or hate them. The reaction to the recent announcement of a new scheme in England, Your First Home (YFH), saw both offered. In many respects judgement needs to be delayed until we see the detail in the late October Budget, as much turns on how tightly targeted the scheme is (income caps, price caps etc.) and on the charges that will be borne by households and developers.
The legacy of Help to Buy
The announcement was made shortly after the publication of a very favourable assessment of predecessor Help to Buy schemes (HTB ran from 2013 to 2023 in England) highlighting a net present social value of £25 billion based on the uplift in the value of the equity loans (in 2024/25 prices), an increase in new build of 15% and a boost to home ownership. On the downside, it estimated that there were modest price effects in some areas and that the new build premium was edged up, while around half the users of HTB indicated they could have bought a home without it. Broadly the scheme did meet its objectives of boosting the housing and mortgage markets (including levels of home ownership and developer viability after the Global Financial Crisis) but it seems its efficacy diminished over time, not least as the market recovery continued.
The case for bringing back equity loans
In many respects the battleground here is as much about politics as it is economics. YFH is seen by some as a diversion from the Government’s core aim to rebuild the social housing sector – in my mind a necessary but not sufficient focus of policy. However, it must be borne in mind that in the complex world of government accounting, the spend on this scheme will not count as day to day public expenditure as it is a Financial Transaction. Grant for social housing is capital expenditure, whereas an equity loan creates a financial asset: the Government expects to receive money back. This should largely offset the borrowing needed to finance them under its new debt measure, Public Sector Net Financial Liabilities (PSNFL). While this does not eliminate the financial risks, it means the scheme need not compete directly with social housing investment for the same fiscal resources. In that respect and reflecting the continuing concerns about diminished opportunities for younger households (and the wide political impacts that engenders) opting to return to an equity loan scheme makes a lot of sense.
Of course past performance is no guide to the future and because the UK has recorded house price inflation increasing in only nominal terms for some years, and is now seeing some real declines, it is possible that YFH borrowers could see both their 2.5% deposit lost and the government not fully recovering its equity loan. Such concerns must play a part in the thinking about how to target the scheme and what real impact it might have on the market. It could be quite limited. We also have to think about how loans are repaid and what impact that has on the capacity to make a next move. Currently unpublished Hamptons data suggests that HTB buyers have had to borrow more compared to other first time buyers moving to a next home – but for some that includes paying down any outstanding equity loan. Over the last five years FTBs on remortagaging and moving have borrowed on average 50-60% more, whilst HTB buyers doing the same borrowed an average of 50-85% more. These figures suggest that some Help to Buy borrowers have been able to remortgage or move while repaying their equity loans.
Making homeownership accessible to more people
While we are currently seeing high numbers of first-time buyers entering the housing market it should be borne in mind that many of them will be supported by the Bank of Mum and Dad. This has clear distributional impacts and if we are to avoid home ownership becoming ever more exclusive then schemes such as YFH are important part of the armoury, helping those with moderate jobs and credit but having limited savings get access to home ownership. And it should not stop there – we need to see further reform to shared ownership to allow it to properly fulfil its potential (and where at last we are seeing solid evidence to make the case from the Leasehold Advisory Service, Shared Ownership Resources and the Ministry of Housing, Communities and Local Government) and continued reform to mortgage lending rules, where further announcements are expected. Currently, lenders are restricted in the share of mortgages they can offer worth more than 4.5 times the borrower’s annual income. The limit has lagged behind the reality of a housing market where price appreciation has outstripped income growth, and is impacting upon a range of would be purchasers including those with low deposits and the self-employed.
If home ownership is to continue to play a key role in the UK housing system, it is important that effective “ladders” exist between renting and ownership, and this includes access to a suitable stock of housing, access to mortgages and – where necessary – access to help to bridge the gap between aspiration and effective demand.
Your First Home is no panacea, but it could make a valuable contribution.
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