Budget 2013: Home Ownership - A £600,000 house with a 5 per cent deposit: the future of the housing market?

 

Would-be homebuyers should be able to purchase a house worth up to £600,000 with just a five per cent deposit as part of a new Government scheme to kick-start the struggling property market.

Under plans announced today the Treasury has set aside £3.5bn to lend to any buyer looking to purchase a new build home. The loan, worth up to 20 per cent of the cost of the property, will be interest free for five years and will be re-payable on the sale of the property.

In addition George Osborne announced that potential buyers of any property would be eligible for a new Government-backed mortgage guarantee. This would mean the tax-payer underwriting the risk of up to 20 per cent of a mortgage's value.

Both schemes are designed to encourage banks and other mortgage providers to lend to buyers who have as little as five per cent deposits. Treasury ministers believe this has been a key factor behind the stagnation of the housing market.

However critics worry that the new 20 per cent guarantees could encourage the type of irresponsible lending that contributed to the financial crash in 2008. "This revives zero-equity mortgages, re-launches sub-prime and creates UK-style Fannie May," said the economic commentator Anatole Kaletsky.

Announcing the move, the Chancellor said the scheme will be available to everyone who wants to buy a home from next year. Treasury officials later said they believed it could generate £130bn worth of new mortgages and support the building of 190,000 new homes.

"The deposits demanded for a mortgage these days put home ownership beyond the great majority, who can't turn to their parents for a contribution," Mr Osborne told the House of Commons.

"And that's not just a blow to the most human of aspirations, it's a setback to social mobility and it's been hard on the construction industry too. This Budget proposes to put that right, and put it right in a dramatic way."

The announcement was cautiously welcomed by lenders and estate agents, and the share prices of some house builders went up by as much as 7 per cent. Mark Clare, chief executive of Barratt Developments, described the scheme as a "major boost for homebuyers and house-builders".

"Every additional home we build creates two new jobs," he said. "We are now gearing up to meet the increase in inquiries that we expect to see."

The announcement comes at a time when lenders, surveyors and estate agents have been reporting signs that confidence is returning to the housing market following Government schemes such as Funding for Lending, which has prompted a flurry of mortgage rate cuts from lenders, who are being given access to cheap finance.

The Council of Mortgage Lenders (CML) welcomed the additional help and said it would work with Government "to help deliver a workable scheme". In a statement they said: "A successful scheme could ultimately enable lenders to offer more low-deposit loans than they would otherwise be able to do without incurring concerns from funding markets, prudential regulators, or their own internal risk committees."

But others expressed concern that the move could create another housing bubble.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (RICS) said the help-to-buy measures are "much-needed".

But he cautioned: "The devil will be in the detail about how the Government will treat buy-to-let and those in negative equity. The Government needs to be careful this doesn't create another housing bubble – pushing prices up at the expense of buyers."

David Orr, chief executive of the National Housing Federation chief executive said: "The danger is that if we don't tackle the fact we're still not building enough homes, we'll just create another housing bubble that will continue to push house prices up and out of reach of the majority.

"Our housing market has long been weakened by the lack of new houses being built, which are forcing up rental and house prices – leaving millions of people struggling to get on the property ladder or pay their rent. The Government should be focusing on unlocking investment to build more new homes as a way of managing down the housing benefit bill and boosting the economy."

Case study: The house-hunters

Emma Buxton, 27, is an English teacher living in Gillingham, Kent, with her husband Paul, 26.

"We've been renting for three years and saving for two, but I don't think buying a property is do-able for us at the moment. We've both got good jobs, so we should be able to buy our own house, but we live in the South-east, so prices are high. The equity loan it doesn't look great. It's only new-build homes and we wouldn't want a new-build property ideally, because they're in quite rough areas. The mortgage guarantee looks a little better, but I think the repayments would be unaffordable. I looked at the income-free allowance and it said only £50 a year, which is pocket money really. For the normal professional couple, there doesn't seem to be much help."

News
people'It can last and it's terrifying'
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
Sport
footballStriker has moved on loan for the remainder of the season
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
New Articles
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
News
The five geckos were launched into space to find out about the effects of weightlessness on the creatures’ sex lives
i100
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
News
i100
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
Arts and Entertainment
Word master: Self holds up a copy of his novel ‘Umbrella’
booksUnlike 'talented mediocrity' George Orwell, you must approach this writer dictionary in hand
News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

    £40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

    Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

    £85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

    Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

    £40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

    SQL DBA/Developer

    £500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...

    Day In a Page

    'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

    'I’ll tell you what I would not serve - lamb and potatoes'

    US ambassador hits out at stodgy British food
    Radio Times female powerlist: A 'revolution' in TV gender roles

    A 'revolution' in TV gender roles

    Inside the Radio Times female powerlist
    Endgame: James Frey's literary treasure hunt

    James Frey's literary treasure hunt

    Riddling trilogy could net you $3m
    Fitbit: Because the tingle feels so good

    Fitbit: Because the tingle feels so good

    What David Sedaris learnt about the world from his fitness tracker
    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Second-holiest site in Islam attracts millions of pilgrims each year
    Alexander Fury: The designer names to look for at fashion week this season

    The big names to look for this fashion week

    This week, designers begin to show their spring 2015 collections in New York
    Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

    'I like Orwell's writing as much as the next talented mediocrity'

    Will Self takes aim at Orwell's rules for writing plain English
    Meet Afghanistan's middle-class paint-ballers

    Meet Afghanistan's middle-class paint-ballers

    Toy guns proving a popular diversion in a country flooded with the real thing
    Al Pacino wows Venice

    Al Pacino wows Venice

    Ham among the brilliance as actor premieres two films at festival
    Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

    Neil Lawson Baker interview

    ‘I’ve gained so much from art. It’s only right to give something back’.
    The other Mugabe who is lining up for the Zimbabwean presidency

    The other Mugabe who is lining up for the Zimbabwean presidency

    Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
    The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

    The model for a gadget launch

    Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
    Alice Roberts: She's done pretty well, for a boffin without a beard

    She's done pretty well, for a boffin without a beard

    Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
    Get well soon, Joan Rivers - an inspiration, whether she likes it or not

    Get well soon, Joan Rivers

    She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
    Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

    A fresh take on an old foe

    Doctor Who Into the Dalek more than compensated for last week's nonsensical offering