Government home ownership schemes most likely to help the rich, report warns

Government schemes designed to help more people get on the UK housing ladder have little impact on improving social mobility as better-off buyers are most likely to benefit from the support, a report has found.

Research by the Social Mobility Commission reveals that many low-cost home ownership schemes are beyond the reach of almost all families on average earnings, prompting warnings that the UK housing market is “exacerbating inequality and impeding social mobility”.

Those benefiting from low-cost home ownership schemes, such as Help to Buy, earn more than one and a half times the national working age median income, according to the findings.

Around three in five first-time buyers said they would have bought anyway and that the scheme merely enabled them to buy a better property, or one in a better area than they were originally looking for.

Promoting home ownership for first time buyers is currently a priority for the Government. Since the 1990s, around 1.8 million properties have moved into ownership through right to buy, 200,000 were provided through the affordable homes home ownership route, and 300,000 households were assisted through reduced costs of attaining ownership.

Government-commissioned research published last year found that Help to Buy Equity Loans had generated 43 per cent additional new homes over and above what would have been built in the absence of the policy — contributing 14 per cent to new build output.

But today’s report, carried out by researchers from the LSE who built on the previous findings, found that the average income for these Help to Buy buyers was £41,323 — similar to other first-time buyers who had average incomes of £47,528.

Fewer than half of all working age households have incomes over £30,000, meaning that the loans are unlikely to be able to help those households without more specific targeting.

Only 19 per cent of Help to Buy Equity Loan completions to date were for homes worth less than £150,000. If households put down a 5 per cent deposit, the researchers found that this exceeds the 40 per cent limit of affordability for a median-income working age household.

In light of the findings, the Rt Hon Alan Milburn, chair of the Social Mobility Commission, urged that the existing home ownership schemes needed to change and warned that without “radical change”, the aspiration for millions of ordinary people to own their own homes would be “thwarted”.

“This research provides new evidence that the UK housing market is exacerbating inequality and impeding social mobility. While it is welcome that the Government is acting to help young people get on the housing ladder, current schemes are doing far too little to help those on low incomes to become home owners,” he added.

The report recommends new action to help more low-income buyers, including targeting financial subsidies on households with incomes up to 1.5 times median income and setting different levels for different regions.

It also calls on the Government to provide more advice and guidance to households without a history of ownership to help them manage risks and expectations, and for restricting access to subsidies where a first time buyer has unfettered access to alternative sources of financial and other support to become an owner, such as capital from parents.

Research published by the Social Mobility Commission earlier this year found the proportion of first time buyers relying on inherited wealth or loans from the bank of “mum and dad” had reached an historic high and the trend looks set to continue.

It revealed that more than a third of first time buyers in England (34 per cent) were turning to family for a financial gift or loan to help them buy their home, compared to one in five (20 per cent) seven years ago, while a further one in ten rely on inherited wealth.

For 25-29 year olds, home ownership has fallen by more than half in the last 25 years, from 63 per cent in 1990 to 31 per cent most recently, with many of those who do manage to buy eventually only able to do so at an older age.

The report’s lead author Dr Bert Provan, from the LSE, said: “Most research on low-cost home ownership schemes has focused on the age profile of first time buyers and impact on supply. This research looks at whether they open up home ownership to different and more diverse groups of low income households in the UK.

“It finds that while there are some positive effects of such schemes – such as increasing supply – the impact on improving social mobility is small.”

The Social Mobility Commission made a number of recommendations to the Government, including committing to a target of three million homes being built over the next decade with one-third commissioned by the public sector and modifying its Starter Home initiative to focus on households with average incomes.

Home ownership in the UK fell to its lowest level since 1985 this year, according to Nationwide figures published in March, which showed that annual house price growth softened to 3.5 per cent over the month.