£250m sounds like a lot of money, but in reality it will help only 10,000 purchasers, which is roughly 5% of the first time-buyer market. The rules of the scheme also mean that its effect will be felt more greatly in some areas than others.
Prospective first time-buyers must have a household income of less than £60,000 and be able to contribute a 5% deposit. They then qualify for a five year interest-free loan of 20% shared equally between the developer and the government, which attracts nominal interest after five years and is repayable only on the sale of the property.
The problem around Cambridge is that the average price of a new build is around £300,000. This means that even if someone has a 5% deposit of £15,000 they may still struggle to get the required 75% mortgage of £225,000 if their income is below the threshold. There is also little detail on whether the scheme is mandatory on developers, which in Cambridge may also be key. Given that they have a ready market prepared to pay 100%, where is the incentive in agreeing to defer 10% on a five year plus, interest-free basis?
Overall, therefore, I have some sympathy for the view that ‘Osborne is behaving like a shopkeeper trying to shift overpriced stock by offering a clever financing scheme’ (Matt Griffith, PricedOut). It seems directly aimed at areas where there has been substantial over-development, particular in the apartment sector, rather than actually offering a meaningful solution to what to many people trying to get on the property ladder is a real cause of concern and worry.
Stop the gimmicks and public subsidies and put pressure on the banks to increase their loan to value criteria, without punitive rates, for first time-buyers with good credit histories and a deposit of 5-10%.