The Liberal Democrats helped to shed a little more light on just why Britain's first-time buyers find it so hard to get on the housing ladder this week, unearthing new statistics revealing how few people have been helped by the various Government housing initiatives of the last two years.
Since the launch of the Government HomeBuy scheme in 2006 – which has reportedly cost an eye-watering £100m – fewer than 700 homebuyers have actually managed to take advantage of the plan, which is a drop in the ocean compared to the 1.3 million affordable homes which Julia Goldsworthy, the Lib Dem spokesman for housing, believes Britain needs to solve its housing shortage.
Worse still, the vast majority of those who have received assistance so far have been in the South East, while in areas such as the West Midlands, not a single HomeBuy transaction has been completed.
The scheme's lack of success has been mainly down to the unnecessary bureaucracy surrounding it. While the money is apparently ready and waiting to be lent, the application processes are lengthy, the amounts on offer are not enough, and only a small segment of the population actually manages to qualify for the scheme.
For the moment, HomeBuy is reserved for so-called "key workers" – nurses, teachers, firemen and the like – whose low salaries meant they were always going to need far more assistance than was being offered. HomeBuy effectively lends first-time buyers up to 25 per cent of the value of their property, repayable when the property is sold.
Although this sounds very generous, such an offer is not enough in the face of the rapid house price inflation of the past few years. Furthermore, the mortgages attached to HomeBuy were not particularly competitive either – often as much as 1 percentage point above the Bank of England base rate – leaving the total cost even further out of reach of the average public-sector worker.
Ironically, thousands of workers in the private sector – who were earning just that little bit more and who could have benefited from HomeBuy – were excluded from the scheme.
After recognising its failure, the Government has finally agreed to overhaul HomeBuy once again and, as of next month, will start lending up to 50 per cent of a property's value to first-time buyers. However, the new scheme will see buyers paying rent on the other 50 per cent, rather than letting the Government take 50 per cent of the value when the property is finally sold. At a time when many mortgage-lenders are ratcheting up their interest rates – especially for younger, riskier borrowers – the additional rent may again push the monthly cost beyond what most can afford.
If the Government really wants to help first-time buyers, Chancellor Alistair Darling would do well to revisit the old issue of stamp duty at next week's Budget. The number of properties now in the 3 per cent stamp duty band, which starts at £250,000, has trebled over the past five years, to some 5.5 million, as the Government has failed to move the thresholds in line with house-price inflation.
This is a serious blow for first-time buyers. The difference between buying a flat for £249,000 and £251,000 is £5,000 in tax – enough to put many potential first-timers off going ahead with a purchase. Even the 1 per cent band can prove more than some first-time buyers can afford.
Although the Government clearly can't afford to abandon the revenue that stamp duty generates, it could consider shifting the costs on to the seller – or at least think about raising the 3 per cent threshold.
Don't hold your breath though. The mortgage industry has spent the past decade lobbying for some such change, but to no avail.Reuse content