21st March 2013
The Chancellor George Osborne is betting a lot on a revival of the UK housing market. Here Mindful Money brings a selection of views from around the market and finds fears of a return to the bad old habits of over-reliance on the housing market.
The Government will offer loans to the value of 20 per cent of a property. Some £3.5 billion of funding will be available from April 1. Buyers are required to raise a five per cent deposit themselves bringing the overall deposit to 25 per cent. The scheme will cover all properties up to £600,000. Previously it was only available to first time buyers but now will be extended to all others. The loan will be interest free for five years and is repayable when the home is sold. After five years if the loan is not paid off, borrowers will have pay a fee of 1.75 per of the loan, rising annually by inflation plus one per cent.
From 2014, the Government is planning to offer around £130bn of guarantees to lenders which offer high loan to value mortgages to members of the problem. There remains debate about how much risk will be shouldered by the Government and how much by lenders. There is a year at least to thrash out the details.
John Charcol senior technical manager Ray Boulger talking to trade website Money Marketing about the shared equity mortgages is relatively upbeat.
“The scheme is going to start to cost borrowers after five years but most people, particularly younger people, will probably take the view that their income is going to go up over the five year period so that they will be able to repay the loan.”
Liz Peace, chief executive of the British Property Federation is unsurprisingly positive.
“Overall there’s more good than bad for the property industry in this Budget, and the Chancellor appears to have avoided last year’s mistake of announcing half baked policies, like the 15 per cent stamp duty rate. For too long time the size of deposit needed to get on the housing ladder has proved prohibitive and has been the missing piece in a coherent housing strategy, it’s good to see the Government move to remedy this. Time will tell whether this policy will prove effective, but taken with the fivefold expansion in the ‘build-to-rent’ fund the Government is certainly tackling the problem head on.”
Ian Cowie has concerns on his Telegraph blog.
“When even estate agents are openly worrying about Government intervention inflating a house price bubble, prospective borrowers should beware of using easy credit to pay too much for properties whose price may fall.”
Simon Lambert on thisismoney concurs.
“The problem with this new property boom plan, of course, is that the life support machine of 0.5 per cent base rate means the last property bubble hasn’t even properly burst yet, with prices still neat historic highs compared to earnings despite the slump in transactions since 2007.”
Simon Rubinsohn, Chief Economist, Royal Institute of Chartered Surveyors also writing in the Telegraph suspects new build prices may be getting out of kilter.
“If there is a key risk to this strategy, it is that the additional funding from this new vehicle actually has a rather greater impact on pricing rather than transaction levels. It may be a coincidence but it is interesting that housebuilders appear to be pushing up new house prices by around five per cent at the present time while the existing market is showing a flatter trend in prices. This may have something to do with opportunity presented by the current schemes such as FirstBuy and NewBuy.”
Finally John Stepek, Moneyweek editor is in typically gloomy mood.
“In short, the government is trying to bring back the 95 per cent loan-to-value mortgage. And it’s putting your money and mine at risk in doing so. You can probably guess what our general feelings are about this scheme. As my colleague Phil Oakley put it in a nicely-worded email rant this morning: “I am very annoyed that my taxes are underwriting the profits of housebuilders and keeping the banks solvent.”