Budget 2013: Housebuilders’ shares soar as Osborne promises billions

Wednesday, March 20th, 2013


The “Help to Buy” scheme, which follows in the footsteps of Margaret Thatcher’s “Right to Buy” programme, was lauded by builders which said the Chancellor had “turbo-charged” existing initiatives to stimulate the housing market.
The Government is proposing to provide enough guarantees to support £130bn of mortgages for families struggling to raise a deposit, and will commit a further £3.5bn to shared equity loans to buy new-build homes.
“Help to Buy is a dramatic intervention to get our housing market moving,” Mr Osborne said. “For newly built housing, government will put up a fifth of the cost, and for anyone who can afford a mortgage but can’t afford a big deposit, our mortgage guarantee will help you buy your own home.”
The proposals sent shares in Barratt Developments up 7pc, Taylor Wimpey 6pc higher, and Persimmon climbed 4pc as the market anticipated a boost to sales.
Pete Redfern, chief executive of Taylor Wimpey, said: “The measures announced are great news for those moving on to the housing ladder and for those moving up it, and will help homebuilders get Britain building. They will help current owners and add a welcome vibrancy to both the new and second hand market over the next three years.” However, the mortgage schemes represent a “significant risk” to the Government, analysts warned, with comparisons made to Fannie Mae and Freddie Mac in the US, bodies which had to be rescued in the run-up to the financial crisis after offering a similar programme. Fathom Consulting said the plans amounted to “sub-prime lending”. It added: “By calling it sub-prime, we are not making a moral value judgement. We are simply pointing out that this measure is aimed directly at making credit available to borrowers that the banks would not otherwise lend to in the absence of a significant down-payment. “Suffice to say that had we been asked to design a policy that would guarantee maximum damage to the UK’s long-term growth prospects and its fragile credit rating, this would be it.” Under the plans, a state-backed mortgage guarantee scheme, previously available only on new build homes, will be extended to any kind of home, old or new, Mr Osborne announced. The nation’s balance sheet will be used to back higher-loan-to-value mortgages, to help people buy homes who can afford a mortgage but not a large deposit. The Chancellor said he would offer £12bn of government guarantees, which would support £130bn of mortgage lending, under a three-year scheme to run from the start of 2014. While the revamped and expanded scheme will no longer be exclusive to housebuilders – which currently use it under the name NewBuy – they will benefit from the new set-up, as they will no longer have to guarantee part of the mortgage loan themselves. The other flagship move was to commit £3.5bn of capital spending over the next three years to shared equity loans to buy new build homes, ramping up the FirstBuy scheme. Previously, the scheme was only available to first-time buyers and families with incomes under £60,000 a year. It will soon be available to any buyer of a new build home, provided the property’s price is under £600,000. The loans will be interest free for the first five years and repaid when the home is sold. Mr Osborne told the Commons: “Because it’s a financial transaction, with the taxpayer making an investment and getting a return, it won’t hit our deficit.” Chintan Joshi, banking analyst at Nomura, said: “There has been a good amount of discussion about mortgage prisoners and interest-only mortgage holders who cannot refinance to cheaper rates as they cannot move banks. These schemes should be helpful for such mortgage holders.” By Emma Rowley, and Graham Ruddick.
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