ISA – pyramid scheme that could push up house prices, warns Institute for Fiscal Studies

(Last Updated On: June 17, 2015)

George Osborn’s new budget announcement pledges to help first time buyers through a new ‘help-to-buy’ ISA. But in the long term, the market is unsustainable and is a “dubious policy” that could push up house prices, a think-tank has warned.

The Chancellor announced during his Budget – that for every £200 saved towards a deposit for a first home – the Government will give another £50.

The Government already runs various ‘help-to-buy’ schemes, which help people onto the property ladder. This is the first to be linked to an individual savings account.

The scheme will become available this autumn through banks and building societies, with no minimum monthly deposit. The Treasury already estimates that around 285,000 first-time buyers will use the scheme every year. Someone trying to save a 10pc deposit on a new £150,000 home would only have to save £12,000, although this would take five years.

The Government would then contribute £3,000 more, taking the total deposit to £15,000. Free money! Who doesn’t want that? “A lot of benefit in the policy will go the those who would have done that saving anyway,” said Stuart Adam, an economist at the IFS, adding “There will be some people who will be persuaded to save more as a result of the policy, but certainly those who will find it easiest to qualify for the maximum top-up (£50 a month) are those who have the money anyway, or have wealth parents.”

Mr. Adam also went on to criticize the Government’s “sclerotic” system of planning reforms. “Ultimately, what will make housing more affordable is building more houses. If policymakers are genuinely worried about housing affordability, then they need to focus more on that. They have been making more noises on planning and reforms, but it is very sclerotic, and on top of that the government itself isn’t building houses in a way that social housing was built in decades past.”

Think of it as a pyramid-selling scheme – housing markets need a constant stream of hopefully property owners coming in, in order to keep delivering big returns at the top. No new buyers = no more sellers. No more sellers = no pressing reason to buy property.

Your Move and Reeds Rains estate agent’s direct Adrian Gill said “It is all well and good getting first-time buyer finances in shape, but it will amount to hollow words if there are no properties available for them to buy, and if competition continue to push house prices higher and higher. Helping homeowners requires both sides of the conundrum to be tackled.”

Alex Gosling, chief executive at online estate agents HouseSimple, commented that the biggest challenge facing first-time buyers is rising property prices.

He said: “If house prices rise at the rates that some have predicted over the next few years, young people simply won’t be able to save fast enough to keep up and the government’s Isa offer will be worthless if house prices are so far out of reach it’s not even worth saving for a deposit.”

There are those who argue that the government should be building more houses, rather than fuelling demand for something in limited supply and watching prices rise accordingly.

Written by: The Team | On: March 20, 2015

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