Budget 2013: Row over 'second home subsidy'
A row has erupted over whether a Budget initiative aimed at helping people get on the housing ladder could be used to fund the purchase of second homes.
Under the scheme, due to start next January, loans for those putting down 5% deposits would be guaranteed.
Labour said there was nothing to stop people using it to buy second homes.
The Treasury says this is not the point of the scheme but parents may be allowed to buy homes for their children when it is finalised.
The Help to Buy scheme was one of the most eye-catching initiatives in Wednesday's Budget, but Labour has said the policy is beset by confusion amid questions about who might benefit.
The aim of the policy, which will be available for homes up to £600,000 from January 2014, is to breathe new life into the housing market, which has been hit by banks demanding bigger deposits from homebuyers.
The final details have yet to be worked out but it could facilitate £130bn of home loans over three years.
The day after the Budget is traditionally the day when politicians, journalists and think tanks have a proper, detailed look through the Chancellor's Red Book, which sets out the details of his proposals.
This time a year ago was when we saw the beginnings of what critics would later call the "omnishambles," with all the talk of the pasty tax, the caravan tax, the church steeple tax and the charities tax.
There is no sign of that kind of unravelling this year, at least yet.
Ministers have struggled to clearly and consistently explain how their idea for boosting the housing market would work.
But there are arguably three bigger questions about the plan.
Should the government be in the business of getting so directly involved in the housing market?
Could this plan artificially inflate the housing market and provoke a boom, which critics say contributed to the global economic crisis in the first place?
And, most importantly of all, will it work?
Treasury sources initially stressed to the BBC that it was not designed for second homes but they would not be specifically excluded.
As the government sought to clarify the situation, Housing Minister Mark Prisk denied suggestions by Labour shadow chancellor Ed Balls that the Help to Buy scheme was potentially a second-home "subsidy".
The minister told the BBC applicants would have to "divest" their existing properties if they were to qualify for help.
But No 10 later had to clarify its position.
A Downing Street spokesman said Mr Prisk had been referring to another part of the Help to Buy scheme, called the "equity loan scheme".
This starts on 1 April 2013 and will help people who want to buy a new-build property in England only, unlike the mortgage guarantee scheme, which will be UK-wide.
No 10 insisted the government's overall approach was "clear and coherent" and designed to overcome obstacles in the mortgage market that were stopping people from getting finance and reducing the number of new homes being built.
"I don't think the government makes any apology for recognising the desire that a good number of families have to enter the housing market," said the prime minister's official spokesman.
The BBC's chief political correspondent, Norman Smith, said Treasury officials were trying to work out a definition of the rules surrounding eligibility for the mortgage guarantee scheme that allowed parents to buy a home for their children but not to buy a holiday home.
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There is also concern that the scheme could fuel another unsustainable house price boom, making properties less affordable for young people.
Conservative MP Kwarsi Kwarteng said the shortage of mortgages for first-time buyers was a social problem that the government was right to address.
But he added: "My worry with this is that having a system where you are giving mortgages without increasing the supply will lead to asset price inflation, because obviously if the amount of supply remains the same and you are making credit easier, the tendency would be for the prices to go up.
"I think we could have announced something bolder that actually increased the supply of homes."
BBC business editor Robert Peston said the new scheme was "ambitious" but came with risks as "growth sparked by a housing-linked consumer boom might not be altogether healthy" for the economy.
Mr Osborne hit back at fears of house price inflation, saying the Bank of England would be able "to turn off the tap" on the finance after three years if the market was over-heating.
HELP TO BUY - MORTGAGE GUARANTEE
- Loans of up to 95% of the value of a property will effectively be underwritten by the government
- Borrowers will have to put down a deposit of between 5% and 20% to qualify
- Help will be available to first-time buyers and homeowners wanting to trade up
- It will apply UK-wide and there are no income-restrictions on eligibility
- It will apply to house sales of less than £600,000
- It will run for three years from January 2014
- It will support £130bn worth of mortgages and help an estimated 644,000 people
- The government has not yet said what it will charge lenders to use the guarantee
He said the scheme was needed as the mortgage market was "not functioning properly".
"The intention of the scheme is absolutely clear - it is for people who want to get their first home or have a home and want to move to a bigger home because perhaps they have got a bigger family," he told BBC Radio 4's Today programme.
The Institute for Fiscal Studies warned that people may put off purchases until the scheme starts, thereby skewing the market, and borrowers might be more willing to default if their loans were underwritten.
"There may be a good rationale for this policy but there are certainly risks attached to it," the think tank said.
The Council of Mortgage Lenders has said the scheme must be attractive to borrowers, viable for lenders and not overly complex.
Although the benefits would not be immediate, the trade body said it should enable lenders "to offer more low-deposit loans than they would otherwise be able to do" without worrying financial markets and regulators.
The Help-to-Buy scheme was one of a number of initiatives announced in Wednesday's Budget - in which growth forecasts for 2013 were halved to 0.6% and the Office for Budget Responsibility suggested the government's efforts to cut the deficit - the difference between money spent and earned in a year - have stalled and it will remain stuck at about £120bn for three years.