New housing support scheme will help a limited number onto the housing ladder, but addressing its design flaws could end up with significant costs to the exchequer

Commenting on the Government’s plans to provide further support to prospective homeowners on low-incomes by extending their entitlement to benefits, Lindsay Judge, Research Director at the Resolution Foundation, said:

“The Prime Minister has identified an anomaly within our benefits system, where renters are treated significantly more generously than homeowners on identical incomes. 5.4 million renters receive help with housing costs compared to fewer than 15,000 mortgagors. This is hard to defend in principle.

“His proposal is to partially address this by allowing first-time buyers on benefits to keep receiving help with housing costs after they become an owner. This will be significant in cash terms for some – a typical renter on Housing Benefit currently receives £112 per week in housing support.

“However, the number of people affected is likely to be small given that the deposit is the main barrier to home ownership. More than four-in-five families on means-tested benefits have no savings at all and high cost of living pressures means a second change that allows benefit recipients to save into certain savings accounts without seeing their benefits cut is unlikely to lead to a surge in savings. In reality, those most likely to benefit will be receiving support from elsewhere – be that via Right to Buy or financial support from family members.

“In those cases where people are able to overcome the deposit barrier, today’s announcement could be significant, but there are huge design challenges to overcome too. Only providing this preferential treatment to first time buyers, rather than all owners, will create a strong disincentive for someone who has bought a house with this support to earn more and flow off Universal Credit.

“If that design flaw, or the inevitable legal challenges to it, sees the policy eventually extended to all mortgagors it will be very expensive. One-in-six families on means-tested benefits have a mortgage, and could potentially be eligible for significant extra benefit support. Higher spending, rather than the much called for tax cuts, would be the result.”