The scheme proposed in the Budget is made up of two parts. The first is called Help to Buy, which offers a loan to top up the deposits of people with a 5% deposit, adding an extra 20%. The first five years of the loan will be interest free, and it will then attract a 1.75% payment, which will rise annually by RPI (retail prices index) inflation plus 1%.
Borrowers will be able to repay their loan at any time. Loans will be available on new-build homes costing up to £600,000.
The other part of the scheme is called Mortgage Guarantee. It will be available from January next year. It will encourage lenders to give those with smaller deposits better mortgages, because the Government will guarantee 20% of the loan (again, on properties worth up to £600,000). The Government will cover a proportion of the losses suffered by lenders in the event that a borrower’s property is repossessed.
The £3.5bn scheme is intended to help up to 74,000 buyers of new homes. It will replace the First Buy scheme, which restricts availability to first-time buyers only.
There is unease about these proposals within the private rented sector that this could lead to a dramatic shift that could potentially shrink the market. Brendan Cox, managing director of Waterfords estate agents, said, “It will have an effect on the whole of the market, as people who couldn’t afford such a large deposit will now have the help they require. It means first-time buyers will be able to get to the market earlier and get out of rented accommodation.”
Michael Robson, chief executive of Andrews, a regional chain of agents, said that that the 95% mortgage scheme would provide a “credible alternative to renting for many [tenants]”.
However, the Build to Rent fund, which backs institutional investment in new homes built for the private rented sector, has been quintupled from £200m announced in the Autumn Statement, to £1bn in Wednesday’s Budget. Ian Fletcher, director of policy at the British Property Federation, said, “It’s encouraging the Government’s confidence in build to rent has been reciprocated and we are delighted to see that the equity funding was heavily oversubscribed.
“Working in partnership with Government, the sector should deliver an exciting and quality array of homes for renters.”
Other positives for the PRS revealed in the Budget were promises to consult on proposals allowing shops to be converted into homes, and agricultural use to change to residential.
But the main controversy surrounding the Help to Buy scheme has arisen from confusion surrounding its details, such as whether it would be available to high-income earners, or to what extent it will be available to landlords. Critics of the proposals are outraged that it could be used by homebuyers to purchase a second home, while at the same time the Government is wheeling out its highly controversial Bedroom Tax, which hits people living in social housing.
Shadow chancellor Ed Balls said, “From what I can see, the government is basically saying that if you’ve got a spare room in a social home you will be paying a bedroom tax. But if you want a spare home and you can afford it, we’ll help you buy one.”
Although buy-to-let investment is not permissible on the Help to Buy scheme, investment by other types of landlord are not to be ruled out. Arnaud Bertrand, of HouseTrip, said, “Investors may want to examine the Help to Buy scheme as an option if they are looking to purchase a holiday home and secure a good return on investment. Short-term letting secures more income for a property owner than renting out long term, so the fact that a buy-to-let option is not permissible should not prevent anyone from considering this opportunity.”
But both communities secretary Eric Pickles and housing minister Mark Prisk backed the proposals. Eric Pickles said, “This support is not just an economic calculation – it’s about values.
“These measures mean whoever you are – whether a prospective first-time buyer, an existing home owner or a social tenant – if you work hard and want to take responsibility for your future, we will support your aspiration to move up the property ladder.”
Mark Prisk said, “The Budget places housing front and centre in the Government’s plans for economic growth, with measures aimed at getting Britain building, helping aspiring home owners, and supporting our growing market for privately rented homes.
“The clear message from the multi-billion pound package of measures is clear: that wherever you are in the housing market, whether renting council housing or privately, whether a first-time buyer or looking to move up the property ladder, there is help available for you.”
But another criticism centres on the worry that the scheme could create a new housing bubble. The Royal Institution of Chartered Surveyors said that the Government “needs to be careful this doesn’t create another housing bubble – pushing prices up at the expense of buyers”.
Experts at think tank the IPPR said that the move will “inflate the house price bubble”.
David Orr, chief executive of the National Housing Federation, said, “If we don’t tackle the fact we’re still not building enough homes, we’ll just create another housing bubble that will continue to push house prices up and out of reach of the majority.”
Kwasi Kwarteng, a Conservative backbencher, also expressed concern. “My worry is that having a system where you are giving mortgages without increasing the supply will lead to asset price inflation, because obviously if the amount of supply remains the same and you are making credit easier, the tendency would be for the prices to go up,” he said.
Prisk puts all these claims down, citing the Budget’s measures to encourage housebuilding, which includes, in addition to the expanded Build to Rent fund, plans for 150,000 more affordable homes.
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