A thinktank has warned that the Government’s £250m scheme to help first-time buyers will drive up house prices, pricing future first-time buyers out of the market.
Chancellor George Osborne announced in his Budget speech last week that £250m of the proceeds from this year’s bank levy will fund a new shared-equity scheme called FirstBuy. Under the scheme, the Government will provide equity loans, jointly funded with housebuilders, to first-time buyers purchasing a newbuild property.
Osborne said this will help 10,000 first-time buyers get on the housing ladder.
But giving evidence to the Treasury select committee on the Budget last week, the National Institute of Economic and Social Research poured scorn on the idea that the move would benefit first-time buyers.
Director Jonathan Portes said the scheme would “serve to exacerbate economic distortion.” He said: “House prices in the UK are too high, which has all sorts of damaging economic and social impacts. The main impact of giving financial help to first-time buyers is pumping extra money into the demand side, which leads to a boost in house prices. That is the last thing that future first-time buyers, or the economy as a whole, needs.”
Chartwell Funding managing director Robert Winfield says the Government would have been better off using the £250m to fund mortgage indemnity guarantees for high loan-to-value mortgages.
But he believes the Government is right to target funding to help first-time buyers.
Winfield says: “First-time buyers need to be encouraged to buy properties, otherwise there will be a whole generation that just do not get to own their own home.”