Chancellor’s new Help to Buy scheme strongly criticised by MPs

One of Chancellor Osborne’s newest schemes announced in the Budget specifically designed to support the mortgage lending market has been criticised by MPs.

Help to Buy

Help to Buy was launched on 1st April and provides an equity loan worth up to 20% of the value of a new build home on the condition that the purchaser puts down a 5% deposit from their own savings.

But to date only Halifax, Lloyds TSB and Woolwich have offered products to cater for the government-assisted scheme.
The taxpayer may end up being left holding the bag if things with George Osborne’s new ‘Help to Buy’ scheme go poorly, MPs say. On top of that, MPs have eirous misgivings about involving the government so directly in the home loan provision market, as this makes keeping house prices as high as possible a vested interest.

The new scheme, which does look good on paper, calls for greater levels of property market support through the provision of as much as 20 per cent of the cost of a loan being guaranteed by the government in the wake of borrowers who can’t afford to leave such a weighty deposit. Such a borrower can gain as much as £120,000 towards their deposit goals – interest free – and contains not just the equity loan but a mortgage guarantee as well.

Short-term fix only

The new scheme will run for three years at a minimum, though many critical of the initiative are predicting now that pressure to extend the scheme even further will be quite high. Critics also fear that the outcome of the scheme, while unintended, could lead to making it a permanent fixture in the UK housing market, even though it’s designed to combat what should only be a temporary problem.

The Scheme does NOTHING to solve the shortage of homes

Fears are running high that Help to Buy could end up causing a new housing bubble to inflate, and rather quickly. Funds earmarked for the Help to Buy scheme could have been spent better otherwise, critics say, making the suggestion that it would have been much better to have encouraged increased new home construction instead of just increasing demand for homes but not actually doing anything to increase the supply of new houses.

Chancellor Osborne says that increasing demand for homes will spur the private construction industry into creating more new homes on their own, which would have a knock-on effect when it came to the overall economy and the housing construction sector in particular. However, not everyone agrees with George Osborne’s characterisations, and the Treasury Select Committee in particular has been highly critical of the argument on the chancellor’s part, calling it unconvincing.

Scheme aimed at First Time Buyers, not for second homes or foreign buyers

On top of that, there’s a serious worry that affluent Brits will take advantage of the scheme, using it to purchase a second home at an excellent interest rate, despite the fact that the intentions behind the scheme are to get prospective first-time buyers into their first property.

Labour has also criticised the scheme, saying it could be used to enable people to buy second homes at advantageous rates.