If there was one winner from the Budget, it seems to have been property.
Chancellor George Osborne has extended part of the ‘Help to Buy’ scheme all the way until 2020.
No wonder. He wants to be as sure as he can that the current property bubble (or recovery, depending on which part of the UK you’re in) lasts until the general election in May.
But I wouldn’t rush out to stick all your newly-freed pension money into buy-to-let.
You see, ‘Help to Buy’ comes in two parts, and the extension does not apply to the most aggressive part of the scheme.
On top of that, Osborne also announced a sting in the tail that could hit central London property hard…
Help to Buy – a scheme of two halves
It easy to forget that the Help to Buy scheme is divided into two parts.
Both allow a buyer to secure a mortgage with as little as a 5% deposit. But they operate in very different ways.
The first part targets only those who want to buy a new-build house. In this case the government gives them a 20% home equity loan, which is interest-free for the first five years.
Effectively, the government owns a chunk of your house. So if you sell up, or want to buy back the government’s stake, the price will reflect the value of the house at that point.
In other words, if you bought a house at £200,000 with a £40,000 loan from the government, and the price rose to £300,000, you would have to pay £60,000 to get full ownership.
We don’t think it’s a good idea for the government to be putting taxpayers’ money on the line in the housing market. But at least this only applies to new builds. And at least the taxpayer is exposed to the upside too.
In contrast, the second part of Help to Buy is much more dangerous.