Warnings over Help to Buy Scheme!

by Mark Johnston

Warnings over Help to Buy Scheme!

According to some recent analysis the housing market is still not functioning properly after the 2008 financial crisis.

Therefore in last month’s budget, George Osborne the chancellor of the exchequer, announced two measures, in the form of the ‘help to buy’ scheme, in order to kickstart house building and also the housing market.

The help to buy scheme will enable house buyers to put down a 5 per cent deposit on a newly built home and the government will then funded up another 20 per cent through a shared equity loan.

In addition, a new government mortgage guarantee scheme will start from 2014 and will support around £130 billion of mortgages for old and new homes.

This particular scheme is designed to help people who aspire to own their own home and the government feel that by increasing mortgage availability it will support the construction of new homes and also help to boost the economy as a whole.

Research provided by an estate agency suggested that more than 600,000 home sales could potentially be supported by this new scheme.

Some mortgage brokers have also said that the government support for home loans is a “significant step forward for buyers”.

Ray Boulger, of mortgage broker John Charcol, added that “the policies could unclog some of the blockages in the housing market”.

However, Cathy Jamieson, shadow Treasury minister, said “we will only tackle the housing crisis and help first time buyers if we have a major programme of affordable house building which Labour called for as part of our jobs and growth plan but the budget totally failed to deliver”.

Current analysis of the main measures in March’s budget has identified a number of potential problems.

It appears that the flagship scheme to boost the housing market may not help first time buyers and could also potentially cost the Treasury large sums.

Some industry experts have warned that the British taxpayer risks ‘large losses’ over the government’s  commitment of billions of pounds to get the housing market moving.

The Treasury committee has warned that the chancellor’s plan would possibly make the government an “active player” in the housing market with a financial stake in propping up prices.

This would mean that the Treasury would have a significant financial interest in keeping house prices from falling in order to limit losses to the taxpayer.

A recent report described the guarantee scheme as ‘good politics but horrendous economics”. The report suggest that this may be due to the government encouraging people to leverage themselves up to the hilt in order to buy what is already overpriced property and as a result of this particular scheme is likely to become still more so.

Nevertheless, Andrew Tyrie, a Tory MP, has said “the government’s Help to Buy scheme may have a number of unintended consequences but it is very much a work in progress”.

All this said many experts feel that the last thing that the UK needs, while it tries to recover from a debt binge, is another large dose of state backed consumer debt.



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