A controversial scheme that aims to boost the housing market, by allowing people in England to take out 95% mortgages, will be launched this week, three months ahead of schedule.
The second phase of the Help to Buy scheme was not due to be introduced until January 2014, but prime minister David Cameron announced it would be brought forward as the Conservative party prepared for its annual conference in Manchester.
The mortgage guarantee will allow customers to buy any property with a value up to £600,000 with a deposit of only 5% of the purchase price, and has been rescheduled despite concerns that it could create a new housing bubble.
Speaking on the Andrew Marr Show on Sunday, Cameron said, “As prime minister I am not going to stand by while people’s aspirations to get on the housing ladder are being trashed.
“If we don’t do this it will only be people with rich parents to help them who can get on the housing ladder – that is not fair, it is not right.”
Graeme Leach, chief economist at the Institute of Directors (IoD), said the scheme “piles distortion on distortion.”
He added, “The housing market needs help to supply, not help to buy, and the extension of this scheme is very dangerous.”
The Labour party has responded saying that instead the government must build more houses to ease shortages.
Shadow chancellor Ed Balls said, “Unless David Cameron acts now to build more affordable homes, as Labour has urged, then soaring prices risk making it even harder for first time buyers to get on the housing ladder.
“You can’t deal with the cost of living crisis without building more homes.”
Applications for loans from the scheme will now be brought forward to the week beginning October 7, but the loans will not be paid out until January 1.
The first phase of the finance initiative was introduced in April, and allows first-time buyers to apply for an equity loan of up to 20% towards the cost of a new-build property worth up to £600,000.
A report by the Royal Institution of Chartered Surveyors (RICS) said that the scheme was partly responsible for rising house prices across the UK, as the housing market “turned a corner”.
Housing minister Mark Prisk called the loan an “instant hit”. However, the scheme has attracted a lot of criticism. The International Monetary Fund (IMF) warned that it could simply push up house prices.
Defence secretary Philip Hammond yesterday announced a further £200 million scheme that will offer armed forced personnel interest free loans to buy their first homes.
Servicemen and women will be able to borrow an amount of up to £25,000, which is repayable over 10 years and aims to address the low rate of home ownership among the forces.