Housebuilders to get £900m subsidy

THE GOVERNMENT put its balance sheet at the disposal of thousands of would-be homeowners yesterday, unveiling what it called an “innovative” scheme that will see the state underwrite mortgages for buyers of new-build homes.

It also announced that it is earmarking £900m in subsidies for housebuilders on the grounds that building homes creates jobs and growth.

Of the subsidies, £400m will go to developers who apply for grants to fund uneconomical developments, while £500m will be awarded after combined bids from local authorities and businesses in order to build infrastructure that they argue is necessary to make proposed housing projects viable.

The mortgage insurance scheme will see the government provide a guarantee to mortgage lenders so that buyers can put down a deposit of just five per cent of the house’s value but receive a mortgage interest rate as if they had put down 15 per cent.

It comes in addition to a similar plan unveiled recently by housing minister Grant Shapps (pictured) that sees the state loan first-time buyers up to ten per cent of a house’s value, while house-builders agree to lend another ten per cent again with the aim of bringing the necessary deposit down to five per cent.

The government launched the scheme on the grounds that “every £1m of new house building output supports 12 jobs”. It also comes alongside a proposed deregulation of planning laws.

Critics suggested, however, that in addition to exposing public finances to the risk of mortgage defaults, the scheme will not encourage buyers if house prices continue to plunge. Analysts at Capital Economics said: “Given that borrowers will receive no such protection [from falling prices], it is unclear that the demand for such mortgages will be as strong as the government hopes.”