Flagship policy of former government drives up firms’ profits along with house prices

Britain’s biggest housebuilders paid out £2.3bn in dividends in their most recent financial year, as the help-to-buy subsidy pumped up their profits and house prices.

The nine biggest housebuilders listed on the London Stock Exchange declared the dividend payouts in their last full financial years, according to an analysis by AJ Bell, an investment platform.

Help to buy, introduced in 2013 and recently extended until 2023 for first-time buyers, was one of the flagship policies of the coalition government. Former Conservative chancellor George Osborne hoped to boost home ownership among young people, as house price growth far outpaced wage growth.

However, many economists believe the scheme boosted house prices without making a significant impact on the supply of new houses, enabling a profits bonanza for Britain’s biggest housebuilders and their shareholders.

In 2012, the final full year before the help-to-buy scheme was introduced, the top nine firms – many of which had been battered by the financial crash – paid dividends of only £57.7m, according to AJ Bell. Dividends declared in the companies’ most recent financial year were about 39 times greater.

Since 2013 the nine housebuilders have paid out nearly £8bn in dividends, while City analysts forecast another £5.2bn in payouts in 2019 and 2020. Furthermore, shareholders have also enjoyed appreciation in housebuilders’ share prices, which have been sustained by the promise of further profits.

Persimmon, half of whose sales were part of help to buy, was responsible for 2018’s largest giveaway. Its shareholders collectively earned £732m in dividends in the year ending in December, after the company earned more than £1bn in profits.

Taylor Wimpey declared dividends of slightly less than £500m during the same period. Barratt Developments declared £435m in the year ending in June 2018. Bellway, Berkeley Group and Bovis all declared dividends of more than £120m in their last full financial year.

The large profits of housebuilders have attracted heavy criticism, amid a continued housing crisis and rising homelessness. Persimmon’s former chief executive, Jeff Fairburn, resigned in November following public fury over his £75m bonus, which had been scaled back from £110m after investor outrage.

Greg Beales, the director of campaigns at the homelessness charity Shelter, said: “As all the big housebuilders announce soaring profits whilst the housing crisis worsens it couldn’t be clearer our housing market is broken. Whilst the big developers are doing better than ever, regular families are finding it harder and harder to afford somewhere to live.

“Disjointed schemes such as help to buy have only made things worse by inflating house prices and giving big developers a leg-up, while doing almost nothing to for those most in need of a genuinely affordable home.”

Under the help-to-buy equity loan, the government provides a low-interest loan worth up to 20% of the value of the property (or 40% in London) for prospective buyers of new-build homes, up to a maximum price of £600,000. The buyer needs to provide at least a 5% deposit and secure a mortgage for the rest.

From 1 April 2013 to 30 September 2018, more than 195,000 properties were bought with an equity loan, according to government figures published this week. The total value of these equity loans was £10.7bn, with the value of the properties sold totalling £49.9bn.

Help to buy is not thought to be the only factor behind rising house prices, which have also been pushed up because of supply constraints, improved economic growth and the effects of quantitative easing.

A spokesman for the Home Builders Federation, an industry lobby group, said: “Home builders do not receive funding from help to buy but by supporting first-time buyers, the scheme has helped drive an unprecedented 80% increase in housing supply in five years, creating tens of thousands of jobs and boosting the UK economy to the tune of £38bn last year.”

However, the help-to-buy scheme has faced criticism across the political spectrum, from the Adam Smith Institute, a libertarian thinktank, to the Labour party – although Labour is committed to keeping the scheme open until 2027 for first-time buyers below a certain income level.

Labour’s shadow housing secretary, John Healey, said: “Conservative ministers have given private housebuilders a free hand to make bumper profits off the back of homebuyers.

“Labour will turn the broken housing market on its head – putting low-cost new homes at the heart of our plan to rebuild Britain.”

The Office for Budget Responsibility, which provides the government’s official forecasts, in October said it expects the government to spend another £20bn on the help-to-buy scheme between the current financial year and 2022-23. The two-year extension of the scheme is expected to cost £7.3bn.

A Ministry of Housing, Communities and Local Government spokesperson said: “This government is committed to helping more people get on the housing ladder as we power through to delivering 300,000 homes a year by the mid-2020s. Our help to buy equity loan scheme has helped more than 190,000 households buy their home, helping to make the dream of home ownership a reality for a new generation.”