Chancellor George Osborne has announced the government will extend the first part of the Help to Buy scheme that provides equity loans to prospective buyers by six years and £6bn, in an effort to help develop 120,000 new homes.
The government claims the scheme, which offers buyers with a deposit of as little as 5 per cent an equity loan of up to 20 per cent, supports almost one in three new-build homes in England and has helped 25,000 households to afford to buy or reserve a new-build home.
The £6bn injection is a major gamble for the government: when the scheme was initially launched at Budget 2013 £3.5bn had been set aside to cover the scheme for three years.
A statement from HM Treasury said: “Extending the scheme will provide greater certainty to housing developers so they can invest in building the new homes of the future.”
The announcement comes only days after the Treasury Select Committee called for the Help to Buy scheme as a whole to be re-evaluated amid fears it is fuelling as housing market bubble.
In a 58-page report the TSC warned that the scheme could produce a negative distorting effect on the housing market, which could be further exacerbated by its eventual withdrawal.
The paper warned: “The danger is that it will be difficult for the Bank of England’s financial policy committee to identify when a speculative housing bubble may have begun.
“Such a bubble, driven by increasing lending to households, would be a risk to the UK economy.
“[The scheme] may have further distorting effects on the UK housing market when withdrawn.”
The Treasury Select Committee focused its criticisms on the Help to Buy guarantee scheme, which launched in the latter stages of last year and is unaffected by the latest announcement.
In November of last year, the Treasury announced that Mr Osborne’s flagship Funding for Lending scheme can no longer be used to facilitate mortgage lending, in part to quell concern over a growing housing bubble.
Fears have been stoked by the continued rise in house prices.
Last month (6 Feburary), Halifax reported that house prices rose 1.9 per cent in the three months to January 2014 compared to the previous quarter, consistent with the 1.8 to 2.1 per cent range that has been recorded on a monthly basis throughout the preceding eight months back to June 2013.
Previously (5 November 2014) Ray Boulger, senior technical manager at broker John Charcol, warned that the scheme could run out of money within two years of launch unless the government made more funds available.
In the same announcement the chancellor revealed plans to invest £200m in a new “Garden City” around the high speed rail sation of Ebbsfleet in Kent, which would provide as many as 15,000 new homes based on existing brownfield sites.
Overseeing the development will be a “Garden City” Development Corporation, modelled after the body which oversaw the development of Dockalnds in the 1980s.