OpinionMar 22 2013

Does Budget scheme tackle root housing problem?

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This week chancellor George Osborne unveiled a fresh raft of measures to boost house buying - and building - as part of its latest offensive to counter the flagging economy and stagnant property market.

‘Help to buy’ is just the latest of several schemes aimed at homebuyers themselves that have launched by the coalition to boost the market, following in the footsteps of ‘NewBuy’ and ‘first buy’. One could easily get confused.

As a rental tenant with modest deposit-saving capabilities and an aspiration to get on the housing ladder in London, I was intrigued. How useful will this be to me in practice?

Help to buy comprises of two strands: a £3.5bn equity loan scheme and a £12bn mortgage guarantee scheme that should catalyse £130bn of mortgage issuance to buyers throughout the earnings scale.

Under the equity loan, buyers of new-build homes with at least a 5 per cent deposit will have access to a government loan of up to 20 per cent of the value of the property through an equity loan, which can be repaid at any time or on the sale of the home.

This will apply to houses worth up to £600,000 and will mean potential buyers would only need to secure a 75 per cent mortgage from a bank or building society.

This is great news, but only if you want to buy a new-build. I do not.

In London this often means paying £200,000 for a 13th floor flat whose total size measures my mum’s modest-sized front room and where I cannot even put up shelves as it is built so shoddily.

All is not lost; the mortgage guarantee covers new builds and existing homes also worth up to £600,000.

Under the terms of the scheme, first-time buyers or existing homeowners will need a similar 5 per cent deposit. When the buyer secures a mortgage the government will guarantee part of the loan with the lender, a plan which aims to give people with smaller deposits access to lower loan-to-value mortgages.

That sounds more like it. But will it actually work?

The UK is in the grip of the worst housing crisis for decades and has only delivered a fraction of the 300,000 new homes that are needed each year to meet demand.

The Help to Buy announcement will enable greater access to mortgage finance, but the fact is we are not building enough homes that people want to live in and are ‘affordable’ - my definition of affordable, not the government’s.

The government recognises that more needs to more direct help to support the supply side of the housing conundrum. Thus the chancellor also announced £225m investment to build 15,000 new ‘affordable’ homes in England by 2015.

So, like NewBuy, first buy and the other fabled schemes that have so far failed to boost access to mortgages, funding for lending, the help to buy scheme is sound in principal but it remains to be seen if it can really tackle to root issues of our currently flagging housing market.