Empirical Evaluation of the Help To Buy Initiative in England

The global financial crisis after 2007, and the subsequent housing and mortgage market stagnation, significantly deteriorated households’ ability to buy a house. Responding to declining homeownership rates, the government introduced a range of initiatives to offset the negative impact of relatively high first time deposit requirements, and the associated overall mortgage costs, also providing a stimulus to the house-building market by assisting households to obtain a mortgage when purchasing a new-build house. The Help to Buy Scheme was designed to help first time buyers and households in need to enter homeownership, also aiming to stabilise house prices by stimulating supply of new homes. However, the strict and inflexible planning system in England may have significantly reduced responsiveness of housing supply to raising demand for housing debt. Such politically infeasible consequences may have led to destabilisation of house prices and a regionally unequal distribution of HTB benefits. Further, there is a possibility that the main beneficiaries may refer to lenders, since lending rates within the scheme may apply additional risk premiums, leading to additional profit margins. This article addresses these questions by employing a system of the four structural equations, exploring reverse causality and simultaneous relationships between the share of the HTB Equity Scheme, Supply of New Built houses, House Prices and spreads between average mortgage rates and base interest rates. The period of study covers 2013-2018, capturing the start and subsequent developments of the HTB Scheme in England. Empirical estimations employ two stage least squares and IV estimation techniques.