Next week’s Budget is likely to determine the fate of the government’s controversial Help to Buy scheme, dubbed ‘housebuilders’ heroin’ for boosting the market by creating a dependency among housebuilders. Joey Gardiner looks at the likelihood of it being scrapped – hitting share prices hard – and other options on the table

A development in Swansea  by Persimmon, 58% of whose privately sold homes went to buyers using Help to Buy last year

These are strange times for UK housebuilders. House prices remain stable or rising in most parts of the country, and the big listed builders – with a couple of exceptions – continue to report record results and strong demand. While official housebuilding statistics for the year to March are not due out until November, the Home Builders Federation said recently that it expects completions to have risen again – making it the sixth consecutive year of growth.

And yet the share prices of the publicly quoted firms are down on average by one-fifth since the start of the year, with the worst performer – step forward, Crest Nicholson – having seen its valuation pretty much halved. There’s no doubt that the City, for one, is spooked.

Analysts put the falls down to a combination of issues: the sluggish London market; consumer fears ahead of Brexit; and the feeling that we’re coming to the end of a property cycle. But probably the biggest drag anchor on the sector is the one issue that has lain behind its recent extraordinary profitability – the government’s Help to Buy scheme. Speculation has grown in recent months that the chancellor, Philip Hammond, will use next week’s Budget to either cancel or rein in the five-year-old scheme that by March this year had already stood behind 169,000 new-build house sales worth a cumulative £42.2bn.

Communities secretary James Brokenshire, speaking before the Conservative Party conference last month, has hinted as much, saying the government was “reflecting carefully” on the scheme’s future. But analysts say cancelling Help to Buy could see housebuilders’ share prices drop by up to 40% as well as a material drop in output. Housebuilders – and their shareholders – are desperate to know what Hammond is going to announce. The stakes couldn’t be higher. 

How does Help to Buy work?

Help to Buy is a form of equity loan. That means the government takes a 20% stake in the property at purchase to help qualifying buyers who themselves put up 5% but who might otherwise struggle to reach the loan-to-value ratio necessary to get a mortgage. Strictly an investment, not a subsidy, the government gets its money back when the property is sold, and charges no fees for the first five years, after which purchasers pay interest and charges. The latest government figures, to March this year, show 169,000 sales under the scheme, worth £42.2bn, requiring government loans worth £8.9bn. Of these purchases, 81% have gone to first-time buyers, but some have gone to quite wealthy buyers – including 6,700 homes to households earning more than £100,000 a year.