Confusion as ministers fail to clarify if scheme to help first-time buyers could be exploited by those wanting more properties
Ministers have been forced to try to reassure critics that their flagship scheme to help people pay their mortgages will not be used by people wanting to buy second homes.
In what has become the most controversial post-budget story, confusion surrounded the details of the Help to Buy scheme, which was one of the biggest announcement’s in the chancellor’s speech on Wednesday.
Under the proposals, people buying new homes up to a value of £600,000 can get an interest-free loan for five years for 20% of the value in return for the government taking a stake in the equity, and homebuyers wanting to buy other properties will be able to take out higher value mortgages under a separate scheme under which the exchequer will help guarantee the risk.
However critics immediately seized on the initiative, claiming buyers could use it to purchase second homes – while at the same time, the government is gearing up to force people living in social housing to forfeit some housing benefit if they are judged to have more rooms than necessary.
Ed Balls, the shadow chancellor, said: “From what I can see, the government is basically saying that if you’ve got a spare room in a social home you will be paying a bedroom tax. But if you want a spare home and you can afford it, we’ll help you buy one.”
The government’s confusion over how to react began when George Osborne gave his traditional post-budget interview on BBC Radio 4’s Today programme on Thursday. The chancellor said he said he did not want the mortgage guarantee scheme to help people buy second homes, but he refused to say people buying second homes would be banned from using it. “The mortgage market is an extremely complex thing.
“The intention of the scheme is absolutely clear, which is that it is for people who want to get their first home or have a home and want to move to a bigger home, because perhaps they have got a bigger family. We are working with the industry to get a scheme that works.”
Later, the prime minister’s official spokesman also appeared not to be able to promise that such abuses could be ruled out, saying only that was not the intention and there was a consultation.
The line hardened when Vince Cable, the business secretary, told MPs the equity loan scheme for new homes could not be used for second homes, and suggested a consultation on details of the mortgage guarantee initiative – the other half of the Help to Buy announcement – would look for a way to also stop people doing that. “I am quite sure these imagined horrors are not going to materialise,” he added.
The strongest denial came at lunchtime from Mark Prisk, the housing minister. “We do have the details in there about making sure there’s a legal declaration through a solicitor before someone could take on a purchase, that they’ve got rid of their existing property and so on,” Prisk told Radio 4’s World at One programme. “This is about family homes, not about second homes.”
There was also criticism that the scheme could push up what many believe are already overvalued house prices – one of the key reasons given for banks demanding the high deposits of 20-30% which the chancellor said he wanted to help home buyers to afford.
The normally loyal Conservative backbencher Kwasi Kwarteng said while he generally welcomed the budget: “My worry is that having a system where you are giving mortgages without increasing the supply will lead to asset price inflation, because obviously if the amount of supply remains the same and you are making credit easier, the tendency would be for the prices to go up.”
Prisk dismissed this also, insisting that the budget also contained measures to encourage more housebuilding, including plans for 150,000 affordable homes and an increase in funds for developers building properties to rent.