The government is considering introducing a new version of the discontinued Help to Buy scheme as demand for new homes slumps and housebuilding targets drift further out of reach.

Ministers are understood to be exploring a revived equity loan programme to stimulate the stagnant housing market, with the ambition of delivering 1.5m new homes by 2029 now under growing pressure.

Major housebuilders have been lobbying for measures to support buyer demand, arguing that weaker sales are constraining new development. While Downing Street is said to be receptive to the idea – viewing it as a potential lifeline for first-time buyers – Treasury officials remain wary about committing public funds.

So will a subdued spring selling season force the UK government’s Help to Buy hand?

Anthony Codling from RBC Capital said: “They say things come in threes not twos. The government has worked on planning and addressed social and affordable housing funding, but there is a disconnect between planning and affordable housing funding theory and practice. Subdued spring selling season sales rates may force the UK Government to make a third change to address demand if it wants to get close to its housing targets.

“Changes to the supply side take time, but we know that demand stimulus acts much more quickly. Earlier in the year help to buy appeared to be off the table, but will it be back on to kickstart the spring selling season to drive housebuilding forward and help the government meet one of its flagship policies ahead of the local elections in May? If it does, the mainstream housebuilders, especially those with high exposure to the South and South East are likely to be the major winners. Those focused on partnerships (Vistry) and those in London (Berkeley Group) are least likely to benefit.”

Government data relating to the original Help to Buy equity loan scheme shows that in the scheme’s entire period between 1 April 2013 and 31 May 2023, 387,195 properties were purchased with an equity loan, of which 328,346 were bought by first-time buyers. The total value of these equity loans amounts to £24.7bn, and the combined value of the properties sold under the scheme totals £109.2bn.

Help to Buy equity loans were introduced on 1 April 2013, with the initiative running until 31 May 2023 as a means for helping buyers purchase new-build properties. The government would provide, via an equity loan, up to 20% of the value of a property (up to 40% in London from 1 February 2016), repayable when the property would be sold in the future.

In 2020, it was announced that the Help to Buy scheme would change on 1 April 2021, with new eligibility criteria and regional price caps. The previous scheme deadlines initially required properties to be built out by the end of December 2020 and completed by the end of March 2021. However, due to delays caused by the Covid-19 pandemic, an extension was granted until 28 February 2021 for properties to be built out and until 31 May 2021 for legal sale completion.

According to Karen Noye, mortgage expert at Quilter, the scheme enabled a “significant number” of purchases by first-time buyers but its impact was not “uniformly positive”.

She previously said: “Its design, which allowed the government to gain a share of the property’s appreciation, meant that as house prices increased, so did the government’s profit from these loans. This aspect became particularly burdensome for homeowners when they reached the end of their five-year interest-free loan period.

“With the interest rate initially set at 1.75% and then increasing annually based on inflation, many homeowners faced escalating costs, adding financial strain to what was initially an assistance programme.”

Furthermore, Noye added, the scheme also had “significant implications” for housebuilders.

“By increasing demand for new-build homes, the scheme effectively lined the pockets of these developers,” she added. “As more buyers were able to access funds to purchase new homes, builders saw an increase in demand, which likely contributed to the rise in house prices.

“This increase in demand, fuelled by government-backed loans, provided a substantial financial boon to the construction industry. However, this benefit to builders came with the caveat that it may have contributed to inflating house prices, making the market less accessible in the long run.”