The Firstbuy Direct scheme announced in the Budget has come under fire in Parliament.
Intended to help first-time buyers get on the property ladder, economists told the Treasury Select Committee that it would actually make things worse.
Jonathan Portes, director of the National Institute of Economic and Social Research (NIESR), said that Firstbuy Direct was a measure that would “exacerbate economic distortions and make things worse over the long run”.
He said: “House prices in the UK are too high and that has all kinds of damaging economic and social impacts. The main financial impact of giving help to first-time buyers is to pump extra money into the demand side and boost house prices.
“That’s the last thing future first-time buyers or the economy as a whole needs.”
Roger Bootle, managing director of Capital Economics, also gave evidence to the committee.
Asked by the chairman Andrew Tyrie what housing measures he would have introduced, Bootle replied: “I certainly would not have done this scheme to boost the position of first-time buyers.
“This is simply increasing demand and in the process doing nothing at all to ease the housing shortage in this country.
“There might well have been more aggressive moves that could have been made on the planning system.
“This is a supply problem. If we want to ease the shortage of houses, we’ve got to make sure more houses are built.”
Agents have also criticised the measure. Eric Walker, of Bushells in London, said it was like putting a sticking plaster on a broken leg, whilst David Newnes of LSL warned that the scheme was a ‘fig leaf’ to cover the real problem of economic uncertainty.
He also said that new-build houses were more expensive than secondhand ones, and were therefore not necessarily the best option for first-time buyers.
* The shares of housebuilder Barratt Developments rose strongly yesterday – up almost 7% and fuelling criticism that the Firstbuy Direct scheme is a ‘Barratt bonanza’.
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Comments
Mr Perfect,
I think the odd crash in the banking sector is a good thing.
Look at it like a barney with your Mrs, it all builds up, you have a big fallout, no one dies or anything but it clears the air, you have a ‘make up’ game of hide the sausage and all is well – yes you fall out again but the bits in the middle make up for it
Just don’t push your luck too far in between rows, make sure they are repairable and don’t have them too often.
My next round verbal fisty cuffs with Mrs Jonnie is due about the end of half term, I predict the next banking crash to be about 2017................but then i might not fall out with my Mrs after 2 weeks at home with her and the kids so im not sure.
Jonnie
This wont work.
Simple, having the government fiddle with a free market is normally doomed / doesn’t help the people it’s supposed too.
Lets leave the market to find its own level, this story has even got old Brit 1234 all in a twist, one minute she / he is all prices crashing and below he / she (Brit, let us know if you’re a bird or a bloke) is stating below that the price of FTB Rabbit hutches is going to stay high for years.
The builders will do okay, some buyers will do okay, agents handling new developments will do okay but there will be losers, especially if Brit is right and it hold prices up……………………or should this be a runner? Even im confused now
Jonnie
"And the end of the day, as a saver and tax payer i'd rather the banks took as few risks as possible with any more Of my money!"
Well said, I'm with swep on this point, the last thing we need now is to have to bail out any banks again. Sensible lending please and that's from someone who wants to buy a house in the next 6/12 months
Thanks PeeBee.
I agree that the market, running on supply and demand are pushing all these prices up. But there is at least some consideration (with or without success) at a governmental level to keep food and fuel prices down. On the other hand, policies for housing seems to encourage a rising market.
Rhys Davies: "We go to a lot of effort to keep food and oil available and affordable"
SORRY?? Have you been to a supermarket recently? To a petrol station? Do you pay household bills?
Look. We are a growing race. We are using the planet's resources FAR quicker than they can naturally replenish.
Housing stocks also cannot cope with demand. Unless, of course, you want to live in the worst of locations, as shown in a story today where in most regions of England you can pick up a property on the average burger flipper's salary.
Therefore, housing will continue to follow the laws of supply and demand, and rise in those areas where there is strong demand; stagnate or even fall where there is little or none.
The same laws that dictate the price of your spuds, bread or diesel.
People need food, homes and oil and we need them cheaply to keep everyone of us that votes happy. We go to a lot of effort to keep food and oil available and affordable but why are governments (many governments) happy for house prices to rise and rise?
Brit1234: Okay - I'm obviously in a thick mood, as I simply cannot understand what the h3ll you are banging on about! Please enlighten me, based on the following:
You said "I have the 25% deposit I have the fees and I also have more money for furniture. What I haven't got is houses or flats in my range despite a good paid job."
HOW haven't you got houses or flats in your range? WHERE in the UK (general guide only...) do you live and plan to buy at some stage?
WHAT IS "your range"?
How much deposit DO you have?
It is vital in order to discuss this further that you quote actual figures.
(I was going to suggest 'massaging the figures' by a constant %age in order not to divulge too much, however that would defeat the very object of what I am trying to ascertain here...)
In a later response, you stated: "...my deposit may actually be greater than 25% but far off 40%"
WHY do you then bring 40% into play?
I know you don't want my (or anyone else's...) help, and just want to sit and wait for property market Armageddon - but at least we can debate your personal situation, surely? ;0)
I will avoid this Firstbuy scam and just buy when property is cheaper. Prices are falling and I can't see that stopping.
It's a trap for first time buyers who will be trapped in their new build flat or small house for many years to come!
When it's time to sell, there will be no first time buyers to take it off them because it is no longer a new build and all the new first time buyers are out buying more new build properties direct off the builder.
Sure they got a roof over their head for a few years, but they will be in negative equity, as everyone knows that new builds are top money and once they are second hand (Like buying a new car), it will depreciate to the second hand stock prices. If no first time buyers are buying second hand stock because they are out buying new builds, the second hand stock market will collapse ever further, so they will lose out massively when they sell to the buy-to-let investors, the only people left buying second hand stock at rock bottom prices!
Ironic that the much hated buy-to-let investors turn out to be the saviours of the second hand stock housing market!
First time buyers tempted by a scheme that limits them to new build stock only, should stick their fingers up at the idea and stay in rented for a bit longer. It will be cheaper for them in the long run!
High arrangement fees and low interest rates are simply a gimmick- much like the 'teaser rates' in the us. The overall cost over the fixed period is the important figure.
You have to consider the fact that many banks could have gone bankrupt, due to previous lending practices, and in the last decade property prices have more than doubled on average in uk. 25% deposit does not seem to me an unreasonable amount to ensure that, in the event a borrower defaults on the mortgage, the bank gets it's money(and mine) back! And the end of the day, as a saver and tax payer i'd rather the banks took as few risks as possible with any more Of my money!
swep:
My 5% rate is obviously approximate. The lenders interest rate is there to take into account the risk
How is it that there are many mortgages at less than 5% but the PROBLEM is high 'arrangement fees' and the 25%+ deposit that is required? Is that not a NO risk at all situation, taking into consideration the stringent credit checks now required and the swings & roundabouts that all lenders risk?
RE Peebee "You do NOT have a 25% deposit. You have an amount of monbey towards a deposit, based upon a purchase price which does not equate to it being 25%. Think about it. If there are no properties in "your range", then they are more expensive - meaning that your deposit is LESS than 25%. So what. there are deals out there that offer higher LTV's than 75%. Take one of those instead."
No not true, my deposit may actually be greater than 25% but far off 40%. Like others I will be happy to cheaply rent while house prices fall and buy only when affordable.
"ray Evans
A reasonable borrowing rate of say 5% would be affordable to many. It is the deposit and fees, I stand by my opinion."
5% reasonable ? What do you think mortage lenders are, charities? With inflation likely to hit 5% soon, what do you consider a reasonable rate for my savings in the bank ?
Surely a reasonable rate should be at least 5%. The bank then needs to make a profit and price in risk. A reasonable interest rate therefore for the bank lending my money to a ftb should be inflation plus a few %.
Brit1234: "I have the 25% deposit I have the fees and I also have more money for furniture. What I haven't got is houses or flats in my range despite a good paid job."
Then you have NOTHING, based upon the above!
You do NOT have a 25% deposit. You have an amount of monbey towards a deposit, based upon a purchase price which does not equate to it being 25%. Think about it. If there are no properties in "your range", then they are more expensive - meaning that your deposit is LESS than 25%. So what. there are deals out there that offer higher LTV's than 75%. Take one of those instead.
You KNOW you want to.
Go on - we'll not tell any of your HPC/MSE chums. You can still pretend to be a wannabe homeowner to them... ;0)
RE Ray Evans "You say: ....but interest rates are at 0.5%.......So what?
A reasonable borrowing rate of say 5% would be affordable to many. It is the deposit and fees, I stand by my opinion."
Well I say its high house prices which are the problem.
I have the 25% deposit I have the fees and I also have more money for furniture. What I haven't got is houses or flats in my range despite a good paid job.
High house prices are the problem, high deposits are protection for the banks against price falls.
Brit1234:
You say: ....but interest rates are at 0.5%.......So what?
A reasonable borrowing rate of say 5% would be affordable to many. It is the deposit and fees, I stand by my opinion.
Maybe there's common ground here - and it's not Communist!
Market price is the sum being paid when supply and demand balance perfectly.
Hence very low mortgage transactions
Brit1234: "The main reason the property market is in the doldrums are that house prices are too high and there is no money to support these values."
SURELY, if there is, as you state, "no money", then price is IRRELEVANT?
You can't lend what you simply don't have.
ace: "But thats complete dreamland, anyone who thinks this will work clearly does not understand how a free market works"
Can I please invite you to the Peter Hendry Blog on this site? I and many others would be IMMENSELY interested in your views and comments - both personal AND PROFESSIONAL, kind Sir/Madam/Prefer-not-to-disclose!
RE Ray Evans - "Many, not all, first time buyers could afford the actual mortgage repayments if offered with a ten percent deposit, a ‘reasonable’ interest rate and without extortionate ‘arrangement fees’ .In my view the main reason that the property market is in the doldrums is the attitude of the mortgage providers. They used to operate on a ‘considered risk’ but now operate on a ‘negative risk’ basis. Whilst a twenty five percent plus deposit is required the market will stall. "
The mortgage lenders haven't got the money any more to lend how they did. Thus they choose the safest risks to lend what little money they have. You can't morally bash the banks for that.
The main reason the property market is in the doldrums are that house prices are too high and there is no money to support these values.
You may say that first time buyers can afford the mortgage repayments but interest rates are at 0.5%. They were slashed at 5% a low value but even then people had over borrowed and were having difficulty then.
We need lower house prices and higher interest rates for a healthy housing market. Without higher interest rates less people will be encouraged to save and there will be in return less money for banks to lend out in mortgages.
@A N OTHER AGENT
".........general public need to accept that all property prices need to drop a good 10-20%........,"
Vendors will not sell at a greatly reduced price if they have a mortgage that cannot be discharged (probably cannot afford to if they purchased during the last 5/10 years on a 25 year mortgage).
Builders will not build unless they can sell at a profit.
Many, not all, first time buyers could afford the actual mortgage repayments if offered with a ten percent deposit, a ‘reasonable’ interest rate and without extortionate ‘arrangement fees’ .In my view the main reason that the property market is in the doldrums is the attitude of the mortgage providers. They used to operate on a ‘considered risk’ but now operate on a ‘negative risk’ basis. Whilst a twenty five percent plus deposit is required the market will stall.
With my surveyors hat on getting surveys and fixing valuations before a house is put on the market sounds a brilliant idea. It would give me more power than I have ever had before!!!!
But thats complete dreamland, anyone who thinks this will work clearly does not understand how a free market works
A N Other Agent: "sometimes despite our best efforts the Seller/Vendor of the property instructs us at what price they want to market it at." I don't think so.. Your "best efforts" are to refuse the instruction. THEN let's see how the vendor fares in the scenario you paint.
"In order for the property market to flow again the general public need to accept that all property prices need to drop a good 10-20%,
Problem being mortgages used to offer 5 x incomes and has now dropped back to an average 3xincome, prices must drop too!"
"Some home owners are just greedy individuals not excepting it and setting the neighbourhood price."
"All properties coming on the market must have the HOME BUYERS REPORT.
The actual OFFICIAL VALUATION required by all MORTGAGE PROVIDERS up front before commence marketing!!
There will be no arguing over the PRICE!
NO SALES failures due to Surveys down Valuing.
Any structural issues would be dealt with before the sale.
Buyers would be confident they have a good price."
Are you related to a certain Mr Hendry, by miracle of chance? Or has he somehow influenced you to comment here?
I will avoid Firstbuy Direct like the plague. I'm sure there will be no shortage of fools wanting to jump in without thinking about the consequences.
Its going to get even harder for those selling non new build first time buyer properties. They are going to have to drop their prices more to get interest.
Who actually dictates the Property Market???
Estate Agents?
Speaking as an Agent I would say not, sometimes despite our best efforts the Seller/Vendor of the property instructs us at what price they want to market it at.
FACT, the Public dictate the housing market, how much they offer for a property and how much they sell a property for.....
Then we discover the outcome of the Homebuyers Report / Official Valuation!
In order for the property market to flow again the general public need to accept that all property prices need to drop a good 10-20%,
Problem being mortgages used to offer 5 x incomes and has now dropped back to an average 3xincome, prices must drop too!
But nobody likes the idea of losing money!
It needs to be explained that the property market is stock item, like stocks and shares, supply and demand, affordability.
They go up and everybody’s happy!
They go down and you accept it..
Some home owners are just greedy individuals not excepting it and setting the neighbourhood price.
Who moans about the second hand car prices decreasing year after year?????
So why should a property (second hand I might add) automatically go up in value?????
SOLUTION?
All properties coming on the market must have the HOME BUYERS REPORT.
The actual OFFICIAL VALUATION required by all MORTGAGE PROVIDERS up front before commence marketing!!
There will be no arguing over the PRICE!
NO SALES failures due to Surveys down Valuing.
Any structural issues would be dealt with before the sale.
Buyers would be confident they have a good price.
Nice read George; isn't it funny how it's always the public-owned lenders that seem to roll out these post-credit crunch schemes (a la Northern Crock and Lloyds)? It's almost as if the government has a vested interest in maintaining the status quo. Strange.
Even John Charcol (who are normally rather bullish on housing) are sceptical of the scheme.
Well said Ray, I fear that would have fallen on deaf ears. RR would be far better of in a communist country.
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8383167/First-time-buyers-offered-70000-deposits-by-local-councils.html
Well worth a read!
@Realising Reality
...........'control' over how much any one buyer may borrow.
If everyone were subject to the same controls, the market could decide which purchasers should buy which properties perfectly failry........
This is still (just) a free country and a free market. If you disagree that it should be so - emigrate!
Realising Reality (I see we are back to synomyms and multiple identities on the site, Sir...)
"...whereas it's a supply shortage that is causing excessive prices in the first place."
SORRY??
EVERY word on this site you have ever had the arrogance to post completely opposes the above.
WHAT SHORT SUPPLY?? You bang on and on about the myriad of properties that CANNOT and WILL NOT sell because AGENTS HAVE OVERVALUED THEM!
PROOF? YOUR OWN WORDS FROM "THE PETER HENDRY (one of your other 'personalities') BLOG" - EAT 11 March:
"Markets work depending on prices. The inescapable reason why the housing market is not and has not been trading at adequate levels of completed transactions is because the prices currently being quoted are too high."
MAKE YOUR MIND UP, "REALISING REALITY"!!!!!
Looks like overvalued new build rabbit hutches will retain their high asking prices a few years longer.
I advise FTBs to avoid this scheme and new builds and buy a better quality second hand property if priced afford-ably.
The scheme is only for new builds. New builds are not involved in any chains.
Therefore a potential 10,000 more FTB's will be removed from the bottom of housing chains. Say an average of 5 houses per chain thats up to 50,000 homes not able to proceed this year. There are less than 60,000 houses sold per month currently.
Along with relaxed planning rules, this is also an incentive for developers to increase housing supply at the bottom end.
Either the policy makers know this and are helping the market to deflate, or are ignorant to the effects of this policy.
Who's going to buy my house if FTB's are all being bribed to buy new build?
I agree, this will do absolutely nothing for existing homeowners and could depress the market for second hand homes considerably.
The builders will be very exited by this because it will help them clear their cheap stock. But for every first-time buyer who is conned by this scheme, there will be a number of other potential sellers further up chains who will not be able to move.
I am generally a fan of Mr Schapps but his credibililty has gone downhill as far as I am concerned
Comments on newspaper websites re this subject were equally despairing. One vendor expressed frustration that the FTB she was looking for would now be more tempted by the new-builds down the road and she would have to lower her price accordingly to compete.
I agree. FTB schemes only increase demand, whereas it's a supply shortage that is causing excessive prices in the first place.
Instead of freeing up banks and building societies to lend more to fewer people, there should be 'control' over how much any one buyer may borrow.
If everyone were subject to the same controls, the market could decide which purchasers should buy which properties perfectly failry.
Not providing intelligent tuning at such a moment, flies in the face of prudence and smacks of short-termism.
What is being put into place instead, is effectively, just another 'Political' fix.
Modern-day economists generally accept that markets like the UK housing market are inherently UNstable. So, by their very nature, such markets need intelligent tuning, if they are to avoid experiencing repeated collapses in prices which are extremely painful for those caught up in them.
The likely effect of such a lack of intelligent tuning will be the eventual result of a shortage of available loan finance. The cost of finance, i.e. interest rates, will then have to go up; as a result.
All I can say to those borrowing excessively in the up-coming economic climate, even if there are small price reductions and interest-free terms, is: - do so at your own peril!
The best thing the government can do to help first time buyers is absolutely nothing. All this scheme does is too stop developers dropping prices and keep them artificially high.
Lets leave the market to rebalance itself. As house prices continue to fall to more affordable levels demand will pick up.
Anyone who jumps on this scheme will be in negative equity in a year also.
"It seems Grant Shapps FTB summit has favoured only those who were invited to attend."
Exactly George, if I recall, none of the lenders were invited (nor FTBs for that matter).
Doooooh! Of course it will make things worse; it pulls FTB's off the bottom of property chain sales. Some good for the participating builders who will simply delay taking their full profit out of the starter properties they construct. In effect 10 -15% of their normal profits are going to be put on deposit until the property re-sells. It’s a pity these numpties haven't realised that 2nd and 3rd purchase new build will not be helped by this. I suppose the relaxation of planning laws will mean the builders can whack up thousands of 30 to the acre terraces of starter homes.
What I can't understand has been little media coverage of the Local Authority scheme backed by Lloyds Bank to do exactly the same thing, 20% deposit top up for any first time purchase. That has to be a better option for the market.
It seems Grant Shapps FTB summit has favoured only those who were invited to attend.
Absolutely would be the short answer. As the final paragraph alludes to, this will only benefit the builders as it only applies to new builds. This is a quote from yesterday's Guardian:
"It's main purpose appears to be to help bail out the house building sector – which is suffering from buying too much expensive land at the peak of the boom."
Besides which, the scheme is largely an irrelevance as it's only estimated (at best) to 'help' 10,000 FTBs over two years. A cynical vote-winner is what it is which again fails to grasp the fundamental problem.