The Philip Barnes position
Philip Barnes has written a solid defence on this site of the Government’s Your First Home scheme – its plan to get first-time buyers on the ladder with just a 2.5% deposit. Few people have got more homes built, and much of what he says is right. In this case, though, he is wrong.
The scheme may help some buyers who already have cash in hand, and give the development sector a much-needed stimulus. But as a whole it is poorly designed. It is likely to steer development away from the areas with the most acute shortages and leave many of its supposed beneficiaries vulnerable to negative equity bar a substantial change in market conditions.
The deposit issue
Philip writes that, for many first-time buyers, the problem “is not the ability to meet the monthly cost of owning a home. It is the deposit…” But a deposit is simply a share of the price: if people cannot save one, the home is too expensive for their income – and the rents that stop them saving are high for the same reason. Lending buyers more does not make homes any cheaper; it lets them bid more for the same homes.
Housebuilders and supply
He is right that housebuilders build at the rate they can sell. But where supply cannot keep up, extra demand pushes up prices instead.
This is exactly what happened with Help to Buy the first time around. According to a 2024 paper in the Journal of Urban Economics, near the Welsh border, where supply is less constrained, the scheme did get more homes built without a significant affect on prices. In London, where the scheme was made more generous in 2016, it pushed up new-build prices by nearly 8%, without any detectable boost to housebuilding.
Philip argues that planning reform should make things easier this time. It will help, but it is nowhere near enough on its own: new local plans, permissions and building all take years, while the extra demand from Your First Home arrives as soon as it launches. Moreover, London’s problems aren’t just about getting planning permission. Second staircases have added up to £22,000 to the cost of some flats, according to the Home Builders Federation, while the ‘golden rules’ demand up to 50% affordable housing on released green-belt land. The result is constraints on building far closer to those of the mid-2010s than he allows.
Negative equity
Further, the finding that Help to Buy buyers paid only about 1% more does not settle the matter. This number compares Help to Buy new builds with other new builds, as opposed to the wider market. The same study Philip referenced also looked at the wider market and concluded that Help to Buy pushed up prices across all homes “with larger effects in areas that were already relatively expensive” – the very places that the price mechanism is telling us most need new homes.
Most importantly, the article does not address the risk of negative equity that borrowing 97.5% of the price places on buyers.
Suppose a first-time buyer pays £300,000 for a new build. They put down a £7,500 deposit, the Government lends them £60,000 and the bank lends the remaining £232,500. On sale, the Government takes 20% of whatever the home is then worth – so the buyer, with just 2.5% of their own money in, bears 80% of any fall.
On these numbers, a fall of just 3.1% wipes out the buyer’s entire stake. This is the risk the Your First Home scheme presents to buyers.
Yet the Government’s own evaluation finds new builds sell for about 5–6% more than comparable second-hand homes – a premium that fades the minute they are lived in. So, on paper, a buyer paying a typical premium would be in negative equity the day they collect the keys.
To see what this means in practice, I modelled 18 first-time buyers using the scheme. Nine – labelled ‘typical’ in the chart – pay the local average first-time buyer price, which covers all types of home; nine buy a flat at the local average flat price, including in some of the markets where flat prices are falling fastest.
Each buyer pays the 6% new-build premium found for Help to Buy, puts down 2.5%, and takes the 20% equity loan and a 30-year repayment mortgage at 5.35%. I then assume two things: that the premium has gone by the time they sell, and that prices for each type of home move once, by as much as they did locally in the year to July 2026, and then stay flat. On sale, they repay the mortgage, hand the Government 20% of the sale price and pay about 2.5% in fees.
The chart below shows what they would have left after three years (bars) and seven (circles); anything left of zero is cash they would need to find just to sell.
The first thing the chart shows is how much depends on the postcode and the type of home. A buyer of a typical home in Liverpool or Burnley, where prices rose 8–9% in the year to July 2026, would be £7,000–£10,000 ahead after three years.
Regional disparities
But they are the lucky ones. In Manchester, where prices rose 1.4%, a buyer who had put down £6,280 and paid off another £8,500 of their mortgage would walk away with just £90. Where prices merely held steady – as for a typical home in Peterborough – a buyer would need to find £2,000 just to sell, as the premium and selling costs swallow everything they have paid in.
In 10 of the 18 cases, buyers would need cash to sell after three years; in five, they still would after seven.
Flats fare far worse: eight of the nine flat buyers would need cash to sell after three years, against two of the nine buying a typical home. Even within the same city the gap is stark – in Liverpool a flat buyer would be £3,000 ahead against £9,600 for a typical home, and in Nottingham £6,300 short against £3,500.
Where prices are falling, it is far worse. In Tower Hamlets, a new-build flat buyer would need to find £53,000 – almost five times their £11,400 deposit – and would still be £28,000 short after seven years.
Behind each bar is a household. Take a couple who buy a new-build flat in Newham for £345,000. They scrape together an £8,600 deposit. Three years on, one of them is offered a job elsewhere, or a baby is on the way. To sell, they would need to find almost £20,000 – more than twice their deposit, on top of the £20,000 they have already put in. Few such buyers will have that kind of money. So they stay put: the job turned down, the family outgrowing the flat.
The buyer’s stake creates risk
The model is deliberately simple, and real outcomes will vary from street to street. But it illustrates a simple principle: when a buyer’s stake is this thin, it takes only a modest fall, or none at all, to wipe it out – and, as COVID, Russia and Iran have shown, our markets are anything but predictable.
Exposing anyone to this much risk is simply irresponsible. By encouraging it, the Government is playing a game of chicken with ambitious young people who just want to get on in life, and risks worsening the housing crisis where support is most needed.
It’s time to think again.
Tom Spencer is the former Head of Research for the campaign Priced Out
