24-04-2013

New Report Predicts The Market To Return To Pre-Crash Levels

A new Ernst & Young ITEM Club report claims that more than 1m transactions will take place by the end of the year, representing the most activity since 2007 when there were nearly 1.8m. In 2008, the market dipped to a low of around 900,000. After staying roughly flat this year, house prices will also start to rise, up by 2.1pc in 2014, before rises of 5pc and 6pc over the following two years.

The pick-up in the housing market will support the wider recovery, picking up some of the slack as exports fail to drive growth, the report argues.

That should help the UK stay in expansion mode, with growth of 0.6pc this year rising to 1.9pc in the next and to 2.5pc in 2015, it predicts.

Peter Spencer, ITEM’S chief economic adviser, said: “With export markets continuing to disappoint, the Chancellor has focused his firepower on the home front. Although it’s not a long-term strategy, stimulating the housing market and the high street will keep GDP growth positive.”

Measures in the Budget included an expansion of state-backed mortgage guarantee and shared equity schemes.

With positive predictions for the market the Treasury has been left struggling to answer questions about George Osborne's attempt to help homebuyers. He’s what we think.

What is the Help to Buy scheme?

Help to Buy will take two forms: one part offers buyers an interest-free loan from the government; the other involves the government providing a guarantee to underpin a borrower's mortgage.

Both will be available for homes worth up to £600,000 and there will be no restriction on how much applicants need to earn in order to qualify.

How will the loan scheme work?

The interest-free loan is offered from 1 April 2013 and is limited to people who want to buy a new-build property. It is similar to the existing First Buy scheme, but this time it is available to existing homeowners as well as first-time buyers.

Borrowers will need to raise a deposit of 5% of the value of the property they want to buy, but can borrow a further 20% on an interest-free basis from the government. The biggest loan available will be £120,000.

The state-backed loan must be repaid when the property is sold. It can be repaid earlier, but only if the mortgage is paid off at the same time.

After five years it will attract an interest fee of 1.75%, which will rise annually by the RPI rate of inflation plus 1%.

The Treasury says the £3.5bn scheme will help up to 74,000 buyers. Anyone who is interested in using it needs to contact a participating housebuilder or HomeBuy, which oversees affordable housing schemes.

How will the guarantee scheme work?

This part of the scheme, which will be available from January 2014, will help you buy either a new or existing property. Again, you will need to raise a deposit of at least 5% but no more than 20% (if you have a bigger deposit, you should have a good choice of mortgages anyway).

The government will provide the lender with a guarantee for up to 15% of your loan, allowing it to offer a mortgage even though you have a small deposit. More details will be announced later in the year.

Has the government done enough to iron out confusion?

No. The mortgage guarantee scheme remains unclear. As well as not knowing who will qualify, we don't know how much lenders will be charged to use it.

A lack of clarity might be expected of a policy that does not come into place until next year and has not been through a consultation process.

However, the Treasury does seem to have been caught out by some of the questions raised by its own document outlining the scheme.

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