George Osborne revealed in his Budget a major new scheme designed to kick-start the ailing housing market and help boost economic growth.
The Chancellor said the Help to Buy scheme would be an offer to the “aspiration nation” to meet the natural desire of people to own their own homes.
Help to Buy comprises the following two parts:
- £3.5bn capital spend over the next three years on shared equity loans to allow homebuyers an equity loan worth up to 20% of the value of a new build home
- Mortgage guarantee designed to allow lenders to provide more mortgages to all those without a large deposit
The new scheme will use the government’s balance sheet to back £130bn worth of higher loan-to-value mortgages.
Osborne said: “The deposits demanded for a mortgage these days have put home ownership beyond the great majority who cannot turn to their parents for a contribution. That’s not just a blow to the most human of aspirations – it’s set back social mobility and it’s been hard for the construction industry.
“This Budget proposes to put that right – and put it right in a dramatic way.”
He added that the only constraint would be that the home can’t be worth more than £600,000, however this covers more than 90% of all homes.
The Department for Communities and Local Government said the £3.5bn Help to Buy equity loan scheme would help 74,000 homebuyers purchase a house with a 5% deposit by 2016.
The Build to Rent Fund will also be increased to £1bn to support the construction of new homes specifically for private rent; and the government will double the funding for the Affordable Homes Guarantees Programme to £450m.
The construction industry broadly welcomed the housing focus in the Budget.
Richard Threlfall, KPMG’s head of infrastructure, building and construction in the UK, said: “The Chancellor’s Help to Buy scheme looks like the perfect ‘get out of jail’ card. It’s a bold move, perhaps a desperate one, but one that will be undeniably welcome by the beleaguered construction industry.
“The government has finally recognised that housing might offer the fastest acting pain relief for our economic woes and, perhaps despairing of local authorities to be proactive in supporting new house building, has decided to focus stimulus on demand,” he said.
However doubts remain on under-supply and affordable mortgage availability.
The National Housing Federation warned about “another housing bubble”. David Orr, chief executive of the federation, said: “We still need the government to help unlock land banks, free the small publicly owned derelict sites so we can build houses on them and give housing providers long-term certainty over how much income they can expect so they can start planning and building beyond 2015.”
As revealed prior to the Budget announcement, the government will allocate an extra £3bn a year to infrastructure projects in the hope of boosting growth.
The £6bn is expected to come from extra cuts to government departmental spending, a result of departments spending less than their budgets allowed last year.
Osborne said in his speech that the increase will come into effect from 2015 and that the money will go towards new roads, railways, power stations and other large-scale projects.
“By investing in the economic arteries of this country, we will get growth flowing to every part of it,” he said.
John Cridland, director general of the CBI, welcomed the news: “This was recognition it was a mistake to cut capital spending so sharply and that other growth-boosting measures were taking too long.
“By shifting £6bn to housing and infrastructure, the government has sowed the seeds for growth and jobs.”
However the Chancellor gave little indication where the money will be spent, leading to some in the infrastructure community being more sceptical.
Nick Prior, head of infrastructure at Deloitte said: “While the £3bn is welcome, there is no indication at all of where it's going to be spent. Given the track record over the last three years of delivering against commitments, one has to be extremely cautious about the impact this will have.
“There has been a lot of rhetoric over infrastructure spend over the last three years, but delivery has fallen well short of the promises.”
Richard Threlfall added the £3bn would “make little difference in solving the UK's infrastructure challenge.”