Chancellor sets up scheme to boost housing

Kasmira Jefford
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SHARES in housebuilders rallied yesterday after the government revealed a raft of new measures to stimulate the property market, but experts warned of the danger of fuelling a housing bubble.

Under the so-called help to buy scheme, chancellor George Osborne has pledged to help homebuyers who cannot afford a large enough deposit by underwriting up to £130bn worth of mortgage loans.

The mortgage guarantee scheme, which will be underwritten by the taxpayer, will start from 2014 and initially last for three years.

Osborne also committed £3.5bn of shared equity loans to help all buyers of new-build homes worth less than £600,000 – expanding the existing first buy scheme. From April, any buyer with a five per cent deposit will be able to access an additional 20 per cent share equity loan, which is interest free for the first five years.

Mark Clare of housebuilder Barratt said: “This is a major boost for homebuyers and house builders... We are now gearing up to meet the increase in inquiries that we expect to see.”

But the Royal Institution of Chartered Surveyors warned the government “needs to be careful this doesn’t create another housing bubble – pushing prices up at the expense of buyers.” Estate agents Cluttons added: “In London and the highly restricted residential areas in south east, an increase in funding in the absence of new supply can only result in price rises well ahead of earnings.”

How will help to buy work? Q and A

Q Who is eligible for the help to buy 20 per cent equity loan on new builds?

A This will be open to first-time buyers but also to existing homeowners from 2014, with a five per cent deposit. The maximum home value will be £600,000 but there is no income limit for applicants. The scheme previously only existed for first-time buyers with incomes under £60,000. Buyers would be able to contribute five per cent of a deposit, with the government guaranteeing another 20 per cent.

Q What is the interest rate on this loan?

A The scheme is interest free for the first five years, then 1.75 per cent, which will rise annually by one per cent above the retail price index (RPI) rate of inflation.

Q How many buyers could this affect?

A Analysts estimate £3.5bn of shared equity loans could help around 70,000 separate new-build buyers, assuming an average £250,000 home value and the full 20 per cent equity loan is taken.

Q What is the help to buy mortgage guarantee and who is eligible?

A The government will guarantee £130bn of high loan-to-value mortgages. It applies for existing and first-time buyers with a deposit of less than 20 per cent and on any type of home. It could help 600,000 people, assuming 10 per cent of a £200,000 mortgage is government-backed.