Help to Buy: the cap is going to hurt

Bad news for first-time buyers, says the Telegraph. In the Budget, the chancellor changed the rules on Help to Buy. From now on, only first-time buyers will be able to use the scheme (which effectively offers state loans worth 20% of the purchase price of a new-build house to people).

And outside London, there will be a price cap that limits how much they can pay for a house based on regional first-time-buyer averages. So, in the Northeast you won't be able to pay more than £186,100. It's £224 400 in the Northwest and a rather more toppy £437,000 in the Southeast. Cue outrage.

This will "heavily restrict" the choice for buyers, says the paper. Right now, more than a third of Help-to-Buy flats and houses in places such as Harrogate, Stratford-upon-Avon and Northampton "would be ineligible for Help to Buy once price caps were implemented".

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A couple from Oxfordshire are quoted. They used Help to Buy to pay £575,000 for a house in Ducklington, Oxfordshire and are very pleased they did. "I'm so glad we were able to move when we did", says Mrs Druce-Harding. "If caps were in place now we wouldn't have been able to buy." I wonder how long she will feel this way.

By the time Help to Buy comes to an end (2023, apparently) it will have been running for more than a decade. Around 300,000 people have used it already and all have bought new-build houses. That's been great for the housebuilders: they have had a ready supply of people available to buy at prices they would not have been able to afford otherwise.

The result has been fast-rising prices. A study last year showed that the prices of houses sold under the scheme were rising faster than those of other houses for example about 15% faster as of last year. We are, said Morgan Stanley "now around 5% points away from the level at which new-build prices have diverged by the full amount of the government's equity loan (20% of house price across England)." How's that for interesting (and, you'd think, obvious)?

The government hands over 20% of the price of something to a would-be buyer and the price of that thing rises by a similar amount.

A second result has been fast-rising earnings. The likes of Barratt, Taylor Wimpey and Persimmon have been getting 40%- 50% of their sales from houses they can add the Help-to-Buy premium to; something that has tripled their earnings since the scheme began and created the cash to pay things such as Jeff Fairburn's ludicrous bonus.

So, back to the cap. If Help to Buy has pushed the prices of all new-builds up, will its new cap push them down again or at least push those above the cap down towards it?

If the cap removes the supply of buyers above a certain price point bar a sudden influx of rich foreigners wanting to overpay for property in the UK regions it is hard to see how prices above those levels can't fall and fall by roughly the same amount as they were pushed up by the scheme in the first place. If they do, the likes of the Druce-Hardings might find that, had they waited, they could indeed have bought without the scheme (for much less).

Not long now and, perhaps just as they start to pay the interest on their government loans (they are interest-free for five years), and an awful lot of Help-to-Buy buyers might begin to feel a bit duped almost as if they were the saps in a cozy stitch up between the government and the housebuilders.