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".

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.

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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.

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.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.