British home loan programme for first-timers fails to deliver

British Prime Minister David Cameron introduced an expanded version of the Help to Buy home-loan programme a year ago, saying it would boost ownership among young people. It is not working.

First-time home purchases made with a mortgage rose 1 per cent in October from a year earlier as property values increased faster than earnings, LSL Property Services said. Prices in Britain's 20 largest cities climbed 9.2 per cent during that period.

"It's the wrong policy for the problems that are present in the housing market," said Rob Wood, the chief economist at Berenberg Bank. "The main problem is a shortage of supply, yet Help to Buy is intended to boost demand."

Purchases by first-time buyers have fallen since August after price increases made homes less affordable and banks tightened lending criteria to avert a repeat of Britain's 2008 housing crash. Homebuyers are now paying five times their annual earnings for a first home, up from 4.6 times when the mortgage guarantees were introduced in the fourth quarter of last year.

Help to Buy provides guarantees that allow people to buy a home costing as much as £600,000 (HK$7.3 million) with a down payment of as little as 5 per cent.

The first phase, interest-free loans for buyers of newly built homes, began in April. It was extended in October to include existing homes and a mortgage guarantee for lenders.

"There are thousands of people in our country who work hard, who want to own their own home, but because of the problems in the banking system, they haven't been able to get a mortgage," Cameron said in November last year.