By Ilona Billington
LONDON--U.K. Chancellor of the Exchequer George Osborne on
Wednesday announced additional measures to boost house building and
mortgage lending, underlining the importance of the construction
sector and housing market to the sustainable health of the U.K.
economy.
A healthy housing and mortgage market typically helps boost
consumer confidence and spending, while a booming construction
sector provides jobs and investment. Those are things that the U.K.
economy dearly needs to emerge from an extended period of fragility
and enter a convincing and longer-term recovery.
The chancellor's "Help to Buy" program will offer two new
avenues of support to home-buyers. One is an equity loan scheme
where the government will lend up to 20% of the value of a
new-build home that a borrower wants to buy, meaning Britons could
purchase a new-build home with a deposit of as little as 5% of the
total value of the property.
The other part of the plan is a mortgage guarantee, which will
provide an additional guarantee to lenders willing to grant a
mortgage to a home-buyer with a small deposit for either a newly
built home or an existing property.
The Treasury will make 12 billion pounds ($18.12 billion) of
guarantees available to lenders, equivalent to GBP130 billion of
new mortgage lending.
This latest initiative from the Treasury to help breathe life
into the U.K.'s stagnant housing market and construction sector,
while sticking to austerity, shows the government's keenness to
employ fresh ideas to boost the ailing economy, which is at risk of
entering its third recession in five years.
"The announcement of Help to Buy which will help mitigate the
risk of those lending low-deposit mortgages shows a positive
re-focus on promoting home ownership," said Paul Smee, director
general of the Council of Mortgage Lenders. "The benefits will not
be immediate, and we need to look at the detail of implementation,
but this could have a significant impact in the medium term."
Mr. Osborne also said the Treasury and Bank of England are
considering extending the Funding for Lending scheme "that will
boost lending still further." The FLS rewards banks that increase
their lending to home-buyers and small businesses with access to
cheaper funding.
The existing NewBuy and FirstBuy schemes, which offer deposits
and guarantees to home builders and first-time home-buyers, are
also set to continue.
It is uncertain, however, how many potential home-owners Help to
Buy will actually help. Planning rules continue to limit the number
of building proposals that are granted permission, especially in
the south of England, the region that requires the biggest boost in
homes because it is where most new jobs and investment are.
"An ongoing commitment to the Funding for Lending scheme and the
announcement of the Help to Buy scheme are welcomed, but in London
and the highly restricted residential areas in the south-east, an
increase in funding in the absence of new supply can only result in
price rises well ahead of earnings," said Sue Foxley, head of
research at U.K. estate agency and property consultancy
Cluttons.
"The local planning politics in the Home Counties in particular
that are holding back residential development must be addressed,"
she added, referring to the counties encircling London.
U.K. builders, however, were buoyed by the news. House-builder
Barratt Developments PLC (BDEV.LN) stormed to the top of the FTSE
250 index, rising 5.3%. Shares of Persimmon PLC (PSN.LN), Redrow
PLC (RDW.LN), Bellway PLC (BWY.LN) and Taylor Wimpey PLC (TW.LN)
also rose.
--Andrea Tryphonides contributed to this article.
Write to Ilona Billington at ilona.billington@dowjones.com