Budget 2013: Flagship ‘Help-to-Buy’ scheme unveiled

A new Help to Buy scheme for those struggling to find deposits will include £3.5 billion for shared-equity loans worth 20 per cent of the value of a new-build house.

The Chancellor said the scheme would be available to all buyers of newly built homes from 2014, with an interest-free loan for the first five years.

The loans will be available to those who can find a 5 per cent deposit with the loan worth up to 20 per cent of the value of a home costing up to £600,000, and repayable when it is sold.

The scheme includes £266 million provided to the Scottish Government to set up a similar scheme.

In a high-risk strategy, the Chancellor also announced a new mortgage guarantee to increase the availability of loans for new-builds and older homes.

The scheme, which will run for three years from the start of 2014 and will be sufficient to support £130bn worth of mortgages, will mean loans from high-street lenders would be underwritten by the government.

If a borrower defaults on a mortgage, he or she would stand to lose their 5 per cent deposit. The government would then have to pay just under 15 per cent of the outstanding amount, while the lender would be liable for just over 80 per cent.

Mr Osborne told MPs the package would expand home ownership in a “dramatic way”, as the UK government said Scotland had also been handed £176m in consequential funding that could be used for schemes such as house-building.

The Chancellor said the scheme was “a great deal for homebuyers”, with loans from high-street lenders underwritten by the government.

He said: “The deposits demanded for a mortgage these days put home ownership beyond the great majority, who can’t turn to their parents for a contribution. And that’s not just a blow to the most human of aspirations, it’s a setback to social mobility and it’s been hard on the construction industry, too.”

He added: “We’re going to help families who want a mortgage for any home they’re buying, old or new, but who cannot begin to afford the kind of deposits being demanded today.”

Lenders insisted that Mr Osborne’s scheme would not lead to a US-style housing market meltdown. The United States took control of its two largest mortgage companies, Fannie Mae and Freddie Mac, when they nearly collapsed.

A spokeswoman from the Council of Mortgage Lenders (CML) dismissed any suggestion that the home-buying scheme would lead to a return to irresponsible lending.

The package was welcomed by builders. It comes after another scheme, known as NewBuy, was launched just over a year ago, but saw only 1,500 house sales in its first nine months.

Philip Hogg, chief executive of Homes for Scotland, whose members provide 95 per cent of all new homes built for sale, said: “We obviously very much welcome the focus, long overdue though it may be, given in today’s Budget.”

However, SNP finance minister John Swinney said the UK government was “deceiving the public” by claiming it had increased support for homeowners on Scotland.

How it works

The UK government says that Help to Buy will support people who have at least a 5 per cent deposit to buy a home through two schemes aimed at increasing the supply of low-deposit mortgages and new housing.

Each scheme helps homebuyers purchase a home with a maximum value of £600,0000, the government has said.

There are two options.

Option one – Help to Buy: equity loan. For new-build homes only.

The government will lend to 20 per cent of the value of your property through an equity loan.

Option two – Help to Buy: mortgage guarantee. Will encourage lenders to offer better access to low-deposit mortgages.

Case study: ‘A welcome lift on to property ladder’

FOR graduate Luisa Tancredi, the most welcome announcement was extra help for those struggling to get on the property ladder.

The 22-year-old, who works for oil services firm Global SCS in Aberdeen, is living with her mother to save money after completing her degree at Aberdeen University last summer.

She said. “The problem with buying your own place is not meeting the mortgage repayments, but coming up with the massive lump sum for the deposit.

“The only people I know who have been able to buy are those who have been handed the money by their parents. For those of us who don’t have parents able to help, it’s difficult.”

Ms Tancredi, who works in a graduate position moving between HR, finance and contracts, said her home town was protected from the worst of the recession by oil.

“Aberdeen is a real bubble,” she said. “I probably would have moved away if it hadn’t been for my job. Some of my friends have gone travelling because they struggled to find anything after graduation.”

CHRIS MARSHALL