Posts Tagged ‘Help To Buy’

Help to Buy is another Tory policy that will help millionaires most

22/03/2013, 10:09:20 AM

by Radhika Madhani

In Wednesday’s budget George Osborne revealed his Help to Buy scheme. On the face of it,this looks great: financial assistance for homebuyers, and a supposed boost to the economy through the stimulation of the property market. But a closer look will reveal that the chancellor has developed a scheme to help the wealthy and create unaffordable housing in the property market.

Help to Buy has two key parts. The first relates to government proposals to loan up to 20 per cent deposits for borrowers, providing they put in at least 5 per cent of the deposit through their own means (thus allowing for a 25 per cent deposit in the mortgage application process).

This deposit assistance will apply to new-build properties in England worth up to £600,000, and will come into effect in April this year. The second part of the scheme relates to a mortgage guarantee designed to support £130 billion worth of loans. Coming into effect next year, this guarantee will place a £12 billion guarantee on the taxpayer for mortgages between 80 and 90 per cent loan-to-value (LTV), and will apply to first-time-buyers (FTBs) and existing borrowers.

Looking at the scheme as a whole, Help to Buy is a real missed opportunity in reforming the property market. Presently, those wishing to buy their own homes face the problem of high property prices, high interest rates (at least when compared with the Bank of England’s current base rate of 0.5%), high LTV requirements, and stringent and complex affordability calculations used by lenders in assessing borrowers’ ability to repay the mortgage. Help to Buy fails to address all of these problems.

The first part of Help to Buy will obviously encourage more people to buy their own properties. With the government providing up to 20 per cent deposits to borrowers, there will of course be an increase in mortgage applications.

But unless this demand is matched in supply, Help to Buy will actually have a severely damaging impact on the economy. It is a basic economic principle that increased demand without increased supply will lead to a rise in prices. Yesterday the chancellor failed to announce a government commitment to build enough houses to stimulate the economy, and without these new homes we can expect a huge increase in property prices that will distort the market even further, especially in the London property bubble.

Property values will be unnecessarily pushed up, and far from helping FTBs and families, Osborne’s budget will actually create an unaffordable housing market. The economic rationale behind the government’s decision is almost impossible to understand, and we have here a clear example of an ill thought out, incompetent, and potentially disastrous policy.


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This “no change” Budget fails to inspire

21/03/2013, 01:34:06 PM

by Simon Fitzpatrick

We were warned that this would be a no-change Budget, and it seems that was no bluff.

Yes, Osborne is cutting a little more from departmental budgets and yes, he’s spending a little more on housing and infrastructure.

He will accelerate the rise in personal income tax allowances, cancel the planned fuel duty rise for a second year and go further on cutting corporation tax.

But predominantly these are measures that were already in place, and going a little further on them in no way alters the direction of travel.

And try as he might, the chancellor cannot disguise the fact that that direction of travel is not pretty. By every one of his self-set tests, George Osborne’s plan is not working.

A chancellor who pledged to eliminate the budget deficit in this Parliament now concedes that we will still be running a deficit of 2.2% in 2017-18. Debt as a percentage of GDP will not begin falling until the same year. And growth forecasts are down again – just 0.6% is forecast this year. If the OBR’s track record on forecasts is anything to go by, we’ll be lucky if there’s not a “negative” in front of that figure.

In the face of so much bleak news, Osborne seemed determined to win himself some positive headlines regardless by announcing some populist measures for the ‘man on the street’. The man on the street George Osborne has in mind drinks beer and drives a Vauxhall Astra, though hopefully not in quick succession.


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