Budget 2015: Young first-time home buyers given a helping hand with Help to Buy Isa

Can you imagine paying £22,000 for a flat? It sounds like a joke now, but it was the average price of a first-time buyer’s home in Britain in 1984. It was less than three-times’ the average young man’s pay.

 

Now? A first-time buyer has to pay an average of £208,000 – that is 11-times the average wage. And in London, the price hit £393,000 in December, official statistics show.

 

Such a transformation in the ratio between salaries and house prices mean that young professionals, especially in the south east, are often forced to put off the a decision to enter the property market until they are well into middle age.

 

Housing is far more expensive now than it was then – it cost three-times a young man’s salary in 1984, and 11-times the man or woman’s now. Even for a couple, five-times larger than their combined salaries. And that is not even counting London’s far higher prices. Quite simply, it is much harder to get on the housing ladder now.

 

The chancellor knows this. George Osborne launched his Help-to-Buy schemes in 2013, taking some of the risk off banks to encourage them to lend to buyers with relatively small deposits. But prices kept on climbing, making it harder for savers to catch up.

 

So yesterday he offered first-time buyers a whopping subsidy. For every £200 they save, the government will throw in another £50. The maximum allowed under the scheme is a £3,000 giveaway – so savers who pile up £12,000 will see it topped up to £15,000.

 

“We do it to tackle two of the biggest challenges facing first time buyers – the low interest rates when you build up your savings, and the high deposits required by the banks,” Osborne said. “We’ll work hand-in-hand to help you buy your first home.”

 

An individual can put away a maximum of £200 per month, a move designed both to limit the Treasury’s costs and to make sure the richest cannot take the £3,000 subsidy instantly.

 

And the money is only actually given out at the time of the sale.

 

The scheme applies only to homes worth up to £250,000 in most of the country, and £450,000 in London.

 

The scheme came as a complete surprise yesterday and many in their twenties and thirties, yet to own their own home, rejoiced at the prospect of such an unexpected benefit.

 

But prices are so high, that will surely still be difficult to buy – if someone spends the next four-and-a-half years putting away £200 per month, they will hit £12,000 and roll up to the estate agent with a £15,000 deposit.

 

With a 95 per cent mortgage, they can buy a house worth £300,000 – that is £100,000 below the average first-time buyer property in London now, let alone by the time they have saved up.

 

This indicates the problem is not demand, but with housing supply.

 

Higher demand without a supply response means higher prices, and supply is slow to respond because red tape makes it hard to build houses.

 

As a result, this scheme could end up benefiting a few buyers but harming others whose dreams of buying a house will recede further into the distance.

 

“A 25 per cent top up for the average first-time home deposit is a fantastic incentive to start saving and seeing the tangible results,” said Paul Smith from estate agents Haart. 

 

“However, Osborne’s last budget before polling day lacked concrete commitment to increasing housing supply across the UK.”

 

Some analysts called for rapid and radical action.

 

“Throwing more money at the demand side will not solve the housing crisis – the country needs planning reform so that it is easier to build on Green Belt land,” said Sam Bowman from the Adam Smith Institute. “The only thing this policy will Help-to-Buy is the election.”

 

Osborne made a minor gesture towards construction yesterday, with a plan to allow an extra 34,000 homes on brownfield land across 20 UK sites.

 

While any building might help, this appears pitifully small in the face of the challenge.

 

The number of households grew by 1.7m between 2001 and 2011. But construction failed utterly to keep up.

 

In the boom years, building numbers rose above 170,000 per year. But for most years, building volumes barely bounce above the 120,000 level. If that does not change, prices will not fall.

 

“Once again the government is making a big mistake in its tunnel vision focus on homeownership, offering sub- par pledges that help a select few, rather than tackling the acute crisis of supply and affordability the UK housing market faces,” said Matt Hutchinson from flat sharing website SpareRoom.co.uk.

 

Given the government tried meaningful planning reform at the start of its tenure only to row back after fierce opposition, it seems unlikely ever to happen.