Budget 2011: Subsidising FTBs will not help property market – it’s lending that needs to change

23rd March 2011

First-time buyers can now re-enter the housing market, following a generous intervention by the Chancellor of the Exchequer, George Osborne, with a £250m fund to help with deposits.  

Although for young couples and single people hoping to set a foot on the bottom rungs of the home-owning ladder, the government's intervention has in effect let the Financial Services Authority off the hook.

It was draconian new regulations introduced by the FSA, following the 2008/9 banking and sub-prime mortgage crises that led to the tightening.

Until then some lenders were lending as much as 125 per cent of the value of homes, a 100 per cent mortgage and 25 per cent loan to furnish the property.  It was a silly policy which had to end in tears.

The simpler and more appropriate policy would have been to compel the FSA to change its policy, forcing banks and building societies to be more prudent with their lending.

But, Chancellor George Osborne, in a moment of sheer theatricality, opted to hand first time home buyers a low-interest loan of on average 30 per cent of the property in a new shared equity scheme, targeted at up to 10000 families.

But there is a greater significance here. The wealth of the vast majority of Britons is tied up in their property.

By denying a generation of young people the opportunity to access homeownership at a reasonable age is to in effect rob them of their inheritance. This is a real political issue and one that the government or the opposition parties cannot ignore.

Although in many ways this will be a popular initiative, given that banks and building societies had virtually frozen out young people hoping to make the first step on the homeownership ladder, in pure business terms it is a capitulation to the bad regulation which hampers lending.

Government is not in the business of lending money to homebuyers, nor should it be. That is the function of the mortgage lenders, in the main building societies and banks, but increasingly third-party lenders such as builders.

Otherwise, the fiscally neutral Budget was rather interesting. The changes to the basic state pensions are a recognition of the hardship many pensioners have to endure.

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