Jeff Salway: Mortgage help may hurt home buyers

GOOD intentions are not always enough, and in the case of the latest initiative aimed at giving the Scottish housing market a much-needed shot in the arm, short-term gain could be offset by more pain.

Last week saw the launch of NewBuy in England, a government-backed mortgage indemnity scheme aimed both at helping first-time buyers onto the property ladder and at boosting the housebuilding industry.

The final touches are being applied to the Scottish version (which is actually the basis of the Westminster model). The MI New Home initiative is designed to lower the funding obstacle preventing many would-be buyers from making their move, with the Scottish Government claiming the three-year scheme could support up to 6,000 new home purchases.

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The main beneficiaries are likely to be housebuilders. Homes for Scotland hopes that the scheme will help create or protect nearly 23,000 new Scottish construction jobs and more than 650 apprenticeships.

I’m less confident that it will help first-time buyers, however. The main concern is that such schemes, if they stimulate the expected demand, tend to artificially inflate house prices. The result is that more first-time buyers are frozen out of the market as deposit demands increase in line with property values.

Property prices are currently being supported by a combination of low interest rates and a shortage of affordable housing. Yet with unemployment rising, earnings stagnant, household incomes squeezed and – importantly for first-time buyers – rents climbing each month, there’s an argument that house prices north of the Border have some way further to fall before they can be considered realistic for first-timers.

The new scheme will hinder that necessary process from going its course.

The second issue is that by allowing first-timers to place deposits as low as 5 per cent, the scheme boasts that it tackles the main hurdle to ownership. Yet the mortgage market has improved over the last year and there are a growing number of deals for buyers struggling to stump up more than 5 per cent.

The full details of MI New Home have yet to be published, but there’s an uneasy feeling that such well-meaning tinkering will prolong Scotland’s housing market downturn.

More in store

TESCO’S decision to make employees work until 67 before claiming their pension was accompanied by expert warnings that more companies would follow suit.

I’d be astonished if more companies didn’t, because it’s a logical move from one of the few private sector employers still offering a defined benefits scheme.

Average life expectancy was around 77 when the Tesco scheme opened almost 40 years ago. In contrast, a 40-year-old employee can now expect to live until around 90 – a long time retired and a huge pension burden.

More significant is the move to link the annual increase in payments to the (lower) consumer prices index (CPI) measure of inflation, which will wipe thousands of pounds off employee payouts.

Every little helps, as the supermarket likes to insist, but Tesco workers really will feel the impact of this inflation switch.