£250 million scheme to help first time buyers seen as too little, too late

Chancellor George Osborne has today (Wednesday March 23) announced a £250 million equity scheme to help struggling first time buyers get on the property ladder.  

The First Buy scheme will use profits from the bank levy to help thousands with a household income of less than £60,000 a year who cannot afford the deposit for a property and replaces Labour’s Homebuy Direct scheme which was withdrawn last autumn.

Buyers will have to put up a 5% deposit, the government and home builder will cover 10% each and then the remainder of the amount will be covered by a loan. But it only applies to those buying new properties.

The move has been welcomed by some as a much needed boost to the UK’s stagnant property market and criticised by others as too little.

Nicholas Leeming, business development director at Zoopla, said first time buyers currently pay an average deposit of £25,000, which would plummet to an initial £6,250 for those taking part in the scheme.

‘This is a very appealing prospect, but Osborne's scheme won't go beyond scratching the surface of the problem faced by the vast majority of first time buyers, as it is exclusively for new build properties and only around 11,000 buyers will benefit, a fraction of the overall number of potential first timers,’ he explained.

‘While the availability of credit is slowly easing, it's not easing fast enough to help those borrowers who don't qualify. A step in the right direction these measures may be, but they're merely window dressing the wider problem,’ he added.

According to Samantha Baden, property analyst at FindaProperty.com, some 16,275 first time buyers could be helped. ‘This will improve the economic feel good factor but it’s still not enough and is just a mildly larger version of the Labour government’s HomeBuy Direct scheme, which helped an extra 10,000 into home ownership,’ she said.

‘But high prices and a difficult mortgage market mean there are at least 50,000 first time buyers being locked out of the housing market each year so George Osborne’s new scheme needs to be much more ambitious if it’s going to ease the first time buyer crisis,’ she added.

Ian Ward, chief executive of Leeds Building Society, welcomed the move. ‘We know from our own experience that the biggest barrier to homeownership can often be saving for a deposit, and this scheme is a positive step by the government,’ he said.

But Matt Griffith of first time buyer pressure group Priced Out said the fund could be dangerous for potential borrowers. ‘When independent economists are predicting a 10% fall in house prices this year, having the government encouraging first time buyers to get on to the ladder using a 5% deposit looks foolhardy at best and, at worst, pretty irresponsible,’ he declared.

‘Osborne is behaving like a shopkeeper trying to shift overpriced stock by offering a clever financing scheme. Consumers would be wise to be sceptical and steer clear. The big problem is that prices are still far too high,’ he added.

Nick Hopkinson, director of property company PPR Estates, described it as ‘a gimmick’. ‘If the chancellor wants to really aid the housing market in a sustainable way I believe he should be forcing the taxpayer owned banks to reduce their lending margins and offer fair and affordable mortgages to Britain's hardworking households as a first step,’ he said.

‘Anything that reduces the high transaction costs and taxes related to buying and selling property would also really help property market liquidity, specifically outlining a fairer stamp duty sliding scale approach would help, but I'm not expecting that to happen either, unfortunately,’ he added.