Budget: George Osborne Defends Economic Plans

George Osborne has defended his flagship Budget plan to boost the housing market, amid warnings it is already "unravelling" and risks pushing up prices.

The Chancellor put a "Help-to-Buy" scheme and mortgage guarantees at the heart of his financial statement in the hope they will kick-start an economic recovery.

People without a large deposit will have loans underwritten by the state, with interest-free loans also available for new-build properties.

The scheme will be open to those with as little as a 5% deposit and worth up to 20% of the value of a property costing up to £600,000.

George Osborne visiting a housing development on Thursday

Amid fears the moves could spark a new debt-fuelled boom, Mr Osborne was forced to deny they will encourage people to buy homes they cannot afford.

Speaking on Sky News, he insisted: "It doesn't mean a return to five or six years ago when you had those big 125% Northern Rock mortgages.

"It is just saying to people if you can get together a decent deposit, we are going to help you buy a home. People are being robbed of that at the moment because of the problems in our financial markets."

Amid confusion about the limits of the scheme, shadow chancellor Ed Balls claimed it could help the rich buy a subsidised second home worth up to £600,000.

He asked: "Surely people struggling to get a mortgage and those who want to own their first home must be the priority for help, not the small number who can afford to buy a second one?

"We will only tackle the housing crisis and help first time buyers if we finally build the new affordable homes we have said should be at the heart of any proper plan for jobs and growth."

Earlier on Sky News, he warned: "The devil is in the detail."

George Osborne and Ed Balls bumping into each other in Millbank

Housing minister Mark Prisk later clarified people would have to sell their existing home before taking part and that buy-to-let mortgages would be excluded.

"You would first have to divest your existing property prior to being able to proceed with any Help to Buy sale. This is about family homes. It is not about second homes," he said.

But there was fresh confusion about how this would work in practice because people would not usually be able to sell their existing home before starting to buy a new property.

Meanwhile, Tory MP Kwasi Kwarteng expressed concern that flooding the mortgage market would increase house prices because there would still be little stock.

"Obviously if the amount of supply remains the same and you are making credit easier, the tendency would be for the prices to go up," he said.

Former Bank of England economist Erik Britton, of Fathom Consulting, said: "I think it's nuts. I think it's the opposite of the right solution.

"What I fear will happen is that house prices will go up from an already overvalued position and households will take on even more debt from a position where they are vastly over-extended already.

Mr Osborne with a couple who bought their flat via shared equity

"We will be back on the addiction to cheap credit which was the whole problem that pushed us into the crisis that we are already in."

New figures showing public borrowing fell to £2.8bn in February - the lowest for the month since 2008 - provided a chink of light for Mr Osborne.

And during a string of interviews to defend his Budget, he insisted Britain's problems "could be a lot worse" - pointing to Cyprus.

On Sky News, he claimed his drastic austerity measures had the public's support despite the recovery taking far longer than expected.

"I think the British public understand there is not a simple or easy answer to our country's problems but just the painstaking work of putting right what went wrong," he said.

However, research for consumer group Which? carried out immediately after the Budget showed 59% want the Government to rethink its economic plan.

Alongside the radical mortgage plans, Mr Osborne also cut the price of beer and cancelled a fuel duty hike in a bid to ease the cost-of-living.

He moved to boost small businesses by creating a new employment allowance which will save employers £2,000 on their National Insurance bills.

And plans to raise the income tax threshold have been brought forward to 2014, meaning earnings up to £10,000 will be tax-free.

But those announcements could not disguise the dismal economic figures and forecasts that showed the austerity era will last a decade.

Official growth forecasts for this year have been cut in half to 0.6% because the recovery is so weak, and next year's figure has also been downgraded.

The independent watchdog the Office for Budget Responsibility (OBR) also warned that the decline in borrowing seen in the first years of the coalition "no appears to have stalled".

Public borrowing predictions for every year to 2017/18 have been revised upwards, putting the total £55.7bn higher than it was just three months ago.

The OBR expects Britain to narrowly escape an unprecedented triple-dip recession, predicting a small increase in GDP in the first quarter of this year.

But debt is not set to fall as share of national income until two years after Mr Osborne's original 2014 target.

It is due to peak at 85.6% of GDP - equal to a massive £1.58tn - in 2016/17 - an increase of 6.4% on previous forecasts.

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