Encourage the savings habit with a deposit scheme

The Government should immediately set up a national Home Deposit Savings Scheme offering substantial tax-free bonuses to help struggling first-time buyers get on the housing ladder, says David Pretty CBE, chairman of the New Homes Marketing Board.

He claims the move would help re-establish longer-term saving habits as well as improve liquidity in the mortgage markets.

Mr Pretty first raised the idea of a national deposit savings scheme for first-time buyers earlier this year. Chancellor Alistair Darling is widely reported to be considering such a scheme, but the New Homes Marketing Board believes the need is urgent and immediate.

Under Mr Pretty’s plan, savers would get up to five years to accumulate a maximum of £20,000, at which point they would receive a 25 per cent tax-free bonus or concession, pushing the maximum possible total to £25,000.

“This final amount would cover a typical 10 per cent deposit on a new home plus Stamp Duty, legal fees and removal costs” he said. “Such a scheme would not only be a great boost for beleaguered first-time buyers but would encourage and reward a return to old-fashioned saving habits – something we need now that the days of easy credit are gone.”

Mr Pretty said first-time buyers deserved special help because they are crucial to the housing market and wider economy, and are among the worst hit by the credit crunch.

Encourage the savings habit with a deposit scheme

“Irrespective of their income, first-time buyers now generally cannot buy without a substantial deposit and, unless they are lucky enough to have parents who are in a position to help them, or have some significant savings already, most will find it a real struggle to raise the now-required minimum 10 per cent, especially if they are already renting.

“A national Home Deposit Savings Scheme exclusively for first-time buyers would actively encourage them to avoid overstretching themselves and to think about planning early for their deposit. It would get them to start making regular monthly payments with the prospect of a maximum £5,000 bonus at the end - an amount which could make all the difference” he said.

Mr Pretty’s suggested nationwide savings scheme would only be for qualifying first-time buyers and would therefore only be able to be used once. It would require subscribers to make regular savings each and every month for a minimum of two years and a maximum of five years.

When savers reach their target, the 25 per cent tax-free bonus would be triggered by the accredited start of a first-time property purchase. The scheme would only be applicable to property for owner-occupation, not those for investment.

Mr Pretty added: “A national savings plan like this, properly formulated and regulated, could easily be initiated by Government and run through building societies and banks. It would not be expensive to the exchequer, as it targets only a relatively small but vital sector of the housing market. It would also help rebuild liquidity for mortgage lenders.

“There are various ways the precise details could work. The key thing, however, is the principle of setting up a national vehicle which encourages early and regular savings and rewards that renewed saving habit. There are no quick or easy solutions to the current housing malaise but a savings plan like this should be part of the normal landscape of the future.”