The Chancellor announces a £50 government bonus for every £200 saved in a new ISA for first-time buyers, but housing charities say the money would have been better spent building homes.
In his budget speech to MPs, Chancellor George Osborne said he was bringing in the new help to buy ISA “to tackle two of the biggest challenges facing first time buyers: the low interest rates when you build up your savings and the high deposits required by the banks.”
The new account, which will be available through banks and building societies from Autumn 2015, will give savers a 25 per cent bonus, equivalent to £50 bonus for every £200 they save.
Mr Osborne told would-be home owners: “We will work hand-in-hand to help you buy your first home”.
However critics warned the policy did not tackle the main problem with housing in the UK: the shortage of supply.
The ISA was welcomed by the Home Builders Federation, which said “allowing people to achieve their ambition of home ownership more quickly will assist and maintain demand for new homes and, in turn, allow builders to increase build rates.”
However David Orr, chief executive of the National Housing Federation, said the policy was jsut a “short-term initiative”, In a statement Mr Orr said: “The help to buy ISA will help people scrape together deposits but if fails to address the root cause of unaffordability – the chronic undersupply of homes, which has driven up prices.
“It also does very little for those languishing on social housing waiting lists, in temporary accomodation and the homeless – who are the victims of the undersupply of affordable housing.”
Housing charity Shelter echoed that sentiment, describing the policy as “a sticking plaster over a gaping wound”.
Siobhan Kennedy - doing the maths on the ISA giveaway
If there was one rabbit out of the hat today it was George Osborne's Help to Buy ISA.
A surprise for some but on another level it was no surprise to see the government turning to its old friend the housing market to try and bring some cheer.
And to be fair it did bring some cheer to those 20 something's we spoke to. The idea that the government will turn your monthly savings of £200 in to £250 is certainly loads better than any interest rate product that's for sure.
But the question is, who can afford the £200 a month in the first place?
Let's assume the majority of young people can (which they can't) - it will still take you four and a half years to raise the £15,000 required for the 10 per cent deposit needed for the average-priced house in Britain.
So do the maths. You can only afford to save half of that - a more realistic figure? - and it will take twice as long.
Of course there's a good chance that by then £15,000 won't cut it as a deposit because house prices will have continued to rise.
Certainly £15,000 wouldn't be enough if you were wanting to buy anywhere in London or the south east today, let alone in four or five years' time.
But it might make a difference to those buying in the Midlands, the north or Scotland - which is obviously to be welcomed.
And then there's the unknown influence the government's new pension freedoms will have on the housing market.
Some argue that handing pensioners and those about to retire a lump sum will simply encourage them to invest in buy-to-lets which will in turn reduce the housing stock available to others, push up prices further and make it even harder for young people to get a foot on the ladder.
Shelter’s Chief Executive Campbell Robb said “only measures that actually build more homes will make a material difference to all those priced out and struggling with sky high housing costs.
“Put in black and white, the money spent on this scheme could build almost 65,000 affordable homes.”
The Intergenerational Foundation said in a statement: “The help to buy ISA is little more than electioneering and the much bigger problem of under-occupation by wealthy older people, high house prices and lack of building remains.
“We need far more radical policies to get homes used in the right way by the right people at the right time of life.”