New housing scheme puts taxpayers and buyers at risk

THE COALITION has announced a £400 million fund to kick-start house building as part of plans to solve Britain's housing crisis. The scheme will also allow first-time buyers of new homes to borrow up to 95 per cent of their value, with the government underwriting part of the risk. But would those struggling to enter the housing market be wiser to wait?
 
Scheme will unlock the housing market
By the time the coalition came into office, "house building rates had reached lows not seen in peace time since the 1920s", say David Cameron and Nick Clegg in a foreword to the government's new housing strategy. Their housing plan "will unlock the housing market, get Britain building again, and give many more people the satisfaction and security that comes from stepping over their own threshold".
 
We've got a triple problem in the housing market, Housing Minister Grant Shapps told BBC's Breakfast programme. At the moment, lenders aren't lending, builders aren't building and people can't get their deposits together to buy. We want to make it easier for first-time buyers who say getting the deposit together "is their biggest blockage".

It's risky
Finding a deposit is certainly a big problem for first time home buyers, Ray Boulger of John Charcol Independent Mortgage Advisers told BBC's Today. That is obviously the area to address. "But the key question is the extent it's right for the government to get involved and put taxpayers' money at risk."

Yes, the Government is desperate to see deposits come back down to five or ten per cent, rather than the 20 per cent currently demanded by mortgage providers, says Mary Ann Sieghart in The Independent. But their scheme is fraught with risk. "After all, it was sub-prime mortgages that caused the financial crisis in the first place".

What would help most of all would be a sustained fall in house prices, adds Sieghart. "Ministers privately hope that the increased supply they are creating will bring prices down. But they are terrified of coming out publicly for fear of what the Daily Mail would say."

Let the buyer beware
Amid a credit crisis caused by excessive debt, much of it linked to over-priced property, the Government proposes laxer lending to people with no history of repaying debt so that they can buy overpriced property, blogs Ian Cowie for The Daily Telegraph. "You really could not make it up."

The scheme may help buy-to-let landlords exit the housing market with handsome profits before house prices fall further, adds Cowie. But there'll be little lasting benefit as new buyers take on excessive debt, interest rates rise from their current historic low and more homebuyers find themselves in negative equity.
 
The market will eventually turn, says Cowie. "Generation rent" would do better "relying on patience than politicians' promises". ·