Property developers have been ones to gain from government scheme aimed at buyers on low incomes, claims thinktank
Thousands of homeowners may have overpaid for new flats bought using government shared equity schemes, according to a report.
The Institute for Public Policy Research (IPPR) claims that government interventions in the housing market "make another lost decade of market stagnation more likely".
Under the HomeBuy Direct scheme, the government and a housing developer jointly fund a loan of 30% of the cost of a property, so that the purchaser only needs to pay a mortgage on 70% of the value. The government allocated £300m to the scheme for 2009-2011. It was intended to provide help for households earning £60,000 or less who could not otherwise afford to buy a property.
But the IPPR says the biggest beneficiaries have been large housebuilders, which have used the scheme to sell an oversupply of properties, particularly one- and two-bedroom city centre apartments, at a time when house prices have been falling. The result is that the government has in effect propped up weak housebuilders.
"HomeBuy Direct enabled the government to provide subsidised finance to allow the building sector to sell units at arguably significantly above the market price, with the cost burden falling primarily on the consumer via a lower equity share in the property," the thinktank claimed.
"The programmes were also structured to give greater selling power to the developer over the consumer. It is hard not to come to the conclusion that the primary beneficiary of these schemes has been the housebuilding industry and not first-time buyers."
Of the £213m spent on HomeBuy Direct between 2008 and 2011, 64% went to the four largest housebuilders. FirstBuy, the first-time buyer programme introduced by the coalition government to replace Homebuy Direct, sees over 50% of the £169m of 2011 government allocations go to the four largest builders, with Taylor Wimpey, Barratt Homes and Persimmon alone capturing over £80m or 47% of available funding.
One housing industry analyst who spoke to the Guardian anonymously agreed that HomeBuy Direct had only benefited housebuilders. He said: "The government is only interested in volume, in getting houses built, not in the prices. But the schemes distort the market and when they are removed, prices fall. Shared equity really means negative equity."
He added: "Buyers with a better loan-to-value will be able to drive a harder bargain, but for first-time buyers it's like driving a brand new car out of a showroom – instant negative equity.
The IPPR said that government interventions since 2007 have been been "poorly conceived", addressing short-term concerns rather than producing any significant wholesale reform of the housing market.
Katy John of PricedOut, a campaign for first-time buyers, said it was likely some would have been better advised to wait for house prices to fall than to buy through the scheme.
She said: "We're concerned that these schemes are more about bailing out the housebuilders than helping the public, and have been overwhelmingly captured by the largest developers, with the cost burden falling primarily on the consumer.
"This mistake is being repeated by the current government. In fact, the current mortgage indemnity guarantee scheme for new builds make negative equity even more likely, as it provides no equity cushion for participating first time buyers."
The Home Builders Federation contested the IPPR's claims. John Stewart, director of economic affairs for the group, said: "While agreeing we have an acute housing shortage, the report lacks either depth or an understanding about residential development in the real world and should be ignored.
"If home builders do not have customers with mortgages, simply building more homes would do nothing to meet demand, but it would result in a massive and financially damaging build-up of unsold stock. I don't see how the schemes help to inflate prices, as these properties still have to go through the same valuation process as all other properties."
One development that allowed first-time buyers to purchase a home using a HomeBuy Direct shared equity loan is Bellway Homes' Southbeach estate in Hartlepool, where new homes are still available priced at £72,500 to £190,500. In July 2008, one new terraced home in the development sold for £117,000, but by June 2011 it had resold at just £92,000 – a drop of 21.4% in less than three years.
However, this is less than the average house price fall of 28.3% in Hartlepool recorded by the Land Registry over the same period.