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Chancellor announces Help to Buy Scheme

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In his Spring Budget the Chancellor offered a new lifeline to would-be homebuyers struggling to raise the large deposits demanded by lenders.

James Ackrill, Chairman of Centrick Property, examines the proposals and their likely impact on the housing market. 

In his latest budget, George Osborne set out plans for the Government to provide interest-free loans and guarantees that will underwrite new mortgage lending and kick-start housebuilding.

The initiative, called ‘Help to Buy’, is expected to help more than 600,000 homebuyers up the property ladder, as well as providing a much-needed boost to the construction sector.

From 1 April, £3.5bn of equity loans worth up to 20 per cent of the value of a new build property will be available to buyers with a five per cent deposit. This will remain interest free for the first five years and is an extension of the Government’s FirstBuy scheme, introduced in 2011, which was available to first time buyers only. 

However, from January 2014, the Chancellor will also make a further £12billion of guarantees available to mortgage lenders, leveraging up to £130billion of lending. This will also only require a modest deposit and will be open to buyers of both old and new properties up to the value of £600,000.

The new announcements will not only kick-start the first-time buyer market – some 74,000 are expected to avail of the new lending -  but will also prove to be a lifeline to the second steppers looking to make their next move up the ladder. It is also aimed at preventing potential buyers on middle and lower incomes being priced out of the market by those with large deposits. This is designed to reverse the dramatic decline in home ownership, which enjoyed a high of 71 per cent in 2003, but has declined to 65 per cent at present.

The ‘Help to Buy’ scheme should be a gamechanger in encouraging the banks and building societies to start lending again. Not only will it increase supply of low-deposit mortgages, but an increase in competition for new build properties will give the struggling construction industry the boost it has been waiting for. 

The market response has already been good: by close of play on the day of the Budget, shares in house-builders soared, with some going up as much as seven per cent.

Though still a long way from pre-recession levels, we have seen some increase in the range of mortgages available over the last year. The Government’s ‘Funding for Lending’ scheme, introduced last year, prompted a number of cuts to mortgage rates from lenders after they were given access to cheaper finance.

It is to be hoped that this latest round of initiatives will encourage mortgage lenders to offer a wider range of products and much lower entry points. 

Of course, not everyone has greeted the proposals with enthusiasm. There are concerns about a fresh housing bubble, for example, with the Royal Institute of Chartered Surveyors among the naysayers.

But with housebuilding currently running at just 90,000 completions a year, supply is running massively short of that needed to cope with the growing population in Britain. The housing market needs continuing impetus: let’s hope this is it.

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