The Government May Extend “Help to Buy” Scheme to Boost Demand in The Housing Sector

The “help to buy” scheme was introduced by the government to provide a boost to the housing sector in the country and ensure that every family has a house of its own. The scheme helps young people who have newly joined the workforce pay only as little as 5 per cent of the property's price and receive an equity loan support of as much as 20 per cent from the government (40 per cent in case the property is in London). Over the years, however, criticism began to surface from various quarters as in the guise of the scheme several builders started to unduly inflate the prices of houses and the benefit being pocketed, leading to the government's disenchantment. However, given the recessionary conditions the country is currently reeling under discontinuation of this scheme could be disastrous for the industry as well as the home buyers who had been expecting for their existing projects to be delivered by the year-end but got delayed because of the lockdown.

The help to buy scheme, how it works and how has it helped people over the years?

Over the period of seven years when the scheme has been under operation, nearly 272,000 houses have been delivered to their house owners, and several thousand are still under construction. Though the details of the scheme were not perfect from the word go and was taken advantage by the builders, but it has no doubt helped hundreds of thousands of people own a house in the country.

How it works – When someone is saving to buy a house, he can do so by opening a Help to Buy ISA (Individual savings account). Under this scheme for every £200 saved by an individual, the government gives a grant of 25 per cent or £50 in this case. Over a period of time as the savings increase, the governments grant also increases with a maximum limit of £3,000. Moreover, this is not for a family but for individuals who want to save to buy a house, meaning that if two partners want to save to buy a house they can do so individually for a property, and the benefit amount for them will go up to £6,000.

However, to start the account under this scheme one has to provide a lump sum of £1,200 in the beginning and commit to saving up to £200 per month. The maximum bonus payable under the scheme can be availed of only after the induvial saver has saved at least £12,000 in his ISA under the scheme. When the soon to be house owner is ready to buy his house, he may instruct his solicitor or conveyancer to apply for the bonus, which will then be added to the outlay the account holder has already made for the property. The amount of the bonus, however, must not be used for any other purpose but for the price of the property, like solicitors’ fees, estate agents’ fee or any other indirect costs associated with the transaction.

The importance of providing demand support to the housing sector

The housing sector, like most other sectors, has been deeply impacted by the coronavirus pandemic induced lockdown, imposed earlier in the month of March. Most of the work in the sector came to a standstill during that time most of the ongoing projects were halted. Most of the companies furloughed their staff to fight the stiff conditions, and most of those staff have still not come out of the active work. The sector, however, was one of the first to pick up the business activity and entered an expansionary phase in the month of June. However, given the continuing situation of the pandemic, the industry faces the risk of drying up of demand when the existing work orders and completed.

In order to provide sustained demand support to the industry, the government had recently decided to allow stamp duty holiday to new home buyers until March of 2021. The rollback of the "Help to Buy" scheme at the end of this year will effectively take away a significant amount of benefit that the stamp duty holiday scheme is supposed to deliver to the new home buyers. This will not only impact the prospective house buyers and housebuilders in the country but will also defeat the very purpose of government to help the housing construction industry come out of the prevailing crisis.

The current state of affairs in the housing sector and outlook

Currently, the housing construction sector in the country on a strong path of revival. The industry was only the second industry in the country to see an expansion in business activity levels in the post lockdown period after the online retailing industry. The industry is also one of the most important industrial sectors in the country as it employs the greatest number of self-employed people than any other sector, and activity levels in this sector have a significant bearing on the employment situation in the country.

The likelihood of the government extending the “Help to Buy” scheme is the most vital one as it would not want its other efforts to prop up demand in the sector to get hampered because of this withdrawal. The extending of the scheme will also sit well with the government’s larger agenda to provide affordable housing to all, that had been announced during the Budget presentation earlier this year.