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HomeBuy Direct Scheme

Having had more time to peruse the governments proposals for the housing market yesterday there has been much discussion particularly about the Homebuy Direct Scheme and it does not quite add up.

For starters this idea is nothing really new and is a bit of a re-hash of old schemes that are similar. The idea is that for first-time buyers looking at purchasing a new-build property, an equity loan of up to 30% of the value will be available that is co-funded by the government and the developer.

Now excuse my ignorance but is this not just a new-build incentive in all but name? There are several issues here.

The main issue is how will the value of the property be justified? We all know the main issue with new-build properties has been around establishing an accurate value and with the developer part funding the loan is this up for abuse?

Also, has the government actually agreed with any lenders that they would be happy to fund such a property.

If the lender is providing a 70% mortgage and there is another 30% loan then the borrower is getting 100% borrowing against a potentially overpriced property that in the short-term is also depreciating in value. Many lenders have moved away from new-build properties and I am sure most would like to see an applicant put at least some of their own cash into the property.

Does this not just perpetuate the issues we have already seen?

Also, this is available for people whose household income is under £60,000 per annum. Who is ratifying that they can definitely afford the mortgage and the loan, especially if interest rates move?

Furthermore, all this aside, it may help a few people who want a new flat, and may help a few developers, but it does not help the wider housing market as it is not aimed at the market as a whole. It is not encouraging second-time buyers to move on, leaving their existing property free for a first-time buyer which gets the whole chain moving.

Another flippant comment is that if housebuilders had actually built more properties that people actually wanted to buy, houses rather than loads of small, expensive city-based flats, things may have been a little easier for them in the first place.

With all these new incentives there will be some people who benefit, but by no means all. As Barry Naisbitt, chief economist, Abbey says: “While these moves undoubtedly have a positive social impact on some lower income and vulnerable people, they are extremely targeted and are likely to have only a limited impact on the rest of the housing market.”


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