This report presents the findings of an evaluation of 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 study into the effectiveness of these three schemes was commissioned by the Scottish Government to help inform decisions on the future of the schemes and their approach to supporting homeownership as part of the Housing to 2040 work.
Context and scheme objectives
The Schemes were introduced against a backdrop of key housing market and economic developments in Scotland. In the 10 years to the housing market's peak in 2008, overall housing production increased but net housing stock growth struggled to keep pace with net household growth. This contributed to increasing affordability pressures over the period to 2008. Even before the global financial crisis it was evident that the market was characterised by falling numbers of first-time buyers, with access to homeownership increasingly restricted to more affluent buyers who were in a position to put down a substantial deposit. In the years following the 2008 crisis, severe restrictions were placed on mortgage lending and there was a significant increase in deposit requirements set by lenders.
NSSE and OMSE were introduced to improve equity of access for lower-income households who had been disadvantaged by sustained house price inflation in the run up to the introduction of the schemes. HtB was more specifically focused at supporting the recovery of the new house building industry, by addressing the 'deposit barrier' faced by borrowers who were no longer able to access high loan to value lending due to the sharp increase in risk aversion amongst lenders following the 2008 crisis. The schemes have supported more than 32,000 households since their introduction in 2005, nearly half of these via the HtB scheme since 2013/14.
The study has made use of a wide variety of data sources to assess the effectiveness and future need of the Scottish Government's three shared equity schemes. This has included analysis of secondary data sources, such as scheme administrative data and housing market statistics, to gauge how the schemes are positioned in the Scottish housing market and their future role. The views of key stakeholder groups were gathered through quantitative survey research with buyers and developers (followed up by qualitative interviews with these groups), and qualitative interviews with lenders and Registered Social Landlords (RSLs). The survey of buyers received 4,063 responses (a response rate of 16%). More detail on the research approach, and its limitations, is provided at Chapter 2 and in the annex to this report.
All fieldwork and analysis was completed in 2019, so does not take into account any potential disruption caused by COVID-19. Fieldwork dates can also be found in Chapter 2.
Characteristics of shared equity buyers
Buyer survey findings suggested that there was some commonality in the profile of buyers across the three schemes. Buyers through the three shared equity schemes were typically relatively young in age profile (71% were under 40), most were first-time buyers (73%), most commonly moving from private (39%) or social renting (12% ), and the great majority were in employment (98%).
Differences in buyer characteristics across the three schemes in part reflects their different objectives. HtB buyers were typically younger (72% were under 40), had a higher income (median £41,000), and were less likely to be a first-time buyer (64%) than buyers through OMSE or NSSE. NSSE buyers were older (18% were over 55), had a lower income (median £27,000) and were more likely to be a first-time buyer (71%). OMSE buyers were again slightly younger (71% under 40), had the lowest income (median £24,000) and the vast majority were first-time buyers (94%). This suggests that the schemes have had some success in supporting their respective target groups, for example first-time buyers and lower income households (particularly the NSSE and OMSE schemes).
Buyers' experience and intentions
The majority of buyers had considered home ownership as their only tenure option (91% of HtB, 80% of NSSE and 76% of OMSE). This was consistent with qualitative findings 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 allowed buyers to bring forward their decision to buy, to consider properties that better suited their needs, and/or to buy in their preferred areas.
Buyer satisfaction was high across all aspects of the shared equity purchase process, particularly on the ease (92% satisfied) and timeliness (91%) of the application process. Qualitative findings emphasised the extent to which buyers' experience was dependent on support and advice from mortgage brokers, estate agents and/or solicitors.
Just over a tenth of respondents (11%) had increased their equity stake since buying with shared equity. Just over half (52%) of all respondents expressed an interest in increasing their equity stake over the next five years, although just under three quarters (73%) of those who would like to increase their stake felt they were likely to do so. This most commonly reflected affordability concerns, although a lack of clarity around the process was evident.
Just over a quarter of all respondents (26%) had re-mortgaged since buying their home. Those respondents who had not re-mortgaged referred to a lack of clarity around requirements on buyers when re-mortgaging, and some concerns regarding potential for shared equity to limit access to lenders and re-mortgage products.
Lenders, developers and Registered Social Landlords
Lenders and developers were clear in their view that the objectives of the shared equity schemes were in line with their own business strategies, and all developer respondents had positive expectations from the outset about the impact of the scheme. This included some lenders with experience of the UK Government scheme (HtB), and developers who were already using 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 Registered Social Landlords (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. Nearly all developer respondents (25 of 26) indicated that HtB had met or exceeded their expectations. 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. Developers also indicated that HtB had made a positive contribution to their recovery from the 2008 crisis. However, some conceded that prior to the price cap reduction, substantial proportions of buyers may have been able to buy without assistance. Some developers also noted reduced lending restrictions and deposit requirements had eased market barriers in recent years, leading to HtB playing 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.
Overall, developers, RSLs and lenders were mixed in their views on the continuing role of shared equity. Some private developers saw HtB as 'life support' for the sector following the global financial crisis, and 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.
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 (demand-side additionality) and the number of new homes built as a direct result of the schemes (supply-side additionality). To do so, the evaluation drew on buyer survey responses to the following four statements/questions:
1. I would have been able to buy a property I wanted anyway without the scheme.
2. Without shared equity, would you still have been able to buy the same property?
3. Without shared equity, would you still have been able to buy a smaller property that was still suitable for your needs?
4. Without shared equity, would you still have been able to buy a similar property that was not new build? (HtB/NSSE only)
Estimated additionality can vary significantly depending on what responses to these questions are permitted for a purchase to be considered additional. Our central estimate of additionality counts those households who answered negatively or gave a neutral response to each of the four questions as additional. The main body of the report contains further details, including the reasons for why this is our preferred approach.
Figure A summarises our central estimate of the additionality generated by shared equity schemes. This estimates that the overall proportion of buyers using Scottish Government shared equity schemes who can considered to be 'additional' is 28%.
Our estimate of the demand-side additionality generated by each of the three 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. In particular, lower income households, those in social or private rented accommodation, 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.
Even where a purchase is not counted as additional based on the household's answers to the above four questions, the schemes could have had an effect by bringing forward these purchases in time. Indeed, a large majority of non-additional buyers across the three shared equity schemes reported that the schemes allowed them to buy a property sooner than they could otherwise have done (HtB: 82%, OMSE: 89%, NSSE: 73%).
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 indicated that 5% of all new build sales (around 3,000) from 2013/14 to 2018/19 were 'additional' as a result of HtB.
Scottish Government's three shared equity schemes have had some success in reaching key target groups. 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 c.11,000 of more than 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.
The shared equity schemes appear to have had a positive impact on market confidence. For HtB this has been in large part by enabling substantial numbers of households who were able to bring forward their decision to buy, and/or to consider better quality housing or more desirable locations. Qualitative findings suggest that bringing forward demand was important in rejuvenating the new build market, and building developer and lender confidence in the years following introduction of the scheme. However, this aspect of the rationale for introduction of HtB has been weakened by improving affordability and relaxation of lending conditions in recent years.
A substantial proportion of those supported by the schemes, particularly HtB, may have feasibly been able to access home ownership without assistance. Furthermore, relaxation of lending restrictions and deposit requirements in the last 2-3 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.
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 access homeownership. Qualitative findings suggest that there is substantial scope for improvement in marketing and awareness of the schemes. This has potential to further increase the positive impact of these schemes, by increasing the number of prospective buyers in key target groups considering OMSE or NSSE as part of their housing choices.
In terms of the future of the schemes, these findings suggest that there is a stronger case for continuation of NSSE and OMSE than HtB, in terms of the additionality produced by the three schemes. This is also reflected in stakeholder views which pointed 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.
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.