Oral evidence: Help to Buy, HC 2046

Oral evidence, 26 June 2019.

Witnesses

David O'Leary, Sir Mark Boleat, and Professor Christine Whitehead.

Chair

Welcome to the Public Accounts Committee on Wednesday 26 June 2019. We are here today to look at the Government’s Help to Buy equity loan scheme, which was designed to give purchasers of new-build properties substantial Government loans, interest-free for five years. We are seeing the end of the first stage of that, but the programme is rolling on for another couple of years, although reducing down to first-time buyers. The scheme has increased home ownership, but there is a lot of dead-weight in there—people who would have been able to buy a home without the equity loan—that we want to look into. We also want to look into and ask some questions about the impact on the profits of private housing developers, because some developers had a very big profit margin through the scheme. We are privileged to have a very, very expert panel of pre-witnesses. I am pleased to welcome Professor Christine Whitehead, now Emeritus Professor of Housing Economics at the London School of Economics, but she spent many a long year running the housing unit at Cambridge University. Professor Whitehead, before you arrived, I was saying that I think you have written nearly every major report on housing in the last 20 or 30 years—and, of those you did not, I am sure the authors spoke to you. We are very pleased to have you here. We are equally pleased to have Sir Mark Boleat, the former Chair of the Housing and Finance Institute, who is very knowledgeable about the mortgage market—we are particularly interested to hear from you on that—and David O’Leary, Policy Director at the Home Builders Federation. I think this is your first time in front of the Committee, so welcome to you. We will direct questions, but if you wish to chip in, please let me know. We will try to take everybody. We will then move on to a panel of Government witnesses. We are pleased to get your input before we put questions to them. I will ask Anne Marie Morris to kick off.

Anne Marie Morris

Thank you, Chair. Professor Whitehead, what do you think about Help to Buy? Has it actually achieved its objectives and helped and encouraged more people to buy houses than would otherwise have been the case? Secondly, has it increased the number of new homes built?

Professor Whitehead

I think that the scheme is considerably better than the earlier schemes that were in place, which you know about. It was very clear about what its objectives were. They included helping both buyers and developers. It is difficult to look back on 2013 and the terrible state the development industry was in. To some extent, this is all about a confidence issue. The Government providing a sort of baseline did help both consumers and developers gain confidence. As an economist, do I think that one should do a demand-side thing in order to get a supply-side outcome? Not entirely, but in the circumstances at the time, I think it was a very sensible scheme. There could have been other ways of doing it, but this one fitted the history and the necessary changes from the earlier schemes.

Anne Marie Morris

Is the fact that there were people who could have bought anyway without the scheme something that sits comfortably with you? Is that a good use of taxpayers’ money?

Professor Whitehead

I think that we misunderstand the story of whether they could or would have bought. Technically, many of them could have done. To be clear, I was part of the evaluation team, and 36% or so have come out as buying and would not otherwise have bought. There is obviously a timing thing—they might have bought in three years’ time—and would they really have gone for a smaller one? What persuades me most is the work that Peter Williams and I did for the OECD, which showed very clearly that people who could afford weren’t affording. They were worried about the situation and the conditions at the time. It showed that, right across Europe, first-time buyers who could perfectly well afford it were not doing so. This helped a significant number of people so to do.

Anne Marie Morris

So this really goes to your original point about confidence. My question is, now that the proposal is that, in the future, the scheme should be limited to people who couldn’t otherwise afford it, are we in a position to make that change? Does the market now have the confidence that, as you say, was lacking in 2013?

Professor Whitehead

If I am being honest and personal—this is nothing to do with the evaluation team—my view is that no additional money should have been put in in 2017, or a very limited amount should have been put in and it should have been spread out more carefully. It was meant to be a short-term scheme. At that point, one sale was producing two or three additional ones, which we didn’t allow for. We only allowed for one for one. By 2017, the market was stabilising, and it would have been extremely good if it had been enabled to stabilise more quickly, rather than become more dependent. The amount of money put in means that 60-odd per cent. of new build has to be Help to Buy.

Anne Marie Morris

Given the amount that is being invested in the scheme as a whole, and given the inevitable financial limitations on the pot that the Government has to spend on housing, was the scheme the right thing to do? It is the right thing to do now to extend it?

Professor Whitehead

I wouldn’t mind the extension, because we need to get out of things slowly. As we didn’t take that opportunity in 2017, it is not too bad to take it in 2020. It takes a long while to buy land and build houses.

Anne Marie Morris

That is really helpful. Mr O’Leary, did the scheme actually help your members and encourage them to build properties that they would not otherwise have built?

David O'Leary

The figures speak for themselves. As Christine says, it is worth while looking at Help to Buy in the context of what had gone before. By the time the current scheme ends in 2023, we will have had 18 years of near-uninterrupted Government intervention in some way or another to support predominantly first-time buyers to buy new-build homes. Some of that has been shared equity, and some of it has been other schemes, such as Government guarantees and the like. This is the only one that has really moved the dial in terms of housing supply, and it happened almost overnight. In 2012-13, we saw the lowest-ever peacetime figure for housing completions. As Christine says, people forget where the industry was in those days. That was partly to do with market confidence, but it was also to do with developer confidence, and various others issues evolved that were related to planning and so on. Pretty much overnight, the industry turned its taps back on, and we have seen the fastest increase in housing supply ever. We are now back at 1950s or 1960s levels of housing supply. If you take the second-hand market and look at where its sluggish nature is at the moment, there is no reason to believe the new-build sector would be any different from the second-hand market, if it were not for Help to Buy. Our members have benefited from that because we have effectively been insulated from headwinds and the strange goings on in the second-hand market, which people do not seem to be able to get a proper handle on. Without Help to Buy, I cannot imagine that we would have seen an 80% increase in housing supply from where we were in 2012-13.

Anne Marie Morris

Given where we are now, and given that we still do not have the houses we need, would it in fact be appropriate to extend the scheme further, or is there something else that the Government could and should do to incentivise your members to build?

David O'Leary

There is enough change now. By the time of the scheme’s withdrawal, we will have had 10 years of the scheme. I would hope there is—this is something we are working on very actively—a private sector solution to the problem. It will never have the impact that Help to Buy has had, because Help to Buy has turbo-charged the industry in a way that the private sector will not be able to, but we need something to mitigate the loss from the effective demand that will undoubtedly come in 2021, when the eligibility is tightened, and it will end in 2023. We think there is a possibility that the private sector could step in and do at least some of that.

Gareth Snell

On that point, the Ministry has an aspiration for 300,000 homes per year. Do you have any consideration of what the impact—in tangible numbers or actual contractions—will be on the rate of house building once the scheme comes to a conclusion?

David O'Leary

It is difficult to work out what the counterfactual will be. We are currently looking with members at—individual companies are doing this themselves—what the effect of the 2021-23 scheme will be. Some of that is quite easy to model, because certain properties that might have been planned for will no longer be eligible, but there is also the other side of what the developers will do about the mix and about trying to build to meet the effective demand. That effective demand will shrink, but there will be some, particularly in the first-time-buyer market. In some cases in high-value areas—the ones that are often talked about are York, Harrogate and Stratford-upon-Avon—we will probably see in 2021 a movement towards more flats and smaller properties.

Gareth Snell

You said it has turbo-charged the industry. This Committee has previously looked at the local planning process and come to a series of considerations that there is still a lot of work to do on how local plans shape communities. Are you confident that that turbo charge has delivered the right houses in the right places to meet the needs of the right communities? Or has it simply been that developers have land assets and can now turn a slightly bigger profit by building a slightly bigger house in an area that would not ordinarily command such a level of investment or expenditure by the local community, or actually meet the demand that is there organically?

David O'Leary

Help to Buy is a market-led initiative, so successful builders have built in areas where there is a market for those properties. Some of that would have been constrained without Help to Buy, and there will undoubtedly be cases where people have purchased a three-bed rather than a two-bed. That has attracted quite a lot of media attention. I am not necessarily able to say whether that’s a good thing or a bad thing. In some ways, it’s quite good, because it potentially means not having to move up the housing ladder as many times, and reducing the costs that would be involved in that, but I think you’re right to bring in the planning side. What we have seen over the period is a big change in the planning system, most of which has been very positive—but without Help to Buy, there wouldn’t have been the effective demand. That’s the thing that gets lost sometimes. People talk a lot about it being a demand-side measure, and it is, but the key to Help to Buy is unlocking effective demand so that it is realisable demand for people who can then buy a home.

Anne Marie Morris

I think one of the things that Mr Snell was probably trying to get at was this. Maybe there is a distinction between increasing the number of houses that people can buy and increasing the number of homes, however they might be acquired, lived in, etc. I think you might have some insights here, Professor Whitehead. The Help to Buy scheme was never going to increase the numbers of affordable homes and the amount of social housing, because that was not what it was designed for. However, did it have an impact on that other sector of the housing market, in terms of social housing and housing available for rent? Let me just give you a “for instance”. Certainly in my constituency, my local council tell me that because of the Help to Buy scheme, they were constrained as to the number of houses that they could deliver in terms of affordable homes, so is there an interplay between the two or not?

Professor Whitehead

Well, there is the most general interplay, in that the construction industry is limited in terms of skills and other things of that sort, so if you were effectively building, you were expanding your resources at the same time, but there were certain constraints. We were not able to find very much evidence that there was that type of change. In fact, it could work the other way, because this was market housing, being sold at market price, and therefore should not have impacted on how much affordable housing was being delivered. And therefore, if you’re building on more sites that have got mixed tenure, you should have got more affordable housing. I have to say that I think local authorities have some problems of their own in this context. In particular, I think the size of dwelling was one of the big issues. The number of times it came up that local authorities had been asked to enable smaller units and were not prepared to do so out of the London and the south-east area was significant.

David O'Leary

I want to add very quickly that if you look at the proportion of affordable homes that are coming via section 106 agreements, since Help to Buy came in and the market has been unlocked in the private sector, the private sector is now providing more than half of all affordable homes through section 106, so there is an interplay between the two, which gets overlooked.

Chair

Sir Mark, do you want to come in on that?

Sir Mark Boleat

If you want my main point—I agree very much with what the others have said—one of the major problems, looking at the bigger picture and the competitiveness of the country, is that house prices are far too high. I was a politician in London for five years and sat on the Mayor’s Homes for Londoners Board, and that is one of the biggest threats we face in London. I am chairman of governors of a very successful school in Islington. It’s pretty appalling that none of the teachers can afford to live anywhere near the school. So at first sight, a scheme that inevitably puts prices up, if only a bit, seems a bit counter-intuitive. Equally, we know in relation to house prices that new houses have a premium over existing houses of 15% and sometimes 20%, so the people who are buying the new houses could in many cases have bought existing houses, as the older ones among us would have done 30 or 40 years ago for our first home. Given that £22 billion has been committed, it would be quite difficult to commit that amount of money and not to have an effect of helping some people buy houses who couldn’t have done and others, too, and indeed of increasing the volume of house building. The question is whether that is the most effective way of doing it. I think there is a lot more to be done on the planning system. I have sat on a planning committee. I have written a paper called “The Housing Problem in London: a broken planning system”—I believe in making clear what my views are in the title. The fact is that the planning system is far too geared to existing residents and not to the people who are not housed. There is work to be done on utilities, which are a major problem for small developers. They are not for the Taylor Wimpeys—they can deal with them—but if you are building six units in a London borough, the utilities can wreck your entire scheme. That is not saying that we shouldn’t be doing other things on the demand side, but to me this is a small part of it. If I was a policy maker the question is this: could I have got better results with my £22 billion?

Gareth Snell

Just on that point, Sir Mark, about house prices, in my own constituency, which is a midlands post-industrial town, with wages below the national and regional average—

Chair

I will say Stoke-on-Trent, home of the ceramics industry, just in case you were not sure where Mr Snell lives.

Gareth Snell

I am not on commission, but I do say it regularly. I agree that house prices are an issue. Where I have concern about the scheme is that developers build—I appreciate that they do this on a market value—more expensive houses in Stoke-on-Trent than they normally would build, because they are building slighter houses. They have a greater profit margin on those houses, regardless of whether it is because of Help to Buy or the market, and I worry that some of this money, having come through the purchaser, has basically just been a way of propping up some of the bigger housing companies, who have sold these houses on and made more money out of the development site than they ordinarily would, because they have built fewer larger houses and made more money per property than they would if they were building smaller, denser properties that actually probably meet the local need. Would that be fair?

Sir Mark Boleat

It may or may not be. It does not follow that a smaller number of bigger houses gives you a bigger profit margin. Indeed, I think the highest priced area in the country has got the highest density—Chelsea and Kensington. You can make whopping great profit margins on small units.

Gareth Snell

I am talking about outside London.

Sir Mark Boleat

I just think that there is not a lot of evidence that that is the case. I have been a chairman of a developer and I have been on the board of a house builder. Often you are struggling to stay in business—you know, in the bad times—and you have to make whatever profit you can when the going is good. What you would expect any house builder to do is to look at the market, including any incentives that exist, and see how they can maximise their profit. It is up to the policy makers to design a scheme that does it. It is no good blaming the builders for doing exactly what the market, helped by the Government, has told them to do.

Professor Whitehead

Could I make a point that is, to some extent, about the NAO Report as well? We were very surprised; we didn’t get the result that we expected. When we looked at the detailed individual information, which is only available through Homes England and was only available to us under very limited conditions, this new build premium, in the context of Help to Buy, was not very straightforward. It was concentrated almost entirely in flats. The houses showed very little such premium, in the areas where Help to Buy had happened. Obviously, in the context of flats, we are comparing unlike with unlike, because the new build flats are totally different from a set of existing units of flats, which will be transferred. There is a very big apparent new-build premium there—thank goodness, because they are much better quality, much better located and much better everything else. But there was not that premium on the other types of housing, which needs to be looked at with much more care.

Layla Moran

I have a question about where the scheme has helped to build more homes. Figure 7 is a helpful map showing Help To Buy sales as a proportion across the country, but we know that it is London and the south-east that has the highest unaffordability, and the adage goes, “You need to build more in order to bring house prices down”, or at least to stop them from rising so fast. Has the scheme done anything to reduce house prices and encourage—reduce is probably the wrong word, because they didn’t reduce—or at least stop the massive climb of house prices in areas like London and the south-east? Or has it had the opposite effect?

Chair

Who are you directing that to?

Layla Moran

I don’t know.

Chair

Shall we start with Sir Mark?

Sir Mark Boleat

I was at a housing event in London and I made the comment, which others supported, that London has become a hostile environment for developers. Perhaps that is a bit extreme, but I have had developers, some publicly, say that they are now concentrating their resources outside London. I see the planning issues—I have sat on a planning Committee and I saw what happened in Haringey, for example. There is huge opposition to any development. The planning system gives the decision-taking power to local councillors, who see, perhaps rightly, their responsibility to be representing the views of their constituents. Legally that is not their role, but inevitably that is how they see it. Developers have moved outside London a bit. I will add one more point, which I very much learned from my role in the City. It is about leadership. Why can Barking and Dagenham have a programme of building 30,000, 40,000 or 50,000 houses in 25 years? Why can Ealing, Newham and Croydon do it, but Bromley can’t? An awful lot is about the political environment in a local authority. But I guess if you want to get elected, you have sometimes to espouse views you may not agree with.

Layla Moran

My question is about the scheme itself.

Sir Mark Boleat

I didn’t mention Brexit in any way.

Layla Moran

On the scheme itself, is there any evidence to show that it has encouraged house building in areas outside London and the south-east? Looking at this heat map, it kind of seems that way. Is that fair?

David O'Leary

I think there is evidence that it has encouraged house building everywhere. The map that you are referring to is for the whole period. If you looked at that over the last couple of years, since the 40% equity loan became available in London, you would see a slightly different picture. Help to Buy, particularly in the outer-London boroughs has had quite a big impact, especially over the last two or so years. To come back on the pricing point, there seems to be this truism that Help to Buy increases prices. Everyone says that, but there seems to be zero evidence for it. Over the period in which the scheme has been in force, new-build prices have gone up by 39% and existing stock prices by 38.8%. The figures are the same. There is no evidence. The NAO Report shows that the so-called Help to Buy premium is minuscule, if it exists at all, as Christine alluded to. There are a few things that get put into the public debate that do not seem to be backed by any evidence.

Professor Whitehead

It was a scheme for middle England. There is no doubt about that and nobody is suggesting anything else. Initially it was almost impossible, given what planning was already in place and other things, to expand as a result of Help to Buy in London or even a bit closer. When it went to 40%, which I am personally concerned about because I think it is higher risk, it did change what people built. It meant that developers moved price points down in London, so that there were not vast numbers but more housing being built at under £600,000. It changed what was built: it became smaller. There were changes, but to be honest the actual amounts involved in London are still very small, even given the last couple of years.

Layla Moran

Could you expand on what you just said about 40% being high risk?

Professor Whitehead

Because it looked as though—sorry, I am not a politician, so I won’t say “because”. It looked as though the scheme was not working in London. It was not working in London because it was only in London that the constraint was a £600,000 bid. The easiest way of dealing with that was to extend the Government’s commitment for each unit, to make it more reasonable for people to afford it, but that does mean that people will then find it much more difficult to move. A lot more queries can be raised about that from the point of view of both Government investment and the individual consumer. On the other hand, we needed supply in London and it had some positive effect. It probably had some positive price effect in London and just around its edge, which is what one or two of my colleagues have found.

Layla Moran

What does positive price effect mean?

Professor Whitehead

Positive in the sense that they went up, not positive in the sense that it was good.

Layla Moran

Understood. In places like Oxford—my constituency is Oxford West and Abingdon—we have high house prices compared with income. Would raising it to 40% have helped Oxford, or do you think it is right that places like that did not get that same uplift?

Professor Whitehead

New build is a relatively small proportion of the total transactions, so it is not going to have very much effect one way or the other, I’m afraid.

Sir Mark Boleat

Can I just add something about risk? I have been working in housing for over 40 years; I have worked through two recessions and was running the trade body during the last, very big one. The notion that you can do this sort of thing without risk is fanciful. The prudential regulator deems that a mortgage loan of 80% or more of valuation has a risk weighting more than twice that of one under 80%, and that is for a very good reason. There is a substantial risk—indeed, that was part of the purpose. It takes the risk away from the mortgage lender and puts it on to the Government, but there is a very substantial risk on this if house prices decline. I have expressed my view: house prices in London and the country are far too high entirely as a consequence of Government policy. It is not a market failure. The market has done precisely what Government have told it to do.

Chair

When you say “Government”, do you mean this Government, or Government failures over time?

Sir Mark Boleat

No, this requires a conspiracy of many Governments, not one, over many years to constrain supply in the face of rising demand. We have huge distributional consequences that our generation—Christine and I have been working together for nearly 40 years, I think—are massive beneficiaries of, and our children are so often massive beneficiaries as well, through the great bank of mum and dad.

Chair

We have done plenty of—well, this is now our fourth Report on housing, if you take it in the round.

Sir Mark Boleat

But there are kids who do not have that benefit, so I want to see house prices fall in real terms. It is quite easy if you have inflation of 20% or 30%. It can happen without huge consequences.

Chair

Sir Mark, you are a huge expert on the mortgage market and how that works, and obviously this interest-free loan is encouraging people to borrow more. Do you think the mortgage market has any responsibility for the challenges of people being able to buy new housing? Obviously in London, prices are very high, but what about other parts of the country?

Sir Mark Boleat

As I said, I used to be a consultant in joined-up Government, but I discovered a very limited market for the service. There was a battle between the Department—that is my line.

Chair

I think you will find it might be borrowed.

Sir Mark Boleat

I became a consultant on more regulation instead. There was a battle between the Department for whatever it was then called and the Financial Services Authority, which I believe the Department won, for once, about the attitude of the prudential regulator towards mortgage lending, which basically is that it is a very dangerous activity and you should not do it. We know that being self-employed is apparently something favoured by the Government, but you try getting a mortgage. The regulator, to be fair, has to do its job properly, but I think the regulator tends to look at things in a very narrow way. It is not concerned about the consequences of stopping people getting mortgages; it probably assumes they are getting a house without a mortgage, when of course they are not. It is not the mortgage lending industry; the reason they have to do things like that is the regulatory requirements, and I think that needs to be far more joined up between the regulator and the policy makers. I am aware there have been some very fierce debates.

Chair

Absolutely. In this case, of course, we effectively have an unregulated financial product on the market. We understand from the NAO Report that the redemption has been quite—for people who have wanted to pay it off on time, it has not been a problem for that first cohort. However, with the 40% in London, are you worried about the impact on individuals who bought this expensive financial product?

Sir Mark Boleat

It depends on one variable predominantly, and that is house prices. If house prices rise, then people, even if they cannot afford the mortgage, are more easily able to get out of it, but look at what we are going to have in this country: we are going to have interest rates rising one day. We have been around with mortgage rates of 15%, but actually, a rise from 2% to 4% is a doubling, and that could happen. If you combine that with people losing part of their income, which is often the problem—it is not the main breadwinner; it can be the loss of a partner’s job—you get defaulting and confidence goes. It is entirely feasible that house prices fall in nominal terms. I believe the regulator requires banks to model on the basis of a 20% or 30% decline in house prices—I am looking at Christine, who is as knowledgeable as I am on this, but it is something like that. It is not likely, but it is feasible, and if it happens, a lot of money will be lost by this scheme.

Chair

Professor Whitehead?

Professor Whitehead

This type of scheme—I am not saying Government scheme; it could be private market or done in other ways, but it is a partial equity scheme—can be seen not just as adding to the house building or helping particular people to get in; for 25 years the Bank of England has recommended partial equity schemes to reduce risk for the individual, although not for the Government. David Miles has led that for 20 years, and we have done a lot of work on how they can be made to work in the marketplace and so on, mostly in Australia and New Zealand. The logic of any system is that if you only have 80%, you have less risk than if you have 100%. As much of the risk comes from Government policy—I am sure Mark would agree—it seems to me entirely appropriate that the Government should bear that.

Chair

We have a scheme whereby if you cannot pay it off after the five years, the interest rate racks up quite heavily. It would not take that long to get to the 15% if you really couldn’t pay it off. This is probably not so much for David O’Leary, but Sir Mark and Professor Whitehead, do you think enough consumer protection was built into this product? It has not gone wrong so far, but there is always a risk that it could.

Sir Mark Boleat

I do not know. That is the honest answer. These sort of things should be designed up front, with a joined-up approach involving the regulators who know about it. The policy is clearly designed to help people into home ownership, not to house people, because there are much cheaper ways of doing that, such as through social housing.

Chair

Except that you have to pay for the social housing in the first place.

Sir Mark Boleat

That is not on the agenda today. It is fine if prices rise, but it is not a given that prices will always rise. In fact, we know that they have been stable and probably—

Chair

So you could be stuck in negative equity. The point is about the interest rate on this product. It is 1.5%, and it goes up 1% every year, so in a few years’ time you could be paying a pretty hefty percentage on the Government portion.

Sir Mark Boleat

Yes, and you combine that with a possible loss of income and falling prices— I am not saying that that will happen, but it is a risk. If a financial institution would take the risk, and if it was regulated by the FCA and the PRA, they would probably stop it.

Professor Whitehead

The last bit is almost certainly true, but as they have stopped a vast amount of things that could be usefully done, it is not to my mind the most important thing in this context. While I fully take Mark’s point, and we did in the ’70s have falls of 40%, we never saw the actual thing fall, because the rate of inflation was so high. Now we have a really low rate of inflation, but it is not zero, and it is likely to go up. The fact is that we have 2% or 3% built in, which makes the scheme that much safer for everybody because, generally, inflation goes on. Are we going to see significant falls? I think that depends not so much on the price aspect of it but on the employment aspect. If people’s incomes go—we have taken away most of the mortgage support for lower-income households and so on—that could be a problem. As I think we said in the evaluation, the interest rates and so on in the future of that scheme are certainly an incentive to get out of it and should perhaps be looked at it in its own right. They may not be as bad as student loans, but they are not what the market would normally expect.

Anne Marie Morris

Sir Mark, you have said both that, ideally, house prices should come down, but at the same time that that could clearly lead people into negative equity. How do you stop the market overheating and get prices at a more sensible level, closer to some calculation or relationship to salary, but without creating negative equity?

Sir Mark Boleat

You don’t start from here.

Anne Marie Morris

But we are here, Sir Mark.

Sir Mark Boleat

You are quite right; it is very difficult. If we compare the two housing collapses that I have been through, as Christine said, in the 1970s, we had price falls in real terms of 30%, but the nominal level of house prices nationally was unchanged, from memory—

Professor Whitehead

I think that that in itself is interesting, because to be honest I do not think that Governments would do an awful lot to stop—

Sir Mark Boleat

—and there was no big problem on defaulting. In the early ’90s, when I was then running the Council of Mortgage Lenders, we had a far worse position. Prices fell in nominal terms by less, but in real terms by about 20%. We had massive defaulting, and that was a big policy issue that we did a lot of work on, but it did lead to the market correcting faster than it otherwise would have done. I agree entirely with Christine on this. If you take 2% inflation over 10 years, you are getting up to 25% over 10 years, with compounding. If house prices in real terms in London are 20% lower in 10 years’ time than they are now, that would be a very good outcome. But you are right that an absolute decline is pretty devastating for house builders, mortgage lenders and the people who, often through no fault of their own, are in that position.

Professor Whitehead

And who vote.

Anne Marie Morris

Indeed. You are right, Professor Whitehead. It is a point that Sir Mark made. He then went on to say that in a sense some of these decisions are politicised, and that is why you get different arrangements in different parts of the country. What is it that you would like to happen in terms of how the planning system works to remove that political piece so that, for example, you do not get the developer going back to the council and saying, “I know what you really want is two-beds, but because of what we have had to pay for the property, we are going with three or four-beds”, and the council largely falls over, because otherwise they are not going to get their new homes bonus?

Sir Mark Boleat

I will give a plug for the Housing and Finance Institute, which I was chairman of. It is a not-for-profit thinktank with a tiny staff and a tiny budget that has produced some really good reports relevant to this on planning—sorry, that was my report, so ignore the adjective—and also on utilities, as I mentioned earlier, and on the green belt. There are a whole load of such things. To be fair to the Government, they have done things in the right direction on all of them. You have asked the question. Having sat on a planning committee in the City, I know things are different. I recall what the leader of Waltham Forest said to me. She came into the City and saw these magnificent new buildings with thousands and thousands of people employed. She said, “How can they get that through the planning system?” I said, “Because we don’t allow anybody to live there—literally.” The moment you allow people anywhere near large commercial buildings, you are damaging the market. By the way, I was committed in the City to building 3,000 houses. I was fully committed to doing that. The fact is that frankly I would take most of the decisions away certainly from the local councillors, meaning the ward councillors. They should have nothing to do with the decision in their ward. They should represent their constituents to a smaller group, which actually happens in quite a few London boroughs and may happen in other places.

Chair

Yes, that is how the planning committee system works. We are in danger of getting into the planning system, which we have just done a Report on.

Sir Mark Boleat

Well, it is, I think, critical to all of this.

Chair

We recognise that. Our Report highlights those problems. I am aware of time and that we need to move on. One thing I want to ask you all—the NAO has done its bit of work now, but it would be interesting to know, particularly from Professor Whitehead, what further evaluation would be useful in assessing Help to Buy’s effect on the housing market. Obviously that has not finished yet.

Professor Whitehead

There are areas where it would clearly be of benefit to have more understanding, particularly of the new build premium and that type of thing.

Chair

You are a housing economist. What information would you or someone need to do that?

Professor Whitehead

You would need access to Homes England data, mostly, and of course support to be able to do research, which is a different question.

Chair

It is not a bid.

Professor Whitehead

David can answer this much better than I can, but I suspect we are not quite up to date on exactly what is going on in the system, and therefore what the changes will mean, but there have been two pretty detailed micro-examinations. They are not overall market examinations. Perhaps you leave the academics to do that, which is what they are doing at the present time.

Chair

Mr O’Leary, is the data that your members provide something that you can provide to people to do that evaluation, particularly of the new build market, as well as the wider housing market?

David O'Leary

Yes, I think they possibly could. A lot of it is available through the Land Registry. I would echo what Christine said there. I think more information at a local level about the make-up of the purchases and what is being built and what is being bought by whom would be helpful—we get some of that from the Department, but it is relatively high level—and on redemptions as well. The NAO Report is the first time, other than another Bank of England report a couple of weeks back, where we have any oversight of who is redeeming these equity loans and how the book is performing.

Chair

I would surmise—we can test it with the Department—that the high level of redemption rate is exactly because, as Professor Whitehead said, it is a scheme for middle England, so people knew what products they were buying. While you are still with us, can I ask about the private housing market? In my borough, when a lot of new builds were going up, we were seeing whole developments or whole blocks sold overseas in a weekend, in Hong Kong or Dubai or Singapore. It was very noticeable, and that was because that was the way that the market worked. Help to Buy stepped in—to put it in a positive way, if you like—to boost your industry. As it is winding down, will there be more of that overseas selling? Do your members care who they sell to? It makes quite a difference for a local community, which is partly why I am asking. Will we be seeing more of those overseas purchases and that marketing?

David O'Leary

I think ideally they would be selling into local communities—

Chair

Ideally, but it is much easier for them to sell it for cash to people who have the money up front.

David O'Leary

There are certain costs involved with having to market to overseas investors. There was an increase in overseas investment in London property in the early 2010s and it came at a relatively good time because it did help provide a lot of additional housing that would not otherwise have been provided—granted, most of that is in the private rented sector and not in home ownership. I think that private developers are responding to what is there and what the market is. If there isn't a market, unfortunately they will not build, because that is how the business model works.

Sir Mark Boleat

Can I add a point? When I was on the Homes for Londoners Board, we commissioned the LSE to do a study of this. The starting point was exactly that: foreign buyers are preventing British people from buying homes. The conclusion was precisely the opposite, particularly for large developments. A developer needs to sell a quantity of them off-plan and that clearly doesn’t work for people looking for their first home. The conclusion of the paper, which I commend to you—it is on the website of the Homes for Londoners Board—was that a lot of these developments would not happen without the ability to sell to overseas buyers off-plan. The evidence that a lot of them are unoccupied doesn’t stack up. You don’t make any money leaving anything unoccupied. It is worth looking at that.

Chair

I hear what you are saying. It is a conundrum that we will touch on later. Just to put the case from my own borough, there were people who would have been willing to buy, but as you say, buying off-plan was tricky for lots of reasons. They couldn’t get a look-in; they had been sold without anyone even knowing they had been sold, over a weekend. Therein lies the rub. They weren’t even marketed locally, so there wasn’t even a chance.

Sir Mark Boleat

That is cash buyers. Again, there is an issue in the mortgage market that mortgage lenders are not easily able to commit forward two or three years.

Chair

Which is a problem.

Professor Whitehead

Six months.

Sir Mark Boleat

Six months—so it has to be cash buyers. Remember, as David has said, each big development of expensive flats produces social housing through section 106.

Chair

Well, yes. Anyway, we can have this discussion offline. Professor Whitehead, did you want to add something?

Professor Whitehead

I have some difficulty because I did that report.

Sir Mark Boleat

It’s very good.

Professor Whitehead

Thank you, Mark. Nobody believes that one any more than they do other things, but that is by the way. The honest answer is that it did help Londoners because 80% of them were being let out to Londoners and were therefore more highly occupied than they would have been if there had been owner occupation. Whether it reduced owner-occupation rates on this new building, the answer is almost certainly yes, but at that time, because of a lack of finance in the system, it was necessary to have external money coming in. I should note that today’s FT includes a whole page on the Chinese running away from New York and what happens then.

Chair

We could open up a whole new area of discussion here.

Professor Whitehead

We should try not to!

Chair

Given that Help to Buy equity is Government money, you could think of all sorts of ways of using it differently, because once they are sold, they are sold. Anyway, we will not get into all that now. Thank you all very much indeed for your time. The transcript of your evidence and the next part of the session will go up on the website. If you wish to stay for the next part, you are very welcome. We will send you a copy of our Report, but it may not come out before the summer, because we are now running into the last few weeks of Parliament. Examination of witnesses

Witnesses

Melanie Dawes, Nick Walkley and Jeremy Pocklington.

Chair

Welcome. You have heard our pre-panel; we are looking at how the Help to Buy scheme has worked. The scheme gave Government-backed interest-free loans to homeowners and first-time buyers, but also to anyone buying a new-build property—it had to be a new-build property— and it did not apply to shared ownership. We have had some interesting evidence from our pre-panel, and the National Audit Office Report gives a very useful evaluation of the scheme, which will run until 2021. Our second set of witnesses is from the Government. Nick Walkley is chief executive of Homes England—welcome back—and Melanie Dawes is permanent secretary at the Ministry of Housing, Communities and Local Government. It seems only moments since we last saw you both. We also have Jeremy Pocklington, who is director general for housing and—forgive me—

Jeremy Pocklington

Building safety.

Chair

Right, so you have your hands full at the moment. I think this is the first time you have appeared here in this guise, but you have been in front of this Committee with a previous hat on. A very warm welcome to you. I will ask Lee Rowley to raise the first point with Mr Walkley, and then we will move on to the main session with Mr Snell.

Lee Rowley

Mr Walkley, your organisation owns an area called Betteshanger in Dover.

Nick Walkley

Yes.

Lee Rowley

We have just been talking about value for money in Help to Buy. Do you think that what has happened to that location represents value for money?

Nick Walkley

I’m afraid I am not familiar with the specific case of Betteshanger, but I am more than happy to respond directly to the circumstances.

Lee Rowley

There will be no point in asking any further questions about Betteshanger, then. Perhaps I can just ask one other question: will you commit to meeting the Member of Parliament for Dover and Deal at your earliest opportunity in order to answer those questions?

Nick Walkley

Ah—I am now familiar with the case. [Laughter.] Sorry, but as I think the Committee has heard, we own thousands of parcels of public sector land. This is a site that contains a country park and a series of buildings. It was disposed of to a local college, and action is now being taken against the college because it has fallen into liquidation. The Member concerned is concerned to ensure that the use class is continued into the future—I believe it is for the provision of a visitor centre, a series of recreational facilities and “in perpetuity” covenants for the country park. We have been working with the administrator and around the potential disposal to ensure that all those considerations form part of any future disposal. The agency itself does not have any trailing wires in this deal, which was done in the earlier part of the decade. However, we are concerned to ensure that commitments given at the time and as part of the transaction are followed through. We have the full co-operation of those dealing with the disposal and, we understand, interest already in taking those issues on. I can give assurances here that we are looking to protect both the public purse and the intention behind the disposal in the first place, which was to secure exactly the outcomes—

Lee Rowley

Because you handed over, directly or indirectly, the best part of £6 million in order to do that.

Nick Walkley

That is correct. To protect both the site and the facilities, we handed over a dowry—complete with covenants to ensure that those things were carried out—to another public sector body. That public sector body has now got into significant difficulties and is looking to dispose of the site, but in doing so, it will have to ensure that the things we were committed to doing as part of the transaction continue.

Lee Rowley

Mr Elphicke is very keen to meet you. Will you commit to meeting him?

Nick Walkley

I can confirm to the Committee that I have already committed to meet Mr Elphicke on, I believe, Monday or Tuesday next week.

Chair

That’s amazing. Thank you very much indeed.

Gareth Snell

Ms Dawes and Mr Pocklington, Professor Whitehead described the Help to Buy scheme in our previous session, which you will have heard, as a sop to middle England—a fudge for the middle classes.

Chair

A scheme for middle England, I think.

Gareth Snell

Sorry—“sop” was my word. You could say it was a fudge for the middle classes. A scheme for middle England—is that a characterisation of the scheme that you would acknowledge and accept?

Melanie Dawes

I think she did say it was a scheme for middle England. When Help to Buy was first introduced, Ministers were very clear that it was designed to help people who could not otherwise afford mortgages to be able to buy their own home. Inevitably, it has gone to people who were able to buy their own home with additional help from Help to Buy. It is targeted at a specific area of the market.

Gareth Snell

So you accept that characterisation in part, but there are others that you might suggest.

Melanie Dawes

I think you have to see it in the context of the Government’s broader housing strategy, which includes very significant investment in affordable housing. It is not the only intervention; it is one that is designed to help people buy their own home when they would otherwise not be able to, and to help others get on to the housing market more quickly than they might otherwise have been able to. It also aims fundamentally to increase housing supply, which Professor Whitehead’s work—she confirmed this today—shows has been one of the impacts of the scheme.

Gareth Snell

The NAO Report suggests that three fifths of people could have bought a property. Within that group, a third could have bought their property without the scheme’s help. From a value-for-money perspective, is that something that you think has been good value for money overall?

Melanie Dawes

You have to separate out the question of targeting. Was the Government right to make a decision to help those homebuyers? In effect, that is a policy decision. I think you heard from witnesses earlier that previous incarnations of this kind of scheme, which had been more targeted, had had less success in having a big impact on the housing market, but ultimately helped to boost supply. Ministers made a choice on the targeting, but that is rather separate from the question of whether it is value for money. From my perspective, the answer to that question is yes. It is of course subject to risk, because it depends on the financial outcomes of the scheme, which we will only know over time, but when you look at those metrics—the impact on supply and the economic value that we get out of the scheme as a result—and weigh that against the net cost, it is value for money. We have checked that every time the scheme has been continued and expanded over the last few years.

Gareth Snell

You have a situation, though, where a group of people, technically, could have bought houses—I accept what Professor Whitehead said—but would they have? I accept there is a distinction there. They could have afforded the property that they ultimately moved into, and they essentially got a more preferential rate on their own mortgage by virtue of the role that Government played in providing the equity loan. Is the Government now in the business of subsidising mortgages for high earners?

Melanie Dawes

The Government have announced that the scheme will be withdrawn over time, and we will have a new scheme that will replace the current one. As you know, it will be more targeted and slightly less generous—only for first-time buyers. We are making those changes. As I said, the intention is to withdraw the scheme. In the end, you have to go back to what Professor Whitehead said earlier: the situation in the housing market in 2013 was one of some crisis—there were very low levels of house building. Successive efforts to try to sort that out had not been successful. This very big intervention—there is no question that it is a very significant intervention in the housing market—has to be seen in that context.

Gareth Snell

I do not doubt for one second that it was a huge intervention into the market. I am an old-school socialist, so I am quite happy to see market intervention when markets are not functioning; I have no issue with that. I do have concerns—I appreciate that, in London, the numbers on relative wealth-to-house prices are different—about the number of households where household income is in the upper deciles but that were able to access a Government scheme to reduce their own costs. Was that always the intention of Government? When you were asked to implement this scheme, was there any thought about helping already relatively wealthy households to be slightly wealthier in the long term?

Melanie Dawes

We were helping people to get on to the housing ladder and, in so doing, helping to boost housing supply, which has a wider impact on the economy and in terms of other outcomes in the housing market. That was the case for the scheme. It is, of course, an equity loan. Although there is some subsidy to the homebuyer, particularly with the five years of interest-free loan, as we heard earlier, there is then a charge after that, which does increase with inflation. Also, the Government does take a 20% share in any profits before the homebuyer buys us out. So, it is a balanced offer. It is rather different from the direct transfers that we make through right to buy or the affordable housing programme—where we are directly subsidising, and don’t ever make the money back again, for good reason—into different forms of housing.

Gareth Snell

No, but you will have had individuals who have got a much more preferential rate of interest on their own mortgage as a result.

Melanie Dawes

Yes, that is correct.

Gareth Snell

Do the Department, the Government or, dare I say it, the Treasury have a figure of what they anticipate their return to be on this investment over time? Are they working towards a target return rate? When this interest kicks in for the longer term, is there a figure, an offer?

Melanie Dawes

We are not working to a target figure. We do expect to make a cash return over time. We have made an 11.5% cash return so far. Once you discount that, of course, which we are obliged to do in accordance with the Green Book, there is, overall, a small loss, which is outweighed by the economic benefit. But we do expect to make that cash return. What we have around that is a pretty sophisticated risk framework in the Department, and particularly in Homes England, that manages the value of that, so that we can be sure that we are applying the highest standards of professional oversight.

Gareth Snell

Mr Walkley, Ms Dawes talked about stimulating the housing market. I think we can all accept from the evidence in the brief that that has happened, but I repeat to you the question I asked the pre-panel—I suppose this is for the Department as well. Are you confident that, as a result of this supercharging—a phrase used by the previous panel—we are getting the right houses in the right places to meet the demand of local communities, and not simply speculative development on the back of a scheme that could see houses that are either not needed or not in the right places being purchased because they are now suddenly available and affordable?

Nick Walkley

Figure 7 in the Report shows that houses are being built right across the country. This was designed to be a very open product, which was intended to stimulate demand across the country. There is no attempt in the scheme rules to target areas or locations. Instead, what the product does is create an open gateway into home ownership. That was the intention and continues to be so. I think there are interesting regional variations. As Professor Whitehead indicated, as the scheme begins to mature as a product, some of those are worthy of further investigation as to the impact they might be having on local markets. Confidence that all of the homes are being built in all of the right places is really a question about land availability and the performance of particular markets, rather than this scheme.

Jeremy Pocklington

I agree with that. This was deliberately designed to be a scheme that was accessible and open. Take-up has been strong across most of England. In London, take-up is a little bit lower, and that reflects the London housing market, which I am sure we will come on to discuss, although we extended the existing scheme to enable some increased take-up in London. The new scheme that will replace the existing scheme between 2021 and 2023 does include regional price caps, based on the mean first-time buyer price for houses sold in each of the respective regions. That is a deliberate decision to target the scheme more tightly as we transition away from the scheme over the next four or five years.

Gareth Snell

I appreciate what you mentioned about this being an open scheme. But previously, Ms Dawes, this Committee has discussed with you the target of 300,000 new homes built per year. I am just conscious that this is a huge amount of Government investment into a scheme that appears to have no immediate, direct correlation with, or input into, a very large Government target for the number of houses to be built. We talked in that previous session about the local plan variations. How is this scheme, from a development perspective, shaped by those local plans, and where does it feed into the target of 300,000 houses a year, which your Department says will be built in the next decade?

Melanie Dawes

As we have discussed before, it is a very big ambition. I think that your report today on planning says that.

Chair

I think we quote you.

Melanie Dawes

Yes, and I think the Prime Minister is giving a speech this afternoon to the Chartered Institute of Housing saying that this is a really big ambition. No single intervention will do the trick. We have to do a whole range of interventions. In particular, we have to build a broader housing market, which does not just rely on the traditional developers, with their rather cyclical business model, which relies on making a return in the good times, but accepting that they might have a significant negative return in the bad times. We have to get more longer term investment in. That is why we have also been encouraging the build-to-rent market and why we continue to encourage affordable housing, and to have longer term relationships with affordable housing providers, so that we can get that longer term sustainability. This scheme has been part of the picture and will be for a couple more years to come, but if we only relied on supporting the developers, it would not be enough to reach those numbers, so it can never be the only thing that we need to do.

Gareth Snell

I want quickly to pick up on two different tangents. If you are looking to use schemes such as this to diversify the market, in order to meet what I would call the target—you say aspiration—why did the scheme not apply to custom and self-build housing?

Jeremy Pocklington

First of all, on your general point about whether the scheme has led to the diversification of the market, this scheme has given house builders confidence at a time when they needed confidence. It has particularly helped SMEs. In the last few years, we have seen a significant increase in the number of very small SMEs that are using the scheme. I think that 60% of the 2,000 developers are now using the scheme, which shows how it is helping to provide confidence for some of these smaller developments.

Melanie Dawes

I will follow up on your point about self-build. This has been a really difficult challenge, and we would really like this scheme to be able to support self-build. I don’t know if Mr Walkley knows more about the details of this. What is quite challenging is that the business model for self-build is really different. An up-front injection is needed to support that market. We are trying to do that through a number of different routes in other parts of Homes England’s portfolio. We have some custom build products that are covered by the scheme, but not as many as the market would like. That is partly because it is just a rather different and difficult problem to solve.

Nick Walkley

I am in danger of just agreeing with everybody else. I would say—

Gareth Snell

That’s fine—we like that.

Chair

I think Ms Dawes is smiling at the idea that you all agree.

Nick Walkley

Very often, when the agency is approached by self and custom builders, they are looking for home ownership finance, when what they really need is more akin to development finance. Finding that bridge between getting the money together to get the product built and then financing it in the long term is the issue we are now thinking about in the agency. If we were able to crack that bridge, it would also be easier to make Help to Buy available to those self-builders. Finding a way through that effectively means thinking about how the 20% to 25% that the equity product plus the deposit contributes is really required as up-front finance, which is expressly what this is not for. How do we perhaps find other ways of using existing funding streams to do that?

Gareth Snell

That’s all on that particular avenue. Just going back to how the scheme could be better, I think the Chair might touch on London separately, but what about those regions outside of London—places such as Yorkshire—where there have been problems or take-up has been less than anticipated? Given that this is market-led—as we have been told and we have heard, this is about stimulating the market—what is the Department going to do to stimulate the market further, to make Help to Buy viable in those areas, or is there a suite of other things you anticipate doing in those areas that are tougher to crack?

Jeremy Pocklington

It is worth saying that take-up has been strong in many of the areas you mention, such as the east midlands, Yorkshire and Humber and the north-east. A very high proportion of new build in those regions has used the scheme, so that is probably the main point. I do not think we see that as the big issue we need to focus on, in terms of the Help to Buy scheme itself.

Nick Walkley

If I am right, in some parts of the north the proportion of purchased new builds using a Help to Buy product is very often over 40%. This is a quantum issue, rather than the proportion held by Help to Buy; the supply-side interventions that the agency manages on behalf of the Department are much more important, such as the small sites fund and the local authorities fund. My board recently signed off three sites in Sunderland and Gateshead that are brownfield and will become available for SME-style developers. It is about the quantum of land available in those places, and matching those to what is a growing SME market in that part of the world.

Gareth Snell

We have had statistics by constituency, and 61% of the new build sales in Stoke-on-Trent were Help to Buy sales. That sounds brilliant, but it is because the relative number of new builds was quite small. While you can talk in percentiles, if you are going to stimulate the housing market, it is about the volume that you produce. What do you have available? I will use Stoke as an example, because it is the place I know best: what can you do in places like Stoke-on-Trent to stimulate the housing market further? Yes, it is 61%, but it is 61% of a much smaller build rate than anywhere else in the country. I may end up with a smaller percentage of Help to Buy but a bigger proportion of new builds overall.

Nick Walkley

In those low-value areas, the gap between development value and sales value is often very small, and therefore it is quite hard to get finance, because the risk profile makes it really difficult for somebody to lend against. In those cases, as I said in this Committee two weeks ago, the use of things such as building leases, where we allow people to develop on the land and we recover the value at the end of the development, becomes really important, particularly when they are allied to the use of some of our grant or long-term recoverable funding. You are able to offer a site to a developer and potentially support some of that expensive brownfield remediation. I know that in constituencies like yours, some of the prime sites have an industrial or near-industrial history, which means that when you scrape away the soil, there are all sorts of things in there that need to be removed first of all. That is expensive, and combining that with allowing somebody to develop and repay as the homes are sold may be the bridge into increasing supply. That gets us into working with the local authorities, and the local authorities in partnership with housing associations, to bring about those sorts of developments. We are certainly encouraging some of our strategic housing association partners to expand from their existing footprints into those areas. For example, recently we have seen L&Q, in partnership with Trafford Housing Trust, bringing some of the really big skills that they have developed in London to parts of Manchester, using their development capacity to really grow the footprint of supply. Given that it is from a very low base and low values, it is not going to be overnight; there is a need to build some momentum and to support some of those SMEs. I know that in places like Stoke we are using the Home Building Fund to do short-term finance to bridge some of that development finance gap, but the quantum of developers is still small and we need to find some people to come and work alongside existing providers.

Gareth Snell

Again, I do not wish to labour my own constituency, but I return to your earlier point that this was meant to be an open scheme, and I asked how you can be certain that you are getting the right houses in the right places. If, as you have just very eloquently pointed out, there are a number of places where buying a property is all out of skew—because of the relative wage value to house price, coupled with the price of development versus final product price—how can you be certain that you are getting the right help to the right places and to the right people, particularly given that the statistic from the NAO is that three fifths of people could already have bought houses anyway? Who are you actually helping in places such as Stoke-on-Trent who were not already able to do that, and are you getting good value for return on those places, or is it just nice branding?

Melanie Dawes

Ultimately, our overall aim, and the reason for having such an ambitious target on housing supply, is to improve affordability. When we look across all our housing interventions, that is front of mind. This scheme does not target by area and, as Mr Walkley has been drawing out, essentially it is about supporting development that is already viable, where the market is providing, but where buyers may not be able to afford to buy, or may not have been able to afford to buy in the past. It is about confidence building and increasing demand, and thus supporting supply. However, where affordability is greatest, we are also investing more directly off the Government’s balance sheet—in fact, at higher cost to the Exchequer, particularly over time—in things such as the housing infrastructure fund, loans to various different parts of the industry, as Mr Walkley was describing, and of course through affordable housing, which for this programme is prioritising London and the south-east—about half the money is going to London—because of those affordability ratios. The choices are different across our portfolio of investment, and Ministers have sought to target some on affordability and not others. This one is not targeted on affordability. To answer your direct question, we are not aiming to choose where across the country the Help to Buy investment goes; it is a demand-led scheme, and that has been the choice.

Jeremy Pocklington

That is right, and in the evaluation that was published last autumn, we set out quite a lot of detail—some of it is also in the NAO Report—about who is benefiting from the scheme. We know that the vast majority are first-time buyers, and we know that they are also often quite young and often disproportionately from black and minority ethnic backgrounds. We have got quite good information about who is using the scheme but, as the permanent secretary has said, we are not targeting this scheme on particular areas in quite that granular way.

Gareth Snell

Moving on to the revised scheme that will be coming in, I will make two points. First, you are not targeting in the current scheme, but the application of a price cap—a reasonable price cap—and various other things amounts to a sort of targeting, as such. Are you confident that when those new parameters come in and it is a slightly more restrictive scheme, you will get the right houses and the right places and the right people? Secondly, we heard from our pre-panel that there is a concern—you have talked quite a lot about the confidence of developers—that the reduction of the stimulus for demand may lead to a reduction in supply, because obviously one leads to the other. Have you quantified, or has the Department or Homes England done any work, to try to quantify what the reduction of that supply may look like numerically and how that fits into your aspirations and my target of 300,000 homes a year?

Jeremy Pocklington

That is a very important question. You are right that we are targeting the new scheme, from 2021 to 2023: first, it will be open only to first-time buyers; and secondly, we are introducing the regional price caps, as I mentioned earlier. That is a very conscious policy decision. We looked at a whole range of different options, but we took the decision to move to the more targeted scheme as a series of steps to enable the market to adjust to a world where there is no Help to Buy. What we have done is deliberately give the market, the industry, consumers and lenders a number of years to adjust to the withdrawal of the scheme. We have not got a precise estimate as to what the impact will be on supply. That depends on how the market reacts. It depends on other factors that are outside our control, but we have been trying to signal, ultimately over a period of nearly five years, the transition away from the scheme to enable that sort of reaction to happen. We know that in the past, products have been available from builders and lenders to support or help people who have access to smaller deposits. In a responsible and balanced way, we are looking for the market to address it.

Gareth Snell

That is very interesting, Mr Pocklington, because I want to try to understand something. Given the aspiration of 300,000 properties a year as part of the Department’s planning for housing growth, if you are not able to quantify the impact you are going to have on the market when you take out your market interventions, how robust is that figure? I appreciate that we have looked at that in this Committee, and I am not looking to rehash that, but the NAO said that this particular scheme increased housing supply by 14.5%. You must have within the Department some idea of what each of your interventions—I appreciate that this is one of a range of tools that you deploy—is doing to increase housing supply and what the impact would be if you turned them off. If the next Prime Minister wants to change the policy quickly, you would surely be able to say, “The impact of stopping this would be a reduction in housing of this, this and this.” Is there no grand plan within the Department that would allow you to give those figures quite quickly?

Jeremy Pocklington

We are going to go back into the debate on the 300,000 ambition, and I should state at the start that I am very conscious that you published your Report this morning and made a very clear recommendation on this specific issue, which we have only just read and will obviously want to consider in the usual way. It is a very challenging ambition. We don’t have a single trajectory to take us to the mid-2020s. That is because there is considerable uncertainty, and the Government interventions that will be in place in the mid-2020s have not been determined yet. That will be a matter for future spending reviews. Obviously we do look at different pathways. We base our modelling on OBR forecasts for the housing market. We then use our own housing supply model. We do think it is a challenging ambition. It is achievable, but it depends on further investment in future spending reviews. In terms of the Help to Buy scheme, when we evaluated and decided to introduce the new scheme from 2021 to 2023, the decision we took was that ending the scheme abruptly in 2021 would be too quick.

Chair

You have explained that, but Mr Snell was pushing about what you could tell a new Prime Minister if they said, “We don’t want to do this; we want to do that. What impact will that have on the supply of housing?” Have you got the data?

Melanie Dawes

This is one intervention that has had an impact. Clearly, withdrawing it means that we have to be sure that we will not have a negative impact. All other things being equal, you might expect that were we to continue it, we could have a positive impact again.

Chair

I think we heard from Mr Pocklington that you would not withdraw it instantly.

Melanie Dawes

We would weigh it against other investments, I guess, which is partly what the NAO Report is encouraging us to do as well, and think about whether we can have a bigger impact through other means.

Gareth Snell

Okay, but our previous panel did say quite clearly that, from a developer perspective, the winding down of the scheme, and therefore the winding up of what by the Department’s own accounts is a stimulation of the demand to increase supply, would mean a potential contraction in the supply side. You are saying that the Department hasn’t done any modelling to determine what that reduction in supply may look like even though you have an aspiration for a fixed target for housing by 2022-23.

Melanie Dawes

We have done modelling. What that modelling tells us is that with Help to Buy in the private developer part of the market—which, as I was saying earlier, is the viable bit in the market—obviously, if we were to put another couple of tens of billions of pounds into that, you could have more optimism that it would be growing at a certain rate. But we also believe that the circumstances of 2013 were very different and that the market is more stable now. It is really a question of where the Government put their investment. There is also a sense—I think it comes through in the NAO Report, and some around the table may share it—that the Government have to be quite careful about not distorting the market too much by leaving the intervention in place for too long.

Gareth Snell

That is a very good answer, but it isn't the answer to my question. What I am trying to understand particularly is that the scheme currently exists as is, with a 14.5% increase into the supply of new housing because of stimulated demand—

Melanie Dawes

Over the path.

Gareth Snell

Yes, over the path. If the scheme were to be changed to target or make the resource more effective in certain areas where there is a bigger impact, developers on the pre-panel said that that will reduce the amount of supply. What I am trying to understand is this: has the Department quantified what the anticipated reduction in supply is through the amendments to the scheme going forward? I take your point, Ms Dawes, that if the Government wanted to put £10 billion in, it could continue, but they aren’t. They have already said that they are going to change the scheme. We know what the policy is. I want to know what the understanding is of what the impact of that policy is going to be. Or has the Department not attempted to quantify the reduction in supply as a result of that change?

Jeremy Pocklington

I am going to have a go and tell you what we do know and what we have quantified, and then I can explain what we haven’t quantified, in answer to that question. What we are introducing is a new, more targeted scheme, which we have outlined. Compared with not introducing that scheme, we know that that means there will be fewer Help to Buy transactions. We think, absent any changes in the market, and any behavioural responses, that the reduction in the number of Help to Buy transactions will be about a fifth, but what the overall impact on supply will be depends on what the market reaction will be—both what developers do in terms of the new schemes and where they choose to operate—and what new products are introduced to support borrowers who are unable to afford larger deposits.

Gareth Snell

Okay. I am sorry to push this point again. You don’t have a figure, as such, defined. Obviously, the aspiration of 300,000 is well established. Within that, have you considered what other changes you may need to make to other schemes to compensate for any expected loss in supply through this scheme, even without calculating a number? A one-fifth reduction in transactions means potentially fewer house sales in new builds or people potentially reverting back to existing houses and buying old stock—you must have done some analysis of the impact on the housing market as a whole. Does the Department have a plan for how you can continue to stabilise the market post the changes that doesn’t just require more cash later on?

Melanie Dawes

Our expectation is that we will need to spend less in this part of the market than we have in the last few years, and more in the areas of the market that are less viable in commercial terms, such as affordable housing and some of our infrastructure loans and grants and so on. These are questions for the forthcoming spending review, but we are putting together, as you would expect, an assessment of what the Government need to do to be able to turn that ambition into something that we can start to call a target.

Gareth Snell

Dare I ask whether you happen to know when the spending review will be?

Melanie Dawes

I can’t say any more than has already been announced, no.

Gareth Snell

It was worth a try, Chair.

Chair

Your face tells it all. I think everybody is just waiting for it to happen.

Gareth Snell

Finally, on the 14.5% increase, does the Department have an aspiration for what it believes is an acceptable or an intended level of impact on supply as a result of the billions that were put into it? What are you doing to evaluate how effective that has been in sustaining the longevity and stability of the growth in the housing market? Does the Department have an overall target for increasing supply, and how are you analysing the long-term impact on sustainability in the housing supply market?

Melanie Dawes

We did not have a target for the 14%. My predecessor said in 2014, when he gave evidence to the Committee, that we expected a 25% to 50% additionality; 25% is what we needed to break even. The evaluations showed 43% for the first evaluation and the second one was 37%. That is what generates that 14% figure. I hope that makes sense. So we have done better than was originally projected and better than was needed to break even. We never had a target because it was demand-led, but it has performed well. In terms of sustainability, I don’t think there is much more we can say. Our aim is to withdraw the scheme in a way that does not damage the fundamental stability of this part of the market. We have got lots of other interventions in play to be able to do that. As Mr Pocklington said, with the amount of time we have taken we hope to achieve that, so that we can make not just this part of the market sustainable without this kind of Government intervention, but make other parts of the market sustainable. That really is the priority: to grow the market in different ways.

Gareth Snell

I am sorry, Chair; this is my last question. I have two very quick points. First, has this scheme distorted other parts of the market in a way that now requires compensation elsewhere? Secondly, the picture that the three of you have painted is of a very rosy scheme: cash returns will be up, more people are buying houses, supply is up, and there is greater stability in the market. If that is the case, why would the Government want to withdraw the scheme, when it could carry on generating its interest receipts, generating its return on capital investment, generating more houses where they are needed, getting more people on the housing ladder. It seems to me that you have hit the housing cash cow.

Melanie Dawes

You are quite right to remind us that we cannot have our cake and eat it on this. In the end, it is an investment. Although it is an investment that doesn’t affect the Government’s deficit, and therefore is not money that each year we could be putting towards affordable housing, for example, it none the less does score on the Government’s debt, and it does tie up capital for a period of time and does have a cost as a result of that. That is part of the balance. It is also about not wanting to distort the market too much. I guess the housing market is one that, because of where we start from in the planning system, which effectively rations the supply of land—that is what the planning system does—this is a market that has local and central Government interfering in it at every step of the way. So it is always going to be a market that requires a very significant Government intervention, alongside the private sector, to make it work. There are good reasons for all those interventions—good reasons why we ration land at a local level in a careful way—but it means that we do have to be careful not to distort the markets in ways that prevent the private sector model from working, or indeed inflame the private sector model in a way that stops decision making from being appropriate.

Jeremy Pocklington

It is worth mentioning that the mortgage market has moved on since 2013, when the scheme was introduced. There are more higher loan-to-value products available. Lending has improved, including to first-time buyers. It is not there yet; there is still slightly more cautious lending to new build than to the second homes market.

Chair

You bring me neatly to an area of great concern. This is basically an unregulated financial product out there on the market. Ms Dawes, did you talk to the prudential regulator or any of the regulators at the FCA about this before you allowed people to take out a huge Government-backed loan?

Melanie Dawes

I don’t recognise Sir Mark’s comments earlier about an argument between the Department and the regulators. I wasn’t in the Department.

Chair

I was not asking about that in particular. Did you have any discussions at all?

Melanie Dawes

I was struck by that, and I do not recognise it. I was not in the Department at the time, so I do not recall that debate.

Chair

Did you need to get it regulated? Government can do what they want, but something like this is unusual, where households are taking on quite significant debt with a high interest rate at the end of it. Normally, you have to go through a lot of hoops to get a mortgage, but you did not have to go through many hoops for this—you had to buy a new-build property and have a mortgage.

Melanie Dawes

Mr Walkley may want to say something about how we make sure that we do this, but I can say that we have always sought to make sure that we behave as though we are regulated, even though technically we are not in that way. We have always sought to make sure that our products are appropriately managed and we put a lot of safeguards in place.

Chair

How did you make sure that people will not get themselves over-indebted, not understanding what they were buying? Was it caveat emptor, or did you provide them with advice?

Nick Walkley

I think that, rightly, this is a matter of significant concern. We now have a balance sheet equivalent to a mid-sized building society, somewhere between Skipton and Leeds I am told, which I think is Bingley. What we do to look after consumer interests falls into three tranches. The first, of course, is that a Help to Buy equity product is a secondary charge. Anybody acquiring a property has to have already passed all the requirements of the regulated product.

Chair

Basically, you are outsourcing the checks to that primary mortgage lender.

Nick Walkley

The first-stage checks, which are done by the primary lender.

Chair

You take that as the check.

Nick Walkley

We take that as a check. That is followed by a sustainability check, which is conducted by our Help to Buy agent. An applicant, normally working with an independent financial adviser, will work through a checklist that looks at household income and creates a net figure using the standard deductions that you would be familiar with. The Help to Buy agent makes an assessment of sustainability based on two judgments: the total amount—first and secondary charge—must be no more than four and a half times income; and the amount to be paid overall from both the first and the secondary charge when interest kicks in, and any service charges and other related property matters, must equal no more than 45% of that net income. Those two things are designed to place a secondary arrangement over and above that already provided by the first charge lender, just to give confidence that the borrower is appropriately advised and that we are not placing undue risk. As the consumer works through the process, those things are subject to reinforcement through actually gaining the product. In other words, there is form 1 and 2—incredibly bureaucratic phrases—where the nature of the product and what it will mean in payment terms are set out alongside consumer information—a factsheet akin to what you would see in a regulated product.

Chair

So you have become a mini financial regulator and mortgage lender all rolled into one? That is a bit of a stretch for Homes England, but in effect it is what you have described.

Nick Walkley

We are operating and looking at the appropriate benchmarks to ensure that we are following the standards of similar products without being a regulated product. In that sense, I agree with you.

Chair

That is probably not what most people thought Homes England would be. Can I move on to the issue of Target, the organisation that is supposed to collect the interest? There has been pretty woeful performance from Target. It was not geared up at all for people redeeming their mortgages and to charge the interest rates. What do you have to say about that?

Nick Walkley

I recognise the issue that occurred this time last year, when people began to pay interest or sought to redeem mortgages. Culpability does not lie entirely with Target. Homes England did work with Target on modelling the likely demand into the call centre. We modelled that, as the report set out, at about 10,000 calls a month.

Chair

Isn’t it odd that, between you, you did not work out that it would be a bit more complicated? With the current mortgage rules it is quite complicated, because they ask you all sorts of detailed questions about your mortgage. These are on secondary charge with no interest for five years, and then suddenly there is an interest rate or a lot of money to pay off in one hit—very different from a normal mortgage product. A number of them are first-time buyers, so they are not necessarily on the highest incomes. I do not want to speculate on the resilience of the income in a household, but there are lots of variables that should have surely alerted you that this was going to be a bit more complicated than one quick call to redeem it or work out the interest rate. There were no mechanisms in place to charge the interest to the consumer, were there?

Nick Walkley

I recognise that narrative. It is one that we worked through many times, and unfortunately the level of complexity was far above what we judged. We predicted that two to four calls would be sufficient to deal with most cases. That is not what happened. As I have experienced in a local authority call centre, when things go wrong they escalate very quickly because of repeat calls. The positive story is that, actually, Target and the Homes England team were able to put in place some surge resources and an action plan.

Chair

Yes, but my question was why you could not foresee some of that. It is easy for us to say in hindsight that you should have known it was coming. This was a project set up for another reason, but it was, and is, a financial product. Did you go and look at what was happening with other lenders and how, as you say, one or two things go wrong? You say you have experience of a call centre—we all know that when something goes wrong, you get a lot more calls about it.

Nick Walkley

Absolutely, and we have experience of running our own previous products. In this case, the demand for redemptions was far above what was anticipated, and it very quickly escalated. We have learnt a number of lessons from that. In the short term, there is a need for surge resources for when there are particular issues in the centre. We have also learnt about the need to invest very heavily in digitisation. What has actually happened in many cases is that the dependence on manual processes means—as our internal audit identified—that the data is always not as accurate as it should be, and you therefore need to get the base information right.

Chair

It’s interesting that you raise that, because I was going add it to my next point. How could it be that the data was so inaccurate? It is quite straightforward in a sense, isn’t it? You have lent the money. You are the primary lender and know the price of the property. You know who you have lent the money to, and how much you have lent. You know what the escalator model on the interest will be after the period. You definitely know when the period will end. What data was missing, and why could it be so badly wrong? That is pretty standard and simple—the variants are very limited in that, aren’t they?

Nick Walkley

We are in danger of conflating two issues here. What happened at the outset was that we underestimated the amount of resource that was necessary to manage the flow. We are now managing that flow very effectively.

Chair

But you still have not got the data right. You are saying the data was right. I see what you mean about conflating the timeframes—fair point—but if the data was not accurate in February, it was presumably not accurate at the beginning, was it?

Nick Walkley

What we learned from that exercise was there was a series of issues that we needed to do more work on, including ensuring that the data flowing into the system met quality standards and was always accurate. Data comes from many sources from a property transaction, and we were not always able to demonstrate that all of that data was exactly as it should have been when it went into the Target system. That is not to say it was inaccurate, but we did not have the quality systems around our data input because so much of it is manual.

Chair

Can you talk us through that in a real-life example? I bought a property in London for £600,000 with Help to Buy, so I have my 40% loan. I paid £599,995 for it—that is usually what you did—and I have my mortgage of whatever I had on top. Which bits of data are you collecting, and what went wrong?

Nick Walkley

It’s not what went wrong; it’s what could go wrong. We are ensuring that we have systems and there is checking of that data to avoid inaccuracies at a future point.

Chair

What data? You have the property price, which is one bit of data. Were you collecting that?

Nick Walkley

The challenge here is that we are drawing data from the Land Registry—although we know they have their own delays, digitisation issues and challenges—to be matched to the actual purchase price. What happens in the final moments of a transaction moves that. We are talking about quite small sums, but this becomes very important when you move to holding the transaction at a later stage. The conveyancer and the solicitor are required to gather all of their necessary information together, so you are drawing purchaser, Land Registry and first charge information together to hold, and that thing at the moment has been too heavily dependent on bringing systems together through a series of manual processes. It is why we are investing really heavily in digitisation so that these things happen as standard. Our internal audit said that, while you do not have that automation, you need stronger quality systems and checking because without it there is a high risk of error. We have gone away and implemented all bar two of the recommendations across our internal audits in this area to move to international quality standards for that data checking, but that is the result of asking serious questions of ourselves as a result of the unacceptable performance this time last year that left consumers waiting for too long and that we have had to rectify.

Chair

It was only in September of 2016 that you introduced the monthly management fee, which meant you had therefore the financial information to charge the interest rate, so that is three years in. What made you think then that you needed to do it? What was the trigger?

Melanie Dawes

Can I answer that? Mr Walkley has not been around for the whole period. I just want to say that the earlier NAO Report credited what was then the Homes and Communities Agency for quickly mobilising Help to Buy on the basis of previous schemes. Of course, all those schemes were rather small scale. What did not then happen in the subsequent few years was the scaling up of systems and the investment in IT systems, as Nick has been describing, that were needed to manage the much greater volumes that have subsequently come through. We were a bit too late on that, if I am honest. Mr Walkley and his team have done a very good job of stabilising that. They have got quite a big IT investment that is coming on. It will be a big deal for them to get at the next level of capability.

Chair

So we have a scheme that was temporary to start with. It was announced by the Chancellor and introduced quickly. It seems, Ms Dawes, you end up inheriting lots of quick ministerial announcements that you then have to turn into a working policy. So you had that happen. Then, three years on, there was a recognition that there was an issue about the management. I will not go through the whole cycle; I will not repeat all that is in the Report. But you have now got investment in an IT system to run a financial product and go through various checks on a scheme that will finish in 2021. So is there a bit of dead weight there? Is this fantastic computer system going to be useful for any other future schemes?

Gareth Snell

I was tempted to say that Ms Dawes should get new burdens funding for her Department as opposed to the local authorities—

Melanie Dawes

We did actually get additional resources from the Treasury in 2017 for some of these investments. There was a recognition that that was necessary.

Chair

How much extra?

Melanie Dawes

I don’t have the figure in front of me.

Chair

It would help if you could write to us about that.

Melanie Dawes

We have released those in previous—

Chair

It was entirely a Treasury announcement that your Department had to then deal with. So you have this big IT system. Does it have any other use, Mr Walkley? Will it be helpful for any other products or things that you do?

Nick Walkley

Just to be clear, we do not yet have this big IT system.

Chair

And yet it will be 2020 when it runs out, so we are running into the last—

Nick Walkley

The real challenge here is not, as the challenge of last June demonstrated, initiating accounts. It is that we are likely to have very large numbers of equity loan product holders into the future and potentially beyond 25 years. Experience shows from other schemes—I understand we still have one or two of the Milton Keynes Development Corporation mortgages on our books—that there will be a very long tail-off of this product, with significant peaks at moments in the market, which we will need to respond to when redemptions or arrears issues occur, and we are designing a system to cope with it.

Chair

The Milton Keynes thing is interesting. So how are you going to make sure that you run this cost-effectively? Does the interest come to you? It goes to the Treasury, doesn’t it? So you are not making a penny on this product. Presumably you have got out your begging bowl to go to the Treasury to make sure that you have enough money to run this scheme. Have you worked out what it is likely to cost to run the scheme over 25 years? You could have a handful of people with very high interest rates that you are trying to collect possibly going into default by the end of 25 years, or 25 years on from the last, so that will be 2046. I don’t know how many Milton Keynes mortgages you have left, but presumably not many.

Nick Walkley

Not many, no.

Chair

And yet somebody has got to administer that.

Nick Walkley

Yes.

Chair

So there is a heavy cost, potentially. Have you modelled those costs and what are you asking the Treasury for?

Nick Walkley

There is some modelling of those costs. What is critical here is that the key service provision is largely outsourced at the front end, to the Help to Buy agents, and in the management to Target. We are currently in the middle of a contractor break clause where we are renegotiating and inserting further PIs. Then we will be fully testing in the market and with the Help to Buy agents. Following that, in 2021 we will then re-procure the mortgage management process. Those two things together will allow us to produce more accurate predictions of what it takes and what the market view is of a product of this scale but with much more automation. One of the real challenges at the moment is that we are asking both the agents at the front end and our mortgage administrator to deal with multiple systems, because we don’t have them, and we have to do the start-up. Stripping some of those out will get us to a clearer value.

Chair

Ms Dawes, you have this IT system—you have this whole thing. Is there a prospect of selling off this loan book at any point and letting someone else manage this over the next 25 years?

Melanie Dawes

It is a matter of some market sensitivity. We have no plans at the moment to sell it off. It is not under active consideration.

Chair

It is policy to sell off something when there is no policy reason to keep it. Loan books are a particularly obvious win on that score, because as long as you retain the service standards and the contract for the consumer, they don’t lose out. It just saves the hassle of setting up whole IT systems and departments and contracting it out. It is quite a lot less work for Homes England if it is done like that. I am just playing devil’s advocate here

Melanie Dawes

The sorts of considerations that would come into play here would be whether there is actually a mature enough market for this product for there to be a price into which we could sell—

Chair

There are quite a lot of mortgage lenders who might be willing to bid for it.

Melanie Dawes

Not equity loans, actually. That is the difference. There are no plans from the Government at the moment on that front. Of course, it is something that the Treasury may well want us to explore at some point, but there are no active plans at the moment.

Chair

Now you have this system, is it something that could be used for future policies? Could what Mr Walkley has set up be used for any other future equity loans?

Nick Walkley

Apologies if I disappear into technobabble, but we are attempting to design an open system that could be used for future products, and with a degree of agile methodology.

Chair

That’s all our bingo words in one sentence there!

Nick Walkley

Exactly—I apologise. It ought to allow some of that flexibility. We are not just buying a hulking great system, but are actually trying to solve the issues that we face.

Gareth Snell

When you say an open system, do you mean open source?

Nick Walkley

No, what I mean is with open data APIs so we can use it.

Gareth Snell

How are you protecting your IP on anything you create?

Nick Walkley

Unfortunately, there is not a huge amount that hasn’t been done previously by the private sector in this area, because that might have been a potential source—I can see where you were going with that question.

Chair

I am writing notes to my future self. In 20 years, we will be writing a note to Homes England or whatever it is called then about how this is going—just warn your successor!

Anne Marie Morris

Mr Pocklington, we still have some of this scheme to run, and there are clearly a number of historical issues. What plans have you made to look at how you might fix them? Clearly, you have an issue around targeting—making sure it is for people who really need it, rather than people who would do it anyway. How are you going to deliver that? What schemes and criteria are will you put in place? Historically, there has been problem with ensuring that the infrastructure is in place. The developers get their money and it has bedded in quite nicely, but we are not yet getting the infrastructure we needed. There are all sorts of teething problems. What are you going to do about them?

Jeremy Pocklington

You raise a very important set of issues. It might help if I start with our timetable for introducing the new scheme. The first thing we did was to make sure that we carried out the evaluation, which we published last autumn, in advance of the decisions that were taken in Budget 2018, which set out the broad parameters for the new scheme. Either at the end of this year, or perhaps more likely at the start of 2020, we will need to set out more detail on exactly how the new scheme will work, consistent with the parameters that were set out in Budget 2018. We have no plans to change those overarching parameters. We are working through the detail of the scheme. For example, my Secretary of State has been very clear that he wants builders in the new scheme to meet appropriate quality standards. We have made it very clear that we will prohibit leasehold houses from participating in the new scheme. There are targeted changes we can make to the new scheme, learning from what has happened with the existing scheme. You then raise broader issues—particularly infrastructure—that we need to tackle in order to build the houses we need where we need to build them. Personally, I think housing infrastructure is one of the biggest challenges we have to face. That is why the Government introduced the housing infrastructure fund, which is deliberately designed to increase funding for housing infrastructure. It is certainly not the only source of funds, but it is a key source. We need to continue to use that programme—it is worth £5.5 billion, and I think we have so far allocated about £1.3 billion of that—to ensure that we are releasing the sites with the infrastructure required, in order to build the homes where we need to build them. The Help to Buy scheme is addressing some problems, but it will not address all the challenges that we need to address.

Anne Marie Morris

Okay. Let me take you to part 1, which is the bit about fiddling with the scheme. You say your Secretary of State has said, “You must make sure the homes are of the right quality,” and so on, but 2020 is just around the corner. I am slightly concerned that I have not heard something from you that is a little crisper and more detailed on exactly which bits of this scheme you are now looking at. We know what is not working, because it is all in the report. What is it that you are looking at doing differently? You need to make that decision quite quickly.

Jeremy Pocklington

The new scheme will be introduced from the end of March 2021. What we are doing now is developing policy options, talking to industry and working out what we need to do to ensure the houses are of appropriate quality. One specific example is that we will require any recipient or developer benefiting from the Help to Buy scheme to be a member of the new homes ombudsman. The Secretary of State has said that we will shortly be consulting on further details of the scheme, which is another important development to ensure that consumers are treated fairly with the houses they buy.

Anne Marie Morris

I am still not entirely happy with your answer, because it still seems a bit thin. I know ’21 seems like it is further away from ’20, but there is a whole bundle of issues. It is not just quality; there are issues about the greater use of smaller house builders, which we are not doing. Although I am sure you will tell me there are lots of general schemes—just as you told me about the general scheme for infrastructure—this is a scheme aimed at middle England and they are getting huge benefits. This is a scheme you control, because it is a Government scheme. It seems to me that you should not be relying on schemes that we desperately need to solve the rest of the problems in the housing market. You are in the unique position of being able to say to a developer, “You can only participate in the scheme if you pay for the infrastructure and you put it in first.”

Jeremy Pocklington

You raise several points. First of all, starting with the small builders, we deliberately want to make the scheme as accessible as possible for SMEs. As part of the wider challenge to meet our overall housing ambitions, we need more new entrants. We need people to diversify and disrupt the market.

Anne Marie Morris

I know that is the ambition, but how are you doing it?

Jeremy Pocklington

Homes England—Mr Walkley—is working closely with SMEs to make the scheme as accessible as possible, and we are having an effect. Some 60% of developers are using the scheme, and 2,000 developers have benefited from Help to Buy. About 1,600 of those are developers building 10 or fewer houses. That number has increased sharply.

Chair

When you say they are building 10 or fewer houses, is that on a single site?

Jeremy Pocklington

In total, accessed through the scheme. We are having a big impact.

Chair

I’m still not clear. There cannot be that many builders that are building just 10 or fewer properties a year.

Jeremy Pocklington

There are lots.

Chair

So that is literally their total build in a year.

Jeremy Pocklington

Through Help to Buy.

Chair

So they could be building 1,000, but only selling 10 through Help to Buy.

Melanie Dawes

They will be small builders.

Anne Marie Morris

So you are incentivising them. Are you also actually saying, “I want a proportion of the people involved in the next tranche to be smaller builders.”?

Jeremy Pocklington

We have other interventions that are specifically designed to support small builders. The home building fund specifically provides loans and other financial support for SMEs and builders who are going to disrupt the market.

Anne Marie Morris

Mr Pocklington, I am delighted to hear that, but I will say the same to you as I said about the infrastructure. The rest of the market needs all that. This is your scheme; it is aimed at middle England. Is there not something you can do to ensure that we get better value for money out of this scheme by imposing obligations and requirements that you could not impose in any other circumstance?

Melanie Dawes

We could do that. We could require all sorts of things of developers. There is a legal point that we have to open a new scheme to change those conditions, which is why we are not making the quality a condition until 2010. That is a shame, but it is unfortunately not possible to change it before then. We will also look at the question of leasehold houses, which is the other angle.

Anne Marie Morris

So will you actually say, “We cannot have leasehold housing.”?

Melanie Dawes

That is something that Ministers are—

Jeremy Pocklington

Except in exceptional circumstances, leasehold houses will not be eligible for the new scheme from 2021.

Melanie Dawes

That is quite a clear position. We could go further; we could of course say to developers, “You need to put more of your own money into this.” Previous incarnations of these sorts of equity loan schemes have required developers to do that, but they have had a much smaller impact as a result. They have just not been as widespread in their uptake by either developers or the general public. That is why the Government have decided to continue with this very generalised scheme; it is demand led and has a strong impact on first-time buyers and supply, so it is targeting the areas Ministers wanted to target, but as you say, it is subject to the criticism that there are some people who it could be argued did not need it. I do not think it is a very high proportion—20% are not first-time buyers, for example. That is why we think we need to look at all our different interventions in the round. We cannot solve every problem through every scheme, and that is where we would be coming from.

Anne Marie Morris

That is fair. I assume at the very least you will ensure that anybody involved in this scheme is aware of and applies under the various schemes that you have talked about in terms of infrastructure and so on.

Melanie Dawes

Absolutely. All our developers, particularly all the big ones—perhaps less so the small ones, because they are by their very nature not as up to speed on what is available—are part of the conversations with Mr Walkley about what is available by way of loans, grants, infrastructure funding and so on. Also, of course, local councils are an important part of that conversation.

Anne Marie Morris

Okay. How will you decide where you are going to target and how you will then determine which applications to accept and which not to?

Melanie Dawes

Although this is all subject to further detail, we have said that we are mainly changing the price caps by region. We are introducing a regional price cap that is lower than the average Help to Buy price now. That will be one of the main determinants of who is eligible.

Anne Marie Morris

But will there be a different price for each region? If so, how will you decide which region gets what reduction? In Mr Snell’s constituency, what reduction will he get?

Jeremy Pocklington

Yes, there will be a different price for each region. The price caps were published alongside the Budget 2018 and they are based on the average price paid for a house by first-time buyers in those regions. We are trying to strike a balance between a simple scheme that works across England and one that responds to local market circumstances.

Chair

Just to be clear, this scheme is the one that will include quality? This is the one from 2021?

Jeremy Pocklington

Yes.

Chair

So we are not going to have smaller rabbit hutches; we are going to have properly—

Jeremy Pocklington

No, I am talking about the same scheme.

Anne Marie Morris

To what extent are you going to take more account of ensuring that the houses that are built, quite apart from the rabbit hutch concept, meet the needs of the local area? Hopefully, there will be a local plan setting out what is needed, but no doubt the developer will want to do nice, executive homes, and if you are aiming at the middle market, frankly, that is probably what they will want too, but it is not in the round going to produce the housing that that area needs.

Melanie Dawes

This goes to Mr Snell’s earlier point. What evidence do we have that Help to Buy is actually helping local areas? Is it just building what developers want? I suppose we have to go back to the partnership that developers have with their local planning authorities. There is sometimes a pretty vigorous debate about what is needed in some areas. We are trying to make it easier for local authorities to push on section 106 contributions, affordable housing and so on.

Anne Marie Morris

When you say easier, how are you going to do that?

Melanie Dawes

We are ensuring that viability assessments are published—that was a subject that arose from our previous hearing. You can challenge us to go further on planning reform, but we are trying to speed up and give local authorities more teeth in some of those conversations with developers. Our Ministers are very keen on doing a lot of work on quality and design, trying to raise standards across the industry. There is a lot to be done in this area around quality, but we rely on the local planning system to determine what a local area needs, led by the local authority. That is the system that we rely on.

Anne Marie Morris

But there is a link with the caps, if you see what I mean. You are right that they do work, but if you are overarchingly saying, “These are the caps that we are going to have in these areas,” that is inevitably going to affect the appetite for housing development in those areas.

Melanie Dawes

It will have some impact, I think. You heard earlier from one of the witnesses that there will be a shift in more expensive areas away from larger properties and towards flats, partly as a result of the first-time buyer market. The flip side of that is that we will be protecting the ability of first-time buyers to get on to the housing ladder by having more building that is more geared towards their needs.

Chair

Mr Snell wants to come in on this point very briefly.

Gareth Snell

You talk about a price cap based on the average value for a first-time buyer. Is that a first-time buyer buying a new house, or is just a first-time buyer overall?

Jeremy Pocklington

It is the mean price for a house bought by a first-time buyer in that region.

Gareth Snell

Not just new builds?

Jeremy Pocklington

No, not just new builds, I don’t think. Can I just double-check?

Chair

Someone behind you might have the answer. If they don’t, you can clarify it later.

Jeremy Pocklington

Not just new builds. It is all houses. I was correct.

Gareth Snell

So Ms Morris’s point is perfectly apt. If first-time buyers can buy a very cheap two-up, two-down terraced house in Stoke-on-Trent, that will artificially bring down the first-time buyer rate. As Mr Walkley has pointed out, it is low land value and high building cost. How are you making sure places with a low land value don’t suddenly find themselves unappetising to developers because they simply can’t make any profit with the cap that you impose?

Jeremy Pocklington

It is important to make sure first-time buyer caps are appropriate. We think they are, from all the evidence we have seen to date. We don’t have any plans to change those caps. We still think that in the vast majority of the country, there are new properties available at a price below where the cap will be for the new scheme. We think it will still be possible to build new houses in most places in the country, although there are pockets of central London, for example, that will always be very difficult. We covered earlier the wider answer to the housing market in Stoke.

Melanie Dawes

You raise a good point. These are regional price caps, so those pockets where, as you say, some second-hand properties are very cheap indeed shouldn’t have too big an impact on the overall regional numbers. It is something that we need to look at.

Chair

Will you be monitoring it?

Melanie Dawes

We are going to be looking at all the detail.

Chair

So there is nothing to stop you changing the price cap.

Melanie Dawes

Ministers have announced them already.

Chair

But they could change over time.

Jeremy Pocklington

The price caps have been published and are set.

Chair

But for how long are they set?

Jeremy Pocklington

For the duration of the scheme. Obviously, we continue to monitor all these things.