Osborne Close

George Osborne made some fairly bold statements about his new initiative on housing. He announced: "Help to Buy is a dramatic intervention to get our housing market moving," adding that one major piece of the policy had "not been seen before in this country."

It all sounds very thrilling, but will it make the slightest bit of difference to those trying to buy and sell at the moment?

The plan

Osborne highlighted that a major part of the problem with the market at the moment is that: "The deposits demanded for a mortgage these days have put home ownership beyond the great majority who cannot turn to their parents for a contribution."

His solution comes in two parts. First, is that the government will plough £3.5 billion over the next three years into shared equity loans. The idea is that if you want to buy a new-build and you can find a 5% deposit, the government will lend you another 20%. This loan is interest-free for the first five years, and is repayable when the property is sold.

It's better than existing schemes, because while previous help was only available to first-time-buyers with incomes under £60,000. Now anyone can get one - on any home worth less than £600,000.

The second part is a new Mortgage Guarantee. It is designed to help anyone buying any kind of property, who has a problem raising a big deposit (subject to responsible lending checks). It will use the government's balance sheet to back these higher loan-to-value mortgages, which Osborne says will "dramatically increase their availability." He says this will free up £130 billion of mortgages. It will be available from start of 2014 – and run for three years.

How will it affect you?

If this is successful, it will be a huge boost for those who are itching to buy but cannot find a way to raise the deposit.

However, the effects will spread wider than that. The idea is that it will free up the blockage on first-time-buyers. This will have an effect across the market. We can expect to see more of these starter-homes selling, allowing second-steppers to move up the ladder, and create movement across the housing market. Anyone who has been struggling to sell in the current climate could find life vastly improves.

Will it work?

There are some unequivocal supporters of the policy. Nick Kennett, Director of Financial Services at Post Office said: "The Chancellor's 'Help to Buy' scheme is just what is needed to get the country moving."

Ian Fletcher, director of policy at the British Property Federation, adds: "This is a strong package of help for housing. Annual transactions are half what they were and that has a knock on consequences for all those parts of the economy that rely on people moving. Helping people needing a deposit has for some time been cited as the missing piece of a coherent housing policy and both is therefore welcome."


Others are enthusiastic, but warn that the effects will take some time to trickle through. Henry Knight Managing Director of mortgage broker Springtide Capital says: "The long term effect of this scheme on the housing market overall may take some time to manifest itself."

Other are more sceptical. Jonathan Hopper, managing director, of property search consultants Garrington, says: "Another day, another scheme intended to fire up the property market."


There are those who question the impact of the loan aspect of the policy. Hopper says: "It's a shame that the 'equity loan' part of the scheme is only available on new-builds. That's perhaps the biggest missed trick. Very few new-build homes are actually being built, and there is still restricted demand for this kind of property anyway, so it's difficult to see how this will have a material impact."

There are others who remain unconvinced about the loan guarantees. Darryl Flay, CEO of Essential Living, said: "Promises of a 20% equity loan sounds great in principle - but the crunch will come in what mortgage rates look like for customers utilising it. At the end of the day, someone taking out a mortgage with just a 5% deposit will still be viewed as a higher risk than someone with more cash."

But what do you think? Could you see yourself using these schemes? Let us know in the comments.

  • Public Sector workers - losers

    There was bad news for public sector workers, who will see pay increases limited to 1% in 2015/2016. The government will also revisit 'progressive pay' which sees pay increase automatically each year which he said was 'difficult to justify' given that private sector pay has been frozen or cut. The armed forces, however, will be exempt from this.

  • Families -“ winners

    Feeling the pressure on help working families, the Chancellor made a welcome announcement that working parents will receive a contribution from the Government towards the cost of childcare. Working parents will receive 20% - equivalent to the basic rate of tax - of their yearly childcare costs, up to a total of £6,000 per child. He said the move will save a typical working family with two children under 12 up to £2,400 a year.

    Also, leaked this morning was the news that the Chancellor will raise the income tax threshold to £10,000 from April 2014 – a move he said will give 2.4million people at tax cut of over £200 each a year, as well as lifting two million people out of income tax altogether.
    Yet while both moves are widely welcomed, they do little to counter the austere measures of previous Budgets, explains Clare Francis, editor-in-chief at MoneySupermarket.com:"Giving with one hand may be a positive, but taking away with the other through other tax increases and benefit cuts means that people are no better off. "In fact, the cumulative effect of this and previous budget changes, combined with wage stagnation and rising living costs means millions are worse off and an increasing number of families are on the breadline, struggling to make ends meet every month."