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Window dressing

There is a widely held opinion within the industry that the Government’s attempt to get the property market moving by way of the FirstBuy scheme announced in the Budget will barely even scratch the surface. Gregor Watt reports

Chancellor George Osborne’s Budget contained only two measures concerning the mortgage industry – an extension of the scheme to support mortgage interest payments and a new shared-equity scheme for first-time buyers.

But although Osborne’s stated aim for the Budget was for it to be fiscally neutral, the industry believes the Chancellor could have done more to help revive the housing market.

The support for mortgage interest payments scheme was due to expire in January 2012 but the Government will now extend it for another year. The scheme remains otherwise unchanged.

The second measure that targeted the mortgage market was more creative.

The new FirstBuy scheme will see a £250m fund allow central Government to stump up 10 per cent of the deposit for a newbuild property in the form of a low-cost loan, matched by 10 per cent from the construction company, meaning the buyer has to find a deposit of just 5 per cent.

To be eligible, borrowers must have a combined income of less than £60,000 and will not make any repayments on the deposit loan for the first five years. The scheme aims to help 10,000 buyers access the property market.

But while some lenders encourage any initiative to get the market moving, many in the industry regard this as no more than a token gesture that helps housebuilders more than buyers.

Leeds Building Society is one of the lenders already active in the shared-equity market and it welcomes the scheme.

Chief executive Ian Ward says: “We know from our own experience that the biggest barrier to homeownership can often be saving for a deposit.”

However, critics of the scheme claim it will not help nearly enough people and is simply a replacement for the HomeBuy Direct scheme, set up by the last Government.

Nicholas Leeming, business development director at online estate agent Zoopla, says the FirstBuy scheme could cut the average deposit needed from £25,000 to £6,250 but that it will only scratch the surface. He says: “It is exclusively for newbuild properties and only around 11,000 buyers will benefit, which is a fraction of the overall number of potential first-timers.

“Mortgages are still required and this scheme leaves lenders, who have had a stranglehold on the market for the last two years, in a win-win situation.

“Being able to lend to a select group of first-time buyers without the normal level of risk makes lending to those who do not qualify for the scheme even less attractive. And while the availability of credit is slowly easing, it is not easing fast enough to help those borrowers who do not qualify.

“These measures may be a step in the right direction but they are merely window dressing.”

Xit2 managing director Mark Blackwell is also critical of the scale of the scheme and says: “The move to help first-time buyers is little more than a gesture and certainly will not be market-changing.”

The plans have also been criticised for channelling Government money into an area that is not particularly cost-effective. Mortgage lenders are cautious of the newbuild market as many were caught out by overvalued property in the last few years. And as house prices have recovered faster in this sector than in the resale market, there is a feeling that Government money could go further if not used to support housebuilders.

LSL Property Services estate agency managing director David Newnes says: “Lenders generally require 5 per cent bigger deposits for newbuilds than they would for other properties.

“Although the Government’s scheme to assist buyers with limited deposits is clearly also designed to support the construction industry, which received special mention in the Chancellor’s speech, the restriction of the programme to the newbuild market means bigger contributions of public money will be required to get new buyers into the property market.”

Rather than channelling public money into niche areas, many believe the Government should be looking at initiatives to get the whole of the mortgage market moving.

Teachers Building Society chief executive James Bawa says: “As the financial support for FirstBuy is pledged for just one year and because the scheme applies to newbuild houses only, we would urge the Government and other interested parties to work together on more sustainable, long-term support for this area of the market, which is so important to the health of the wider economy.”

Top of the list of suggestions for the Government to consider is a review of stamp duty on house purchases and the amount that lenders are currently willing to commit to the mortgage market.

Building Societies Association director general Adrian Coles says the Government’s proposals are a small step and they need to tie in with the FSA’s mortgage market review and its focus on affordability for borrowers. In the meantime, he is calling for the coalition to overhaul the stamp duty system.

He says: “The Government should address the overall fundamental flaws of stamp duty. The current slab system results in the bunching of transactions at prices just below the thresholds. It is time that stamp duty in its entirety was reformed.”

Intermediary Mortgage Lenders Association executive director Peter Williams says the FirstBuy scheme will affect only 5 per cent of FTBs and also says a review of stamp duty would be a more effective move.

He says: “We would like to see this scheme used hand in hand with other initiatives, such as a review of the stamp duty threshold. First-time buyers already benefit from 0 per cent stamp duty on properties up to a value of £250,000 but the threshold for housemovers should also be reviewed to encourage greater activity in this segment of the market.”

Williams feels that Government intervention to encourage more mortgage lending would be more effective.

He says: “We would also like the Government to address the funding issue in the mortgage market. Although it has recognised the importance of the wholesale funding sector to the availability of mortgage finance, we have seen little in the way of support for this market.

“The Government can play an important role in supporting the securitisation markets, which will ultimately result in wider availability of mortgages across the board.”


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