Coalition steps in to prop up housing market

By politics.co.uk staff

Ministers are promising their new housing scheme will allow 100,000 people to get on the property ladder to buy their 'dream home'.

The NewBuy initiative launched today makes it possible to buy a property with a deposit of just five per cent of its total value.

Instead of having to save £40,000 only £10,000 will be required. Three high street lenders – Barclays, Nationwide and NatWest – are supporting the mortgage indemnity scheme. Halifax and Santander are expected to join in the next few months.

"It's no good hoping people will climb the property ladder if the bottom rung is missing," David Cameron, launching NewBuy later, is expected to say.

"Affordable properties and available mortgages are vital. So we're working with leading house builders and lenders to get the scheme underway.

"It's a vital boost to the housing market, giving people good affordable new homes and backing thousands of jobs in construction in the process."

An estimated 50,000 construction workers will have their jobs propped up by the scheme as it stimulates demand for newly-built homes.

But critics have labelled the plan a ruse to help the construction industry and an attempt to postpone a drop in house prices. Dominik Lipnicki, of Your Mortgage Decisions, told the Telegraph newspaper the scheme was a "gimmick" which would not help sell old properties.

Shadow housing minister Jack Dromey said the number of major lenders participating had fallen from seven to three, and the number of construction firms from 25 to seven.

"Reports have also suggested that few, if any, mortgage products will be available straight away and that the interest rates might not be attractive to would-be buyers," he added.

"It would be absolutely wrong for the government to raise the expectations of families and young couples only for them to find little choice and that they're unaffordable."

The Council of Mortgage Lenders' director-general Paul Smee said it was important that only "creditworthy" borrowers would benefit.

"Borrowers need to understand the implications of high loan-to-value borrowing, so we will be supporting the initiative with clear consumer information to help people decide whether NewBuy borrowing is an attractive option for them," he said.

The launch comes on the same day as the extension of the right-to-buy discount for social housing tenants.

Under the scheme tenants who have been in a council house over five years receive a 35% discount, with an additional one per cent for each added year up to a maximum of £75,000.