May 22, 2013 7:53 pm

IMF adds to growing criticism of ‘Help to Buy’ mortgage scheme

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The International Monetary Fund on Wednesday criticised the government’s “Help to Buy” scheme, adding a powerful voice to the growing chorus of concern that the ambitious mortgage plan could do more harm than good.

The IMF is worried that “Help to Buy”, which involves government equity loans for newly built houses and government mortgage guarantees for people with small deposits, will boost demand for housing without necessarily boosting supply.

Though the government’s stated intention is to “make the aspiration of home ownership a reality for as many households as possible”, the actual effect could be to inflate house prices and put home ownership even further out of reach for renters, the IMF said.

The UK’s official fiscal watchdog and the Treasury select committee of MPs have raised similar concerns about the scheme. Sir Mervyn King, outgoing governor of the Bank of England, used a valedictory television interview last week to express his own disquiet about the plan.

But, unlike its fellow critics, the IMF also proposed a possible solution to the government on Thursday: “fiscal disincentives” for holding land without development.

The Fund thinks that by making land more expensive to hold without developing it, the government could encourage more building. Housebuilding is at its lowest level in 30 years, with just 98,280 registered starts in 2012, down 11 per cent on the previous year.

The Local Government Association said 400,000 homes had been granted planning permission but had not actually been built. London, in particular, has a wealth of land that has received planning permission but has not yet been developed.

But Stewart Baseley, executive chairman of the Home Builders Federation, was quick to say that the IMF’s proposal would not work.

“At a time when government is looking to increase supply, the suggestion of a tax on land is flawed,” he said. “Generally when developers are holding permissioned land it is because the site is not viable or they are unable to secure development finance, so taxing it would make it even less likely to be developed.”

The HBF also pointed to an investigation by the Office for Fair Trading that said there was no evidence of unnecessary “land banking”.

However, not all housebuilders were as dismissive. Mark Clare, chief executive of Barratt, one of the biggest in the sector, said: “The IMF proposal is worthy of serious consideration to see whether land with planning could be brought forward more quickly for development.”

Only the smaller and less potent part of the “Help to Buy” scheme has been launched so far – the equity loans worth up to 20 per cent of the value of a newly built home. The more significant mortgage guarantee scheme, which will support up to £130bn of high loan-to-value mortgages, does not begin until next year.

Yet there are already some tentative indications that demand is starting to pick up. A poll by the Royal Institute of Chartered Surveyors last week showed inquiries from new buyers had climbed to the highest since 2009. Rics said the Help to Buy scheme had helped to lift sentiment.

As for supply, housebuilders say they are planning to build more as a result of the scheme, in spite of the IMF’s scepticism.

At Barratt, which has seen more than 9,000 expressions of interest from homebuyers since the scheme was launched, reservations are up 18 per cent on the same period since last year. The company said it was optimistic that this would push the number of homes completed this year up 20 per cent from two years ago.

Pete Redfern, chief executive of rival housebuilder Taylor Wimpey, said he was confident it would encourage developers to build “hundreds, if not thousands” more homes. “It enables us to build more homes on sites we have open and gives us more confidence overall,” he said.

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