Help to Buy profit makes Treasury a £4.5bn winner from housing boom in Britain




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By Kate Allen and Jim Pickard

George Osborne’ flagship Help to Buy equity loan scheme is poised to generate £4.5bn in profit for the government, making the Treasury one of the biggest beneficiaries of a housing boom that is drawing concern from policy makers.

Research by the Financial Times shows that the government is set to lend £7.7bn in the first stage of its scheme to help people buy new build homes. Based on official forecasts for house prices, it is on track to make a 59 per cent rate of return in nominal terms over its lifetime.

Taxpayers will welcome news that the initiative – regarded as the biggest state intervention in the market since Margaret Thatcher’ Right to Buy in the 1980s – appears unlikely to lose money. It comes as criticism over its contribution to potentially unsustainable rises intensifies. Sir Jon Cunliffe, Bank of England deputy governor, has warned that rapidly rising house prices risk derailing the economy.

Average UK house prices rose by 10.9 per cent year on year, Nationwide data shows.

The Help To Buy equity loan programme, launched last spring, has seen the government take a 20 per cent stake in 19,394 house purchases by the end of March this year. It aims to back around 25,000 purchases a year until 2020.

With the Office for Budget Responsibility forecasting that house prices will rise by an annual average of 4.4 per cent over the life of the scheme, the government will benefit when buyers sell homes.

David Cameron, prime minister, forced to defend Help to Buy in the Commons this week, insisting that the scheme would “expand aspiration and growth in our country” by helping without rich parents to buy a home.

Clive Betts, chair of the communities and local government committee – which oversees the scheme – has said that the government should plough any profits back into new housing.

“What would reassure people is if the government said they would take any profits and they would reinvest them in new homes, that would represent a substantial building programme,” he said.

A Treasury spokesman said: “Any profits would only materialise once people start selling.”

Lucian Cook, director of residential research at property advisers Savills, said the government’ stake in the housing market meant it risked triggering “a boom and bust scenario”.

“The government continues to champion home ownership as one of its flagship policies, has a direct financial interest in the Help to Buy scheme and an increasing interest in the tax revenues generated from the housing market,” he said.

The equity loans are interest-free for the first five years; FT modelling assumes that all buyers sell homes at the end of this period. The FT based its research on the £184,000 average of homes sold so far, and on the government’ aim to lend on 25,000 homes a year. (FT)