Blog: Do Shapps' plans for first-time buyers stand up?

While many of us prefer to ease ourselves gently into a new year, the same can't be said of Grant Shapps. The housing minister has been busy causing a stir, tackling the controversial topics of house prices and mortgage availability.

In an interview in the Observer he declared that the era of booming house prices is over. Homeowners should no longer view property as an investment that will see them through retirement, he argued, but as a roof over their head.

He has also arranged a meeting with Hector Sants, head of the FSA, to discuss the Mortgage Market Review (MMR) to ensure the regulator does not ‘shut the stable door' after the housing correction has already taken place.

But while Shapps is keen to make it easier for first-time buyers to get on the housing ladder, and ensure lenders don't batten down the hatches post-credit crunch, it is not clear whether he will be able to do much about either.

Shapps wants to use ‘government levers' to usher in ‘house-price stability' so that prices rise more slowly - and not as fast as earnings. He suggests prices rising by 2 per cent on an annual basis while wages rise by 4 per cent. But while this may make for a more ‘rational' market, it will be a long time before the majority enjoys a 4% pay rise.

While ensuring that first-time buyers aren't completely priced off the ladder sounds sensible, one wonders how achievable it is. What can a government do to control house prices? Shapps believes building more houses will keep price rises at reasonable levels but with the proposed changes to planning rules, is that going to happen? Won't those who have built substantial equity in their homes campaign against further house building in their localities?

And what of lending? Banks are failing first-time buyers. The wide availability of credit and high LTV lending pre-credit crunch pushed up prices. Lenders were happy to lend as much as 125 per cent of the property value when prices were soaring, as they would easily get their money back even if the borrower defaulted and the property was sold. But if Shapps has his way, and price growth is negligible in the future, that's even less of a reason for banks to lend.

Unless a borrower has at least a 10 per cent deposit - and considerably more to access the best rates - only those with significant assistance from their parents will be able to get a mortgage and buy their first home. This won't end the roller-coaster ride; it will just mean fewer people get a chance to have a go on it. And that certainly isn't fair.

By Melanie Bien, director of Private Finance