Belinda Tracey and Neeltje van Horen
The Help-to-Buy (HTB) programme introduced in 2013 reopened the 95% loan to value (LTV) segment of the UK mortgage market, thereby reducing the minimum deposit requirement for many first-time buyers (FTBs) from 10% to 5% (Chart 1). That policy change offers a useful natural experiment to study how deposit constraints shape access to homeownership. We previously demonstrated that this easing of deposit constraints generated a clear increase in local spending. In a recent paper, we show that lowering this constraint increases FTB home purchases, particularly among households without access to external financial support for their deposit.
Chart 1: Share and number of ‘low deposit’ (95% LTV) FTB mortgages
Note: ‘Share’ is the share of FTB mortgages that are 95% LTV (ie 5% deposit) out of all FTB mortgages. ‘Number’ is the number of such FTB mortgages (in thousands). The shaded area indicates the HTB period.
The HTB programme
HTB included two main schemes that shared a 5% deposit requirement but differed in their design. Broadly speaking, the Equity Loan scheme (2013–20) applied to new-build properties only and involved the government taking an equity stake in the home. The Mortgage Guarantee (2013–16) was available for older properties and new-builds and involved the government providing a guarantee to the lenders.
On the face of it, the programme had a significant uptake. Over the period from 2013 to 2016, when both schemes were available, there were around 200,000 home purchases facilitated by HTB and this number was split evenly across the two schemes. HTB purchases represented 10% of all home purchases during the period.
But to properly understand the impact of HTB on home purchases we need a counterfactual. That is, we need to account for what would have happened to home purchases in the absence of the programme.
Methodology
Our analysis draws on the FCA’s Product Sales Database, covering all regulated UK mortgages.
We use a difference-in-differences strategy to identify the causal impact of HTB’s easing of credit constraints on FTB home purchases. The intuition is simple: we compare how FTB purchases changed before versus after 2013 in areas that were more exposed to HTB, relative to areas that were less exposed. Any UK-wide changes in the housing market around that time affect both sets of areas, so the key question is whether FTB purchases rose disproportionately more in places where HTB was more likely to bite.
To capture exposure to HTB, we calculate the share of mortgages with deposits below 10% in each local authority district before the financial crisis, when these mortgages were still widely available (Chart 1). Because housing market characteristics evolve slowly, districts with higher shares were likely to contain more households constrained by deposit requirements after these mortgages largely disappeared, and were therefore expected to respond more strongly once HTB reopened the 95% LTV market.
To examine who benefits from the easier access to mortgage credit, we distinguish between FTBs who could fund their deposit from their own savings from earnings and those who relied on additional financial support, such as gifts from family (‘Bank of Mum and Dad’) or inheritances.
Because these transfers are not directly observed in mortgage data, we construct a proxy of ‘financial support’. We compare a buyer’s actual deposit with an estimate of how much they could plausibly have saved themselves based on their income and age, using a deliberately generous assumption about savings behaviour. If the buyer’s actual deposit exceeds this estimate, we classify the buyer as ‘financially supported’; the buyer is otherwise classified as ‘unsupported’. This approach is similar in spirit to that used in another Bank Underground blog post.
Chart 2: Financial support and deposit size for FTBs
Note: The x-axis groups buyers by deposit size (as a percentage of the property value). The y-axis shows, within each deposit-size group, the share of FTBs classified as having ‘financial support’.
Chart 2 plots the share of FTBs classified as financially supported by deposit size. It shows that at the low end, only a small fraction of FTBs relied on outside funds. The share then rises steadily with deposit size, reaching about one quarter for 25% deposits and exceeding 50% once deposits surpass 40%. In other words, households without access to financial support disproportionately rely on low-deposit mortgages.
To look at the impact of credit constraints on FTB sales, we regress the district-level number of FTB sales on our exposure measure. We also examine the response of FTBs depending on their income, as well as whether they likely received financial support.
The impact of HTB on FTB purchases
First, HTB generated a marked increase in FTB purchases in more exposed districts.
Chart 3 shows how FTB purchases evolved in districts with different levels of HTB exposure. Prior to the introduction of HTB, FTB purchases followed similar trends in high and low-exposure districts. From 2013 onwards, they rose more strongly in districts where low-deposit mortgages had historically been more common.
To make estimates more intuitive, we compare a district with average exposure to one with the lowest exposure in our sample. In 2013, FTB purchases were about 16% higher in the average-exposure district relative to 2012. By 2018, this gap had widened to 45%, consistent with deposit constraints being a key barrier to entry.
Chart 3: The effect of HTB on FTB home purchases
Note: The line shows how the relationship between pre-policy exposure and FTB purchases changes over time. The shaded bands show the confidence intervals around the estimates.
The impact of HTB on the composition of new buyers
Second, the composition of new buyers shifted.
In high-exposure districts, the increase in FTB purchases was driven primarily by buyers who could fund their deposit from their own savings, rather than by buyers relying on additional financial support. In areas with average exposure, mortgage originations by unsupported FTBs rose by 45% relative to 2012. The number of supported FTBs increased by roughly 7%, but this effect is statistically insignificant.
Because unsupported buyers tend to have higher incomes, this also shifted the income distribution of new entrants to the right, reflecting the entry of households that were income-rich but liquidity-constrained.
Summing-up
These findings underscore the importance of deposit requirements in shaping access to homeownership. High deposit thresholds disproportionately exclude households without access to outside funds. By reopening the 95% LTV market, HTB lowered this barrier and enabled more households with sufficient income but limited savings to enter the housing market.
Our proxy cannot identify the precise source of additional funds and should therefore be interpreted broadly as capturing reliance on resources beyond a buyer’s own savings. In practice, however, parental transfers (the ‘Bank of Mum and Dad’) are a prominent source of support for UK FTBs. The patterns we document therefore most likely reflect a reduced role of family wealth in determining who can become a homeowner.
A final point is that easing deposit constraints can affect both quantities and prices. While the results here show a strong increase in FTB purchases (especially among buyers without likely external support), our previous work showed that such credit expansions can contribute to higher house prices. For central banks, this highlights why understanding mortgage market constraints matters: changes in credit conditions can reshape who enters the housing market and influence wider housing-market dynamics.
Belinda Tracey works in the Bank’s Structural Economics Division and Neeltje van Horen works as a Professor of Financial Economics at the University of Amsterdam.
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