George Osborne’s pledge to help first-time buyers through a new “Help-to-buy” ISA is a “dubious policy” that could push up house prices, a think-tank has warned.
The Chancellor used his Budget to announce that for every £200 saved towards a deposit for a first home, the Government will give a bonus of £50.
However, the Institute for Fiscal Studies (IFS) warned that the policy could add further “distortions” to a market that was already suffering from severe supply constraints.
The Government already runs various Help to Buy schemes, which help people onto and up the property ladder, but this is the first to be linked to an individual savings account or ISA.
The Treasury estimated that around 285,000 first-time buyers will use the scheme every year.
Under the new plans, first-time buyers can save up to £200 a month towards their home and the Government will boost their savings by a further 25pc.
| Region | Average FTB Deposit | Average FTB Income | Deposit as a % of income | Max £15k ISA as a % of current deposit (ie incl govt £3k) | Max £3k Government Contribution as a % of deposit |
|---|---|---|---|---|---|
| Northern Ireland | £14,567 | £27,900 | 52% | 103% | 21% |
| Northern SSR | £16,359 | £31,102 | 53% | 92% | 18% |
| Yorkshire and Humberside SSR | £17,470 | £31,468 | 56% | 86% | 17% |
| Wales | £17,646 | £31,144 | 57% | 85% | 17% |
| North West SSR | £18,000 | £32,124 | 56% | 83% | 17% |
| East Midlands SSR | £18,721 | £32,459 | 58% | 80% | 16% |
| West Midlands SSR | £19,810 | £32,963 | 60% | 76% | 15% |
| Scotland | £20,075 | £32,607 | 62% | 75% | 15% |
| East Anglia SSR | £26,204 | £36,038 | 73% | 57% | 11% |
| South West SSR | £30,022 | £36,860 | 81% | 50% | 10% |
| South East SSR | £32,057 | £43,973 | 73% | 47% | 9% |
| Greater London SSR | £69,630 | £55,539 | 125% | 22% | 4% |
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.
“A lot of benefit in the policy will go to those who would have done that saving anyway,” said Stuart Adam, an economist at the IFS.
“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 [of £50 a month] are those who have the money anyway or have wealthy parents."
Mr Adam also criticised 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.”