Osborne criticised over “Help to Buy” scheme for first time home buyers
Chancellor George Osborne’s “Help to Buy” flagship scheme, set up to kick start Britain’s stalled housing market by underwriting mortgages with public funds, has been criticised by experts after it emerged that there were distinct loopholes that could be exploited. It has been argued that some are able to exploit the scheme and use the cash to purchase more properties.
Through the Help to Buy scheme, the government proposes to introduce an interest-free loan, worth 20% of the value of a new build, for five years to first time buyers. According to Osborne, first time buyers, then, would only be required to pay a 5% deposit.
There are, however, several key conditions that will apply to the proposed scheme. Indeed, the property price cannot be higher than £600,000 and, furthermore, after five years there would be an annual fee of 1.75% levied on the government loan. This will then rise annually by retail price index inflation plus 1% after that.
However, the equity loan can be repaid at any time, even before the sale of the property.
Many lenders and estate agents welcomed Osborne’s announcement and share prices of some house builders went up by nearly 7%.
Responses from government ministers has been mixed calling the scheme a positive step for first time buyers, as it would help them climb the property ladder, but highlighting the risks of a move towards increased second home ownership which could lead to a significant rise in house prices across the country. This, they warned, could create another housing bubble thus posing a potential danger to the UK economy.
In response to questions raised after his announcement, the Chancellor emphasised that the proposed Help to Buy scheme will open up homeownership to the masses, boost the construction sector and expand upon the existing initiative, “First Buy”, that went live in 2011.
Rejecting the argument put forward by many economists that the property market remains overvalued, Osborne stated “The scheme will tackle the housing crisis, the intention is absolutely clear, to help people purchase their first home or move to a bigger home. We are working with the industry to get a scheme that works.”
The new scheme is expected to help up to 74,000 buyers and is due to launch on 1st April. The full details of how the scheme will work are yet to be released but it is assured that buyers will be able to access the scheme via participating house builders.