The government is reportedly considering ending Help to Buy early as part of an independent review on the scheme.
The Department for Communities and Local Government (DCLG) has asked the London School of Economics to evaluate Help to Buy, which assists first-time buyers in purchasing a property.
Possible options to come under the review include winding down the scheme in the run-up to April 2021 or scrapping it entirely, according to industry journal Property Week.
The news sent shares in housebuilders tumbling with Persimmon PLC (LON:PSN), Barratt Developments PLC (LON:BDEV) and Taylor Wimpey PLC (LON:TW. in the red.
Housebuilders are worried that ending the scheme all-together would see demand drop significantly and have been lobbying for tapering to be introduced instead.
A spokesman for DCLG said: “As we said in our housing white paper, we have committed £8.6bn for the Help to Buy equity loan scheme to 2021, ensuring it continues to support homebuyers and stimulate housing supply."
“The government also recognise the need to create certainty for prospective home owners and developers beyond 2021, so will work with the sector to consider the future of the scheme.”
How Help to Buy works
Under the Help to Buy equity loan scheme, the government lends up to 20% of the purchase price to reduce the size of deposits needed.
In the first five years buyers are not charged loan fees but after that point need to pay the government back an interest fee of 1.75%, rising each year after that by the increase in retail price index, plus 1%.
Government figures from 2015 showed Help to Buy had contributed 14% of total new build housing output.
Housebuilders’ margins to come under pressure
Liberum estimates that some 38% of private completions make use of the scheme, which has been used by more than 100,000 people.
The broker expects the removal of the scheme would impact housebuilders’ margins and sales rates.
“We expect the whole sector to come under some pressure (except Berkeley and McCarthy & Stone), our least preferred builder is Barratt (Sell, target price 537p),” it said.
Liberum sees the most likely outcome of the review on Help to Buy is that the scheme continues but with a smaller cap on sales price. “This would limit the hit to companies like Gleeson and Persimmon who are selling at lower price points and be a bigger hit to others in the sector working at higher selling prices.”
Government limits use of Help to Buy on leasehold purchases
Last month the government showed its intention to make changes to the scheme by saying it would limit the use of Help to Buy for leasehold purchases. Leasehold purchases, in which the owner buys only the right to occupy and use a property and not ownership of the land itself, can lead to extra fees for those buying the property from the landowner.
Communities Secretary Sajid Javid has said he would like to ban the sale of new-build homes under leasehold t to stop these “unjust” practices.