Government's new housing policy 'can help wealthy buy second homes'

George Osborne is shown around a housing development in South London the day after delivering his budget. Photograph: Reuters
The government's new housing policy has been condemned as a "spare home subsidy" by critics, who raise concerns that the mortgage guarantee can be used by wealthy people to buy second homes.

The public guarantee for £130bn of mortgage lending was part of the centrepiece Help to Buy scheme announced on Wednesday as part of George Osborne's "aspiration" budget. On Thursday the opposition made the scheme the centrepiece of its attacks on the package of measures, with the shadow chancellor, Ed Balls, contrasting it with a separate policy to withdraw some housing benefit from families in social housing considered to have surplus rooms.

"From what I can see, the government is basically saying that if you've got a spare room in a social home, you will be paying a bedroom tax," said Balls. "But if you want a spare home and you can afford it, we'll help you buy one."

During a day of confusion, Osborne at first appeared to concede that he could not be sure the mortgage guarantees would not be abused to buy second homes, though he insisted that was not the intention.

Later, the business secretary, Vince Cable, tried to reassure MPs that a consultation had begun: "I am quite sure these imagined horrors are not going to materialise."

At lunchtime, the housing minister Mark Prisk appeared to rubbish Labour's claim, saying that to qualify for the Help to Buy scheme, buyers would have to sign a legal declaration that they were selling their existing home.

On Thursday afternoon the Treasury confirmed that the legal declaration only applied to the other part of the Help to Buy scheme, under which buyers can get interest-free loans for up to 20% of the value of a new-build home worth up to £600,000.

Instead the Treasury said that the consultation with lenders on the details of the mortgage guarantee scheme would be used to find a way to stop buyers using government help to buy second homes.

The difficulty of doing this was highlighted by legal experts, who warned that the government's expressed desire to make the scheme so simple that it would not bar parents or grandparents from helping younger family members get on or move up the housing ladder could raise many pitfalls.

"They are trying to say there are 'good' versions of buying a second home, and 'bad' versions. If you are buying a holiday home in Norfolk, that's a bad version. If you're helping your grandchildren, it's a good version," said Giles Peaker, a housing and public law lawyer at Anthony Gold solicitors. "The harder the differentiations get, the more loopholes open up."

The outline of Help to Buy released by the Treasury says only that to be eligible for the guarantee, a mortgage must:

• Be a residential mortgage and not buy-to-let.

• Be taken out by an individual or individuals rather than a company.

• Be for a property in the UK with a purchase value of £600,000 or less.

• Have a loan-to-value ratio of between 80% and 95%.

• Be a repayment mortgage and not interest-only.

There was also criticism that the scheme could push up what many believe are already overvalued house prices – one of the key reasons given for banks demanding the deposits of 20%-30%, which the chancellor said he wanted to help home buyers to afford.

The normally loyal Conservative backbencher Kwasi Kwarteng, while he generally welcomed the budget, said: "My worry 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."

Prisk dismissed this also, insisting that the budget also contained measures to encourage more housebuilding, including plans for 150,000 affordable homes and an increase in funds for developers building properties to rent.

Duncan Stott, spokesman for the campaign group PricedOut, said: "Help to Buy is bad enough on its own, but to open it up to second homebuyers would really rub salt in the wounds of Generation Rent. The only thing that will genuinely help first-time buyers is for house prices to fall back to an affordable level. Pumping government debt into the housing market will just push house prices further out of reach."