Ahead of its manifesto launch today (June 11), the Conservative Party has pledged to introduce a new help-to-buy equity loan scheme if it wins the upcoming general election.
Speaking in a BBC interview, Conservative leader Rishi Sunak, said the proposals were similar to the help-to-buy equity loan which was in place in England, in one form or another, between 2013 and 2023.
IFS senior research economist, David Sturrock, pointed out that, so far, we only have partial information about what features the Conservative party’s planned scheme would have.
This includes equity loans being available to first-time buyers worth up to 20 per cent of the property’s value, buyers being able to purchase with a 5 per cent deposit, and the loans being interest free for the first five years.
Sturrock said: “A new help-to-buy equity loan scheme could help potential homebuyers to get onto the housing ladder by reducing the deposit they require in the short-term.
“The Conservatives’ proposed scheme would not only expand access to credit but also be a subsidy to the housing market because the equity loan is initially interest-free.”
However, while he acknowledged the government may end up making a profit on the scheme if house prices rise, he pointed out that experience from past schemes suggests some of the subsidy will be captured by developers in the form of higher prices and profits.
“Any new scheme should seek to learn lessons from the past,” he added.
He also pointed out the policy appears to differ from previous schemes which, since 2016, allowed loans of up to 40 per cent of the property value for new-builds in London.
But he said if the scheme is reintroduced at this 20 per cent level in all regions, it would be expected to have less of an impact in London than the previous schemes.
Additionally, Sturrock said the Conservative's proposal does not specify how the interest rate would be set after the five-year interest-free period.
Sturrock added that this kind of scheme could help potential first-time buyers get onto the housing ladder by reducing the size of the deposit they require.
Such a scheme may also help make mortgage repayments more affordable in the short-term because no interest or repayment of the equity loan is required initially.
However, he cautioned that buyers would need to be comfortable with beginning to make interest payments after five years or planning to remortgage or repay the equity loan at that point.
tom.dunstan@ft.com
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