George Osborne's Help to Buy ISA is a "dubious" policy which is likely to drive up house prices and could even result in fewer sales to first-time buyers over the next five years, a respected economic thinktank has warned.
Under the scheme, announced by the Chancellor in Wednesday's Budget, first-time buyers will be rewarded for saving up to £12,000 in one of the new savings accounts with a government contribution of up to £3,000 towards a deposit on their first home.
Mr Osborne said his aim was to help young people struggling to afford a deposit on homes worth up to £450,000 in London or £250,000 outside the capital. The scheme will be available for four years, starting this autumn, and is expected to cost around £800 million by the end of the decade.
But Institute for Fiscal Studies' senior research economist Stuart Adam said that those who would find it easiest to take up the offer were people already able to afford a deposit, either from their own savings or the "bank of mum and dad", who will be able to drip their money into an HTB ISA in order to claim the "generous" government subsidy.
"It is possible that we might actually see fewer first-time buyers between now and 2020, as people delay in order to be able to have that four and a half years to pay money in and get the maximum top-up," said Mr Adam.
When HTB ISA beneficiaries were finally able to use the money on offer, this was likely to inflate prices, he said. "Increased demand will bid up house prices, and to the extent that housing supply can't respond to that, there's no way that overall housing affordability can be increased by this policy. That doesn't mean that first-time buyers can't gain, but gain among first-time buyers will be offset by it being more difficult for those who already own a home to buy somewhere more expensive."
Mr Adam added: "This is a rather dubious policy, intended to help first-time buyers which is more than likely to have the effect of inflating housing prices."
The policy was generous, but was likely to benefit mainly those already able to afford a deposit, he suggested.
"This is a generous offer if you are in that position of being able to pay in the full £12,000 over four and a half years, the government top-up would be equivalent to an annual interest rate on your contributions of 20%, over and above any interest rate you might actually receive on the account itself," said Mr Adam.
"A lot of the benefit of the policy will go to people who would have done that saving anyway. There will be some people who will be persuaded to save more as a result of the top-up. There will also be some people who find that they need to save less.
"Certainly those who find it easiest to qualify for the maximum top-up are going to be those who have the £12,000 of savings anyway or have wealthy parents and will be able to drip it in to the ISA."
Campbell Robb, chief executive of housing charity Shelter, said: "We need to double the number of homes built a year to solve our housing shortage, and this is yet another example of Government attempting to put a sticking plaster over a gaping wound.
"Only measures that actually build more homes will make a material difference to all those priced out and struggling with sky-high housing costs. Put in black and white, the money spent on this scheme could build almost 65,000 affordable homes.
"It's time for politicians to stop with the smoke-screens and get to grips with the root of the problem. We won't rest until we see a comprehensive plan that will get to the core of our broken housing market and finally deliver the homes we need."
A Treasury spokesman said: "A key part of the Government's long-term economic plan is helping hard-working people across the country to achieve their dream of buying a new home.
"That's why we created Help to Buy, which has helped over 80,000 people across the country to do just that, most of whom are first-time buyers. And it's why we're creating a brand new Help to Buy ISA, which will provide a bonus of up to £3,000 on total savings of £12,000 to contribute towards a first home.
"We estimate that up to 1.2 million hard-working people could take advantage of the Help to Buy ISA to achieve their home-owning dream.
"And as the independent Office for Budget Responsibility (OBR) has said, the Help to Buy ISA could lead to a change in the current composition of house purchases 'towards first-time buyers'. The OBR also expect the effect on house prices to be 'negligible', which is why
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