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Second home ownership concern over Help to Buy scheme

By Western Morning News  |  Posted: April 22, 2013

By Graeme Demianyk

Exeterdow
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MPs have criticised a "lack of clarity" over whether ministers will stop state-backed mortgages being used to buy second homes.

High levels of second-home ownership cause huge resentment across Devon and Cornwall, with critics blaming part-time residents for forcing up house prices and undermining local services. There are already around 26,000 holiday homes across Devon and Cornwall.

In the Budget earlier this year, Chancellor George Osborne unveiled state loans for deposits and mortgage guarantees to help hundreds of thousands of would-be homeowners.

In a critical report, the powerful Treasury committee of MPs said confusion in the days after the Budget over whether the Help to Buy scheme would allow people to buy a second home with Government backing showed the need for ministers to "think schemes through carefully before announcing them".

The MPs add that they "struggle to see the rationale for the taxpayer to stand behind loans for people wishing to own a second property".

In their report, they say: "The lack of clarity over whether the mortgage guarantee scheme will be open to those wishing to purchase a second home is concerning on two grounds.

"First, it is a reflection of the need to think schemes through carefully before announcing them.

"Second, while the committee is aware of the complexity which may come with an exclusion, we struggle to see the rationale for the taxpayer to stand behind loans for people wishing to own a second property, especially given that the Chancellor has repeatedly stated that the scheme is primarily designed to help people on to the property ladder as well as those who wish to move property."

Help to Buy consists of two elements: an "equity loan" scheme and the mortgage guarantee.

Under the equity loan, new or existing homeowners will need to raise a deposit of 5% of the value of the property they want to buy, but can borrow up to a further 20% from the Government on an interest-free basis. The biggest loan available will be £120,000.

The mortgage guarantee element will be available for all types of housing stock worth up to £600,000 from January. The Government will guarantee up to 15% of a mortgage, allowing people with 5% deposits access to lending.

In was initially hailed as a chance to help families in the South West who are struggling to get on or move up the property ladder because of an unfavourable ratio of high prices to low wages that is worse only in London.

Buying a house in Cornwall now costs on average £220,083 – almost 13 times the average local wage. In Devon, it costs £234,610 – again 13 times annual pay.

But the MPs warned the plan risks skewing the housing market and leaving the Treasury with a significant hole in its coffers.

MPs fear the Government would be an active player in the market, with a financial interest in maintaining house prices.

The Help to Buy scheme is "very much work in progress" and is likely to have a number of unintended consequences, the Treasury committee warned. The intervention in the housing market may not even help first time buyers, and Mr Osborne's claim that increased demand will boost supply is "unconvincing", the committee's report found.

The committee's chairman, Andrew Tyrie, said: "The Government's Help to Buy scheme is very much work in progress. It may have a number of unintended consequences.

"Without further detail it is not possible to estimate its effects.

"The questions the committee has asked the Government need answering."

Shadow Treasury Minister Cathy Jamieson MP said: "It's astonishing that one month since the Budget George Osborne has still failed to rule out people being able to buy second homes with a taxpayer guarantee."

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