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The Chancellor’s £1bn Budget Plan to Rescue the Housing Market

Alistair Darling has unveiled a £1bn emergency boost to the housing market in the 2009 budget.  The money will be earmarked for building more council homes, extending the stamp duty holiday until the end of the year and to kick-start building projects that have been mothballed.  The chancellor has made the housing market a priority despite the poor state of the government’s finances.  The lion’s share of this cash (£600m) will go towards stimulating housing development.  Stalled developments and affordable housing (including HomeBuy Direct) will get £400m of this figure with £100m earmarked for local authorities to deliver new social housing.

Some of the money will go towards helping homeowners who have been recently made unemployed and are struggling to pay their mortgage.  The Income Support for Mortgage Interest (ISMI) allows homeowners that are looking for new jobs to claim this benefit to pay the interest on their mortgages.  The government has extended the higher level of ISMI support for a further 6 months.  Up until January 2009, the maximum claim was for the interest on loans of £100,000 but that has been extended to £200,000.

Around £80m of the funding will be injected into the HomeBuy Direct scheme, the government’s shared equity mortgage incentive.  The scheme is designed to help first time-buyers into affordable home ownership and the cash boost will also help participating builders.  The Royal Institute of Chartered Surveyors (RICS) were quick to back the extension of this scheme stating that it was a good way of helping buyers who are struggling to secure a home loan in the current restrictive mortgage market.

For homeowners who do not qualify for ISMI, i.e. those not on benefits, a new scheme has just been launched.  The Homeowners Mortgage Support (HMS) scheme has been designed to help eligible homeowners who have suffered a temporary loss of income by cutting mortgage interest payments for up to two years.  Theoretically, this will give homeowners a breathing space to find a new job without the stress of potentially losing their home.  Critics of the scheme say that this measure is too little too late, as 28,000 people have already lost their homes because of delays in implementation since the scheme was first announced in December 2008.

Another scheme being extended is the Mortgage Rescue Scheme.  The government has announced a £20m fund to enable local authorities to offer ‘small’ loans to families at risk of eviction or repossession.  Although, like many other local government initiatives, you must fulfil a myriad of criteria; in this case that includes having a household income of less than £60,000 per year and the value of your home not exceeding a certain level that is set for each region.

Fionnuala Earley, chief economist at Nationwide Building Society summarised the budget’s cash injection by stating: “The extra funding should, in theory, increase the availability of housing options.  However, previous experience has shown the administrative challenges of managing such initiatives means we should be cautious about expecting these measures to have an immediate impact.”