How affordable is this interest free loan?

The net income after tax and NI of our first time buyer will be just over £41,000; mortgage repayments will be circa £1,000 per month.

The main problem becomes how to meet normal living expenses and repay the £65,000 scheme loan. If he wants to repay the £65,000 at the end of the five year interest free period, he will have to find an additional £13,000 per year. This means that a total of £25,000 out of his £41,000 disposable income will be going to pay for his home.

With council tax and other living costs it seems highly improbable that this will be achievable for many people.

How therefore is the £65,000 going to be repaid? The only information we have from the Government is that if the loan is not repaid at the end of 5 years it will attract an interest charge (rate yet to be confirmed). There is no indication whatsoever of how much longer the loan will be allowed to remain in force if it cannot be repaid.

Is the Government therefore in danger of merely deferring the problem for first time buyers for five years?

One could be forgiven for thinking that the Government is banking on the housing market recovering to the point where, in five years time, borrowers under the scheme will be able to go to 'normal' sources of mortgage finance to repay the loan. But is that not the same mistake banks have made in the past in lending heavily in a rising market?

It is vital that the Government announces clearly and unequivocally what the position will be in five years time for those borrowers who are not able to repay loans made under the scheme. Will they, fore example, be prepared for the loan to continue in the long-term, or alternatively to take an equity stake in the property on a "shared ownership" basis?

What about the couple earning £30,000 each. They will also be within the scheme. Their joint net income after tax and NI will be circa £45,000 per year. An improvement on £41,000, for the single person, still not enough to allow that £65,000 loan to be repaid at the end of 5 years.

Also what happens in these circumstances if they have children and one of them has to give up work or work part time - resulting in less money available?

Surely the long term solution must be sensible lending policies that take account of all eventualities and do not rely upon a housing market continuing to rise in value at the same rate that has been enjoyed in recent years.

There is one very important thing that the Government can do to help matters and that is to ensure that local councils are more moderate in the demands they place upon developers seeking planning permission for new housing sites. A significant contributory factor to higher price increases in recent years is the increasing Section 106 agreement demands that developers are forced to accept.

Under Section 106 agreements developers can be called upon to contribute to social housing, educational facilities, recreation facilities and infrastructure costs (such as roads and roundabouts).

In the past developers have not objected to reasonable demands in this area, but in recent times local councils have increasingly seen new developments as a major source of funds for them to meet, not only legitimate costs associated with the development, but also the cost of other amenities for the local population generally.

The Government now needs to recognise that these costs have to be recovered from somewhere and that means either from the developer's profits and / or increased house prices.

In the current market, developers have to reduce prices not increase them, and are making very little profit (if any); if there is no curtailment of local authority demands, sites will simply not be developed, ultimately further aggravating the housing shortage.

Has the time not now come for the Government to intervene with local authorities to ensure that their actions are not making the problem worse?