Merryn's Blog

The government's FirstBuy scheme is a mis-selling scandal waiting to happen

The coalition's £250m scheme to help first time buyers get their own homes will leave a lot of miserable people stuck in negative equity for years.

The Observer ran an article at the weekend about the mis-selling of mortgages. Turns out, in the words of the Citizen's Advice Bureau (CAB), that, pre-2008, "we were seeing lots of evidence of irresponsible lending people being lent mortgages they could never properly afford and unsuitable lending with people being given products that weren't necessarily right for them and a lot of the problems were driven by intermediaries".

That means regardless of whether you think moral responsibility for this kind of thing rests with the lender or the borrower that "it was only a matter of time before the claims management industry started moving in".

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

And move in they have. Claims management firm Brunel Franklin has just launched a "consumer mis-selling scheme" for example: brief it to make a case against the man who sold you your mortgage, and it'll take a 30% cut of your compensation if they do so successfully.

Clearly, most of those who think they have been mis-sold a debt are better off making their own claims via the Financial Omsbudsman Service (0800 0 234 567), but the fact that claims management firms are getting into this business (BF is far from alone in giving it a go) should act as a warning to any outfits planning to mis-sell mortgages this year. Outfits such as the coalition government.

Advertisement - Article continues below

George Osborne's budget made much of a £250m scheme to help first time buyers to get their own homes. If they can stump up 5% of a deposit, the government, along with a housebuilder, will come up with the rest at very favourable interest rates. This is supposed to be good for first-time buyers.

But will it really be any good at all for those who take the bait? I can't see that it will be. All the signs are that house prices are going to keep falling from here you can see that in our house price indicators and there was further evidence in the Land Registry numbers out yesterday. Note that transaction levels are particularly pathetic.

So the most likely outcome of the FirstBuy scheme will be that just as with Labour's similar effort a few years ago the miserable few who take the bait will end up in negative equity (remember that while the interest rate might look good, they've still taken out a 95% loan) and hence stuck for years in houses they thought they bought as stepping stones. Fast forward five years and if I was one of the 10,000 who are supposed to be buying via the scheme, I'd be looking for BF's phone number and then for a way to bring a mis-selling case against Osborne.




How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
UK Economy

The coming crisis at the BBC

The BBC’s chief has quit ahead of what promises to be years of turmoil and conflict with a hostile government. Will the licence fee survive?
25 Jan 2020
UK Economy

The Boris Bounce might stop the Bank of England from cutting rates

The latest snapshot of UK economic activity has sparked a bout of inflationary talk, with both manufacturing and service sectors in ruder health than …
24 Jan 2020

Most Popular


Thousands of pensioners are set to lose £3,500 a year

Around 11,000 pensioners in receipt of the “adult dependants’ addition” will lose up to £70 a week from their state pension.
27 Jan 2020
Investment strategy

The coronavirus is scary – but it's irrelevant to your investments

The spread of the coronavirus is causing alarm around the world. And, while it could be a serious short-term threat to human health, it’s not somethin…
24 Jan 2020

How long before financial markets stop fearing the coronavirus?

Markets have tanked as fears about the coronavirus spread. Some sectors will certainly take a hit. But long-term investors shouldn't bee too worried, …
28 Jan 2020

Money Minute Tuesday 28 January: a busy day in the corporate calendar

In today's Money Minute, the corporate calendar is busy with trading updates from companies on both sides of the Atlantic, including AG Barr and Apple…
28 Jan 2020