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Budget 2013: Housebuilders lifted by "Help to Buy" plans
By Darshini Shah | Wed, 20th March 2013 - 15:20
Branding it a "dramatic intervention", Chancellor George Osborne has unveiled a Help to Buy scheme, to get more people on the housing ladder.
The scheme enables buyers to purchase a new home with as little as a 5% deposit. Up to 20% of the cost of the home is then funded by a "shared equity" loan, which will be repayable when the house is sold. The loan will be interest-free for the first five years. The remainder of the loan will be paid for with a standard mortgage.
The scheme improves on a previous one known as the "FirstBuy" scheme, which was only open to first-time buyers and had an income limit of £60,000 a year.
The Help to Buy scheme does not have any of these conditions attached to it. However, there was one caveat - that the value of the property could not be more than £600,000.
The Chancellor also announced a new mortgage guarantee, under which loans from high street lenders would be underwritten by the government so that if a borrower defaulted on a mortgage, the government would step in to compensate the lender. The scheme will run for three years from the start of 2014 and will be used to support £130 billion of mortgages.
In theory, this would mean lenders would be happier to accept smaller deposits as security for loans.
Henry Knight, managing director of mortgage broker Springtide Capital, applauded the measures: "We are relieved to hear the Chancellor making every effort to help those who have struggled to save for a deposit, as this is always the biggest hurdle for homeowners to overcome.
"It is also encouraging that this scheme will be available to the majority of the market as there are many young families needing to upscale to properties they could not previously afford."
But Darryl Flay, chief executive of Essential Living, said while the 'Help to Buy' scheme sounded great in principle, the crunch will come in what mortgage rates look like for customers utilising it: "At the end of the day, someone taking out a mortgage with just a 5% deposit will still be viewed as a higher risk than someone with more cash," he said.
Jeremy Trent, tax partner at chartered accountant HW Fisher & Company, echoed this view: "While the headline numbers seem big, these schemes have a habit of fizzling out very quickly.
"Again, let's see how many people 'Help to Buy' has actually helped onto the ladder by this time next year."
Jonathan Hopper, managing director at property search consultants Garrington, asked: "Why wait to bring in the mortgage guarantee part of the scheme until January 2014? Help is needed now and by January the mortgage and housing markets could have completely changed."
He also pointed out that the "equity loan" part of the scheme was only available on new builds and commented: "Very few new-build homes are actually being built, and there is still restricted demand for this kind of property anyway, so it's difficult to see how this will have a material impact."
But Jon Poore, public sector director at Turner & Townsend, argued: "There is pent-up demand from would-be homeowners, and if these measures can persuade builders to crack on with the slew of shovel-ready projects still in the pipeline, the sector will be able to play an important role in delivering growth to the economy."