Halfway house

The Government has taken steps recently to boost the property market but there are fears the measures will not be as effective as hoped.

The housing strategy includes a Government-backed mortgage indemnity scheme to help buyers of newbuild properties borrow up to 95 per cent of the value of a property. It also increases the buying discount for social tenants and a £400m fund to kickstart stalled projects, although it also confirmed the end of the stamp duty holiday for firsttime buyers.

Housing minister Grant Shapps had previously called for lenders to offer “mates mortgages” and 30-year fixed rates but these were met with little enthusiasm and some went as far as to accuse Shapps of being out of touch with the housing market.

Building Societies Association head of mortgage policy Paul Broadhead says: “It is good to see housing back at the centre of the Government’s agenda. This is the first time under the coalition we have seen a plan for housing. This tells us the Government does not favour one tenure over another and that whatever tenure people aspire to, the Government would like to support them.”

MAC Consulting chief executive Mark Chilton says: “The Government is getting the overall balance about right. It is right in saying the stamp duty holiday does not work. There is no radical bullet that will cure the problems in the mortgage market but these are measures that will prevent things getting worse.”

Home Funding chief executive Tony Ward says: “The Chancellor is in a difficult position and has little room for manoeuvre. Things are not good and in the context of the eurozone problems and the huge risk of contagion for us now, we have to be thankful for the things he has done for the mortgage market.”

The initiative that grabbed the headlines was the mortgage indemnity scheme. It will see house-builders put 3.5 per cent of a property’s sale price in an indemnity fund for seven years, after which it will be returned, minus any losses. The Government will provide additional security of 5.5 per cent and the borrower must have at least a 5 per cent deposit.

Chancellor George Osborne said in his autumn statement last week that the Government’s maximum liability for the scheme will be £1bn.
The scheme is fairly limited as it is only available to borrowers looking to buy newbuild properties in England.

Your Mortgage Decisions director Dominik Lipnicki says: “A mortgage indemnity scheme is a fantastic idea but the way the Government has done it only helps the construction industry. The Government should roll it out to include all properties.

“As it is, the scheme will make it harder for people trying to sell their first homes because the Government has introduced an incentive to buy newbuilds, so the market will get stagnant.”

Osborne also said the stamp duty concession for first-time buyers buying a property up to £250,000 will not be extended and will come to an end on March 24, 2012.

Brokers were disappointed by the announcement but many feel it will not prove to be a disaster.

Industry consultant Jonathan Cornell says: “The stamp duty holiday was nice but the tax is not the key thing stopping first-time buyers. There are other factors, such as an inability to raise a sufficient deposit.”

But London & Country associate director of communications David Hollingworth says: “The stamp duty holiday was helpful for borrowers and removing it might take the shine off some of the benefits we might get from some of the other measures.”

Another initiative announced by the Chancellor was the increase in the average discount given to social tenants to buy their home under the right-to-buy scheme. He said the proceeds from this would be used to build more affordable housing on a one-for-one basis.

Chadney Bulgin mortgage partner Jonathan Clark says: “If the Government sticks to its promise to build a new home for every one that is sold, that is good news because it is promoting home-ownership. But if not, it would be a disaster because the Government would simply be decreasing the number of affordable houses available.”

Lipnicki says: “I would have liked to see the Government put some pressure on the banks to lend. There has been a lot of talk about it but not much is happening. It also would have been good to see the Government make it easier to apply for the shared-ownership scheme.”