Shared equity schemes: evaluation reports

9. Conclusions

Previous chapters present evaluation findings in relation to the Scottish Government's three shared equity home ownership schemes; Help to Buy (Scotland) (HtB), New Supply Shared Equity (NSSE) and Open Market Shared Equity (OMSE). This concluding chapter brings together key findings to consider the three schemes in the context of their stated objectives.

Scheme objectives and context

The three shared equity schemes were established with a common aim of making home ownership more affordable for households unable to buy without assistance. The schemes were introduced at different points in the housing market and economic cycle and were developed to address different barriers to home ownership. NSSE and OMSE were introduced in 2005/06 to improve equity of access to home ownership for moderate-income households who had been disadvantaged by house price inflation, whereas HtB was introduced in 2013/14 to support the recovery of the house building industry and help households to overcome increased deposit requirements introduced following the 2008 global financial crisis.

In terms of the role played in the wider housing market, the imposition of lower price caps has brought average HtB prices below the average for all sales in Scotland. However, HtB prices were still 20% higher than the average house price paid by all first-time buyers in 2018/19. This suggests a substantial share of HtB buyers might have been in a position to buy without assistance, although if HtB encouraged households to bring forward purchase decisions this may have played a role in restoring market confidence. NSSE, and more especially OMSE, prices appear to be significantly lower than the average price paid by first-time buyers. This suggests that these initiatives may be better targeted at modest income households that struggle to access the homeownership market.

Buyers supported by Scottish Government shared equity schemes

The findings suggest that the schemes have had some success in supporting their respective target groups, for example first-time buyers and lower income households. Differences in the profile of buyers across the three schemes in part reflects their specific objectives, but also suggests that the NSSE and OMSE schemes may have been more effective in targeting lower income households; median incomes of £24,000 for OMSE and £27,000 for NSSE compare with £41,000 for HtB. As noted later in this chapter, there remain wider questions around the proportion of those supported by the schemes who could have accessed suitable housing without financial assistance.

Survey results and qualitative findings suggest that the decision to use shared equity did not have a significant impact on the types and sizes of properties being considered by buyers. Rather, the option of buying with shared equity appeared to have been seen as allowing buyers to bring their purchase decision forward, and to consider better quality properties that were more suitable for their needs and/or in the areas they preferred.

Survey results also suggested that most buyers felt that they may have been able to buy an alternative property, including a minority who felt that they could 'definitely' have accessed a suitable alternative without assistance. This was particularly the case for HtB buyers; 28% felt that they could 'definitely' have accessed a suitable alternative, compared with 18% of NSSE and 12% of OMSE buyers. Again this suggests that the NSSE and OMSE schemes may have been better targeted at households that would otherwise struggle to access the market.

Lenders, developers and RSLs

Lenders and developers were clear in their view that the objectives of the shared equity schemes were in line with their own business strategies. This included some lenders with experience of the UK Government scheme, and developers who were already using alternative shared equity and other low cost home ownership mechanisms in response to the adverse impact of the global financial crisis. For these developers in particular, the Scottish Government's role was important in legitimising the schemes.

Private developers and RSLs were generally positive about the schemes' impact in terms of reaching customers who would otherwise have been unable to buy, increasing sales volumes, and increasing demand for new build properties. There was a general view that HtB, particularly under the reduced price cap, has reached customers who would not otherwise have been able to buy a new build property. This was particularly the case for smaller private developers. While some experienced a 'steep learning curve' around the introduction of HtB, these smaller developers had typically seen a more significant impact on buyer demand and new build sales than was reported by larger developers. This included a group of smaller developers for whom HtB had accounted for a substantial proportion of all new build sales.

Developers also indicated that HtB had made a positive contribution to their recovery from the 2008 crisis. However, some conceded that prior to the first price cap reduction, substantial proportions of buyers may have been able to buy without assistance. Some developers also noted that reduced lending restrictions and deposit requirements had eased market barriers in recent years, such that HtB had played a smaller role.

Lenders were more cautious about the extent to which the shared equity schemes, and in particular HtB, had supported those who would otherwise have been unable to access the market. Lenders saw HtB buyers as including some who may have been able to buy without assistance in the foreseeable future and suggested that the NSSE and OMSE schemes may have had a greater impact in targeting those unable to buy without assistance.

Developers, RSLs and lenders were mixed in their views on the continuing role of shared equity. Some private developers saw HtB as having been a form of 'life support' for the sector in the years following the global financial crisis, but recognised the significant change in housing market and economic conditions since its introduction. However, stakeholders were also of the view that there remains a potentially substantially proportion of Scottish households who may struggle to access suitable housing without some form of assistance.

Additionality generated by the schemes

The evaluation has considered the 'additionality' delivered by the three shared equity schemes, in terms of the number of households buying a home who would have been unable to do so in the absence of the three schemes and the number of new homes built as a direct result of the schemes.

Assessment of demand-side additionality used buyer survey results to compare findings noted above on the potential impact of the schemes. On this basis, our overall estimate of the demand-side additionality generated by the schemes is:

• 20% of HtB buyers have been additional (around 3,000 buyers).
• 39% of NSSE buyers have been additional (around 1,850 buyers).
• 47% of OMSE buyers have been additional (around 6,000 buyers).

Further analysis shows differences in the 'additionality rate' across key buyer groups. Lower income households, social or private renters, single parents, those buying smaller and lower value homes, those aged 40+ and first-time buyers were most likely to be additional. The profile of additional buyers also suggests that the schemes have had some success in supporting households who typically have more difficulty accessing home ownership.

Consideration of supply-side additionality was largely confined to HtB. HtB has comprised a substantial share of overall private sector output, but it remains very difficult to place a figure on the extent to which this supply is additional, primarily due to a lack of available small area house price or construction data. Our estimate of supply-side additionality is therefore based on survey results, and indicates that 5% of all new build sales (around 3,000) from 2013/14 to 2018/19 were 'additional' as a result of HtB.

Looking forward

Evaluation findings make clear that the Scottish Government's three shared equity schemes have had some success in reaching key target groups. These include lower income households and first-time buyers as a specific focus for the schemes, and others who typically struggle to access the market.

Our assessment also suggests that the three schemes as a whole have generated substantial additionality. This is in terms of buyers who would have been unable to access the market without assistance (estimated at around 9,000-11,000 of the 32,000+ buyers using the schemes), and bringing forward additional new build supply. However, our assessment is that the NSSE and OMSE schemes have achieved a significantly higher additionality rate than HtB.

Evaluation findings also suggest that the shared equity schemes have had a positive impact on market confidence. For HtB this has been in large part by enabling substantial numbers of households to bring forward their decision to buy, and/or to consider better quality housing or more desirable locations. Qualitative findings make clear that bringing forward demand in this was important in rejuvenating the new build market, and building developer and lender confidence in the years following introduction of the scheme. Market trends also suggest that HtB encouraged developers to continue to focus on entry level new build housing, at least under the reduced price cap introduced in 2016/17. However, this aspect of the rationale for introduction of HtB (supporting developers and building market confidence) has been weakened in recent years by improving affordability and relaxation of lending conditions.

Evidence also suggests that a substantial proportion of those supported by the schemes could have feasibly accessed home ownership without assistance. This is particularly the case for HtB; our assessment indicates that 53% to 80% of HtB buyers may have been able to access home ownership without assistance. The proportion of HtB buyers able to buy without assistance is likely to have fallen since the reduction in the HtB price cap. Nevertheless, relaxation of lending restrictions and deposit requirements in recent years are likely to mean that the HtB scheme as it is currently operating is likely to continue to be accessed by a substantial proportion of households who could feasibly buy without assistance in the foreseeable future.

The OMSE and to lesser extent NSSE schemes appear to have been more effective in enabling lower income households to overcome price and deposit constraints to become a homeowner. Qualitative findings suggest that there is substantial scope for improvement in marketing and raising awareness of the schemes to increase their positive impact.

In terms of the future of the schemes, these findings suggest that there is a stronger case for continuation of the NSSE and OMSE schemes than HtB, in terms of the additionality produced by the three schemes. This is also reflected in stakeholder views which point to a potentially substantial group of Scottish households who are likely to continue to require assistance to access home ownership, but recognised scope for assistance to be more targeted to those most in need. In this context, it is also important to note a common view across developers and lenders regarding the importance of a planned approach to any reduction or withdrawal of support, particularly for some smaller developers for whom HtB has accounted for a substantial proportion of all sales.

The fieldwork and analysis for this evaluation were completed prior to COVID-19 affecting the Scottish economy. Any future policies would need to consider whether the impact of COVID-19 on the Scottish housing market affects these findings.