Is the government really helping first-time-buyers?

2 September 2008

There are some things that really get me shouting at my telly – Big Brother is the most regular one at the moment, but this morning it was the government’s plans to rescue our ailing housing market that really got me spluttering into my cornflakes.

Part of the government’s grand plan is HomeBuy Direct – a scheme that will offer first-time-buyers five year interest free loans worth up to 30% of the value of the property. With the average property in London still costing in the region of £300k, that sounds like it could make a big difference for many buyers.

However, as I have now come to expect with initiatives like these, there is a catch and in this case it’s a pretty big one. These sizeable loans will only be available to those buyers who are prepared to buy certain new build properties.

First- time- buyers are essentially the life-blood of the housing market. When first-time- buyers disappear the whole chain collapses as those homeowners further up the property struggle to sell up and move on. As a result we need initiatives that will encourage them to re-enter the market. However – this is not the way to do it.

While HomeBuy Direct will help first-timers buy homes, they’ll be buying new, empty homes, not one of the many lived in properties that are currently sitting on estate agents’ books. If the housing market is going to recover – it’s these homes that need to find buyers.

It’s clear that the government isn’t really thinking about the needs of the public in general, it’s thinking about the needs of house builders – whose shares have plummeted – and hitting its target for new homes.

For many first time buyers new build homes don’t really represent a good deal. Like news cars you pay a premium for them and run the risk of depreciation when you come to sell. So should the government really be encouraging people to buy this type of property with 100% loans in a falling market? It doesn’t make sense to me…

Rachel Lacey is the editor of Moneywise