One of George Osborne’s key Budget measures ran into controversy today as Labour warned that his plans to spread home ownership could subsidise rich people to buy a second home.
The Chancellor insisted that was not the aim of his policy. But he refused to promise to prevent people using his £12bn mortgage guarantee scheme to purchase a second property worth up to £600,000, rather than ensuring it helped those struggling to find a deposit to get a foot on the housing ladder or move up it.
The Budget included a £3.5bn Help to Buy programme under which the Government will provide up to 20 per cent of a deposit and the buyer only 5 per cent for a new-build home. The Government made clear that could not be used to buy a second home but failed to do the same for a separate scheme to underwrite £130bn of mortgage lending for any property.
Ed Balls, the shadow Chancellor, accused Mr Osborne of bringing in “subsidised mortgages for millionaires”. He contrasted this “spare home subsidy for millionaires” with the so-called “bedroom tax” which will cut housing benefit for social housing tenants from next month if they have a spare room. Mr Balls claimed: “The Government is basically saying that if you’ve got a spare room in a social home you’ll have to pay the bedroom tax, but if you want a spare home we’ll help you buy one.”
In media interviews, Mr Osborne said there would be a consultation exercise with the industry before the rules were drawn up. On buying second homes, he said: “That is not the purpose of the scheme, that’s not what the scheme is designed for.” But he added: “We don’t want to introduce such a complicated scheme that it doesn’t get off the ground.”
One reason why the Treasury does not want a blanket ban on guaranteeing mortgages for someone’s second home is that it might make it harder for parents to help their children buy their first home.
Mark Prisk, the Housing Minister, told BBC Radio 4’s The World at One: “This is about family homes. It is not about second homes.” He said that under an existing scheme, people had to give a legal undertaking through a solicitor that they would sell their home before being helped.
But there was confusion over his remarks as Downing Street and the Treasury suggested he was not talking about the mortgage guarantee scheme.
Mr Osborne dismissed criticism from some Liberal Democrats who had wanted the Budget to include a major building programme by housing associations and councils, to boost supply as well as demand. He agreed more homes were needed but said: “I do not think the solution to our housing situation is simply to build many, many more social homes.”
Lord Oakeshott, the Lib Dem's former Treasury spokesman, said it was wrong to use taxpayers’ money for private housing without increasing the supply of public housing. “The Chancellor has fired one barrel. It is even more important to fire the second barrel,” he said. He warned that the Budget measures to boost home ownership could raise house prices.
Kwasi Kwarteng, a Conservative MP, voiced similar fears. “My worry with this is that having a system where you are giving mortgages without increasing the supply will lead to asset price inflation, because obviously if the amount of supply remains the same and you are making credit easier, the tendency would be for prices to go up.”
In his post-Budget interviews, the Chancellor argued that Britain’s gloomy economic outlook could be even worse. He said: “It's a difficult situation, but it could be a lot worse. You only have to watch your news bulletins to see other countries, not far from here, who have not confronted their problems and who are worried about getting money out of the bank.”