Spending watchdogs have expressed ‘shock' at how the DCLG has planned to invest nearly £4bn in financial instruments to stimulate the property market - without a clear understanding of their economic impact.
The calls follow today's publication by the National Audit Office into the DCLG's £3.7bn investment in the Help to Buy scheme, which provides equity loans to make mortgages affordable.
Introduced in March 2013 among a series of initiatives to address barriers to home ownership, the DCLG loaned £518m in the first nine months of the programme, helping some 12,875 buyers complete purchases.
Under the scheme, the government offers buyers of newly built homes – worth £600,000 or less - an equity loan of up to 20% of the purchase price. This is designed to supplement the buyers' own deposit which mortgage lenders require to be 5% minimum.
Nearly nine-in-ten (89%) of the loans helped first time buyers get on the property ladder and Help to Buy agents received £8.3m in fees.
However, as of December 2013, 205 buyers were purchasing homes with a deposit of less than 5% of the total worth of the property, a situation the NAO has advised the department to monitor.
The DCLG has allocated £3.7bn to the scheme and estimates 74,000 households could benefit from the three-year scheme from 2013/14 to 2015/2016.
According to DLCG calculations, the department could recover its total investment in cash terms within 15 years, and recoup some £4.8bn from the cash it has lent. But the auditors counselled this outcome would depend upon when buyers redeem their loans and the value of the DCLG's stake at the time.
Furthermore, cash flow within the Help to Buy scheme is likely to vary, and its impact could prove unaffordable to the DCLG in some years. And for the economic benefits to outstrip the costs, the department reckons more than a quarter of Help to Buy scheme sales would have to lead to the construction of a home that would not otherwise have been built.
Amyas Morse, head of the NAO said: ‘If the Help to Buy equity loan scheme is to protect public value, the department and the agency need to quantify the scheme's impact on construction and homebuyers, and manage as far as possible the risks to taxpayers' money which is now exposed to the housing market.'
But Margaret Hodge, chair of the influential Commons Public Accounts Committee said: ‘I am shocked that the Department for Communities and Local Government is investing up to £3.7bn without a clear understanding of how Help to Buy will impact the property market.'
'The Department needs to get a handle on whether home buyers would have made purchases, and developers built the houses, anyway. It is simply unacceptable that there is not a coherent plan to evaluate Help to Buy or to even understand its impact on other housing initiatives,' Ms Hodge added.
The PAC will question the DCLG at an evidence session on 2 April.
In response, housing minister, Kris Hopkins, said the scheme would help 74,000 households buy a home "without costing taxpayers a penny'.
"Over 25,000 people have reserved a new build home in just 10 months, with 89% of sales to first-time buyers,' Mr Hopkins said.
‘More homes are being built as a direct result of the programme, with housing starts up by 23%in 2013, the highest level since 2007.
‘The surge in housebuilding is creating jobs, and orders for construction materials are growing at the fastest rate for 10 years, providing a boost to thousands of small businesses that supply developers, from timber traders to tile makers,' Mr Hopkins added.
