Government’s ‘Your First Home’ scheme offers 2.5% deposit but industry flags risks

The useful part

It could allow them to purchase a new-build home with a deposit of just 2.5%. Under Your First Home, buyers will combine the deposit with a government-backed equity loan. However, the scheme will only apply to new-build homes sold by participating developers.

How it works

• 'Private sector needs to be firing' Lucian Cook, head of residential research at Savills, said the government needs a stronger private housebuilding market.
• "Without some kind of intervention, it risked permanently losing capacity in the housebuilding sector." Cook also argued that current market conditions could work in the government's favour.
• However, he said local property price caps would prove particularly important in London.
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• However, the announcement has already raised questions.

What to take from it

"Will it hold its value, or could buyers find themselves unable to move onto the next rung because it's worth less than they bought it for?" Demand versus supply The Centre for Policy Studies (CPS) was more critical of the policy. He said: "There is a risk, however, that boosting the buying power of first time buyers and channelling it into just one part of the housing market could artificially inflate prices." Houghton pointed to research conducted by reallymoving in 2019. The chancellor is expected to confirm the full details at next month's Budget.

Example or evidence

• At the same time, the government wants to stimulate demand for new homes and support housebuilding.
• Critics fear another demand-side intervention could push up new-build prices.
• That scheme also used government equity loans to support new-build purchases.
• It found first-time buyers using Help to Buy paid 10.3% more for new-build properties than those buying new homes without the scheme.

Details worth keeping

The loan could cover up to 20% of the property's value. The government announced the initiative on Saturday. The government says the equity loan will initially be interest-free.

Related coverage

• Stuff: Who will benefit most? Is it cheaper to go with the low-deposit scheme? Could it raise house prices? We ask the experts.
• Dailymail: The share of new mortgages where the deposit was lower than 10% of the property's value rose this year, as buyers struggle to get on the housing ladder.
• Rnz: National wants to lift the income cap on the First Home Loan scheme to $300,000 combined if it wins re-election.