Jeff Salway: The home loan plan no-one wanted

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THERE’S a very good reason why few people saw George Osborne’s first-time buyer Budget handout coming: no-one was calling for it in the first place.

The Help to Buy scheme dominated the Budget headlines partly because it hadn’t been heavily trailed beforehand. We knew about the childcare tax relief, the acceleration in the personal allowance increase and the universal state pension being brought forward.

Politically, a first-time buyer package is a safe bet – a low-risk move building on the “success” of the Bank of England’s Funding for Lending Scheme (FLS). Unfortunately, it may prove futile and even damaging.

If there’s one thing that first-time buyers don’t need, it’s higher house prices, but that’s what may result from this Budget “giveaway”.

Help to Buy features a guarantee for lenders who offer mortgages to buyers – first-time or otherwise – with deposits of between 5 and 20 per cent. There’s also a shared equity element, available only in England.

Whether such efforts to kick-start the housing market can succeed depends largely on lenders. While the availability of affordable first-time buyer mortgages has improved of late, lender appetite for that business has not. First-time buyers are still going to lenders armed with 10 per cent deposits, proof of a solid income and a clean credit record only to be told they can’t be trusted.

The task facing first-timers has also been made harder by the FLS. By giving lenders access to cheaper finance, the FLS has reduced their dependence on deposits and consequently sucked the life out of the savings market. So while first-time buyers are slowly seeing mortgage costs come down, the task of saving for a down payment has become even harder.

If Help to Buy does work, we then have to worry about the effect on house prices. Short-term schemes such as shared equity initiatives have a nasty habit of supporting and even inflating property values. So while the Bank of England is making it harder to save a deposit, the government is helping put prices further out of reach. Now there’s joined-up thinking for you.

Do the right thing

It’s apt that the most sensible measure in the Budget was a U-turn. For two years, the government has refused to lift the ban on transferring cash from child trust funds (CTFs) to junior individual savings accounts (Jisas). That restriction means millions of people are trapped in CTFs that, because they’re no longer open to new money, offer derisory returns.

The government is now consulting on the matter, although it may yet keep the bar in place. This is an opportunity to do the right thing by savers for once, so why not just transfer all CTF accounts to Jisas and be done with it? It’s the only move that would be entirely in the consumer interest.

Straight talking

Amid the typically guarded Budget reaction e-mails was one that stood out for its refreshingly direct response to the Chancellor’s speech.

Jason Stather-Lodge, chief executive of OCM Wealth Management, accused the Chancellor of “political arrogance” by sticking to Plan A even as it delivers us to the brink of a triple-dip recession.

He added: “As a Tory, I despise the fact that we reduced the highest rate of tax from 50 to 45 per cent whilst at the same time capped increases in benefits by 1 per cent for the neediest in society.”

A very good point and well made. Presumably Stather-Lodge doesn’t harbour any political ambitions.