Labour to funnel Help to Buy ISA savings into £5bn housing fund

Ed Miliband has announced that a Labour government would earmark money from the new Help to Buy ISAs for a fund that would channel up to £5bn into housebuilding over the next parliament

The Labour party announced on Friday night that the "Future Homes Fund" would enable the construction of 25,000 homes a year over the next five years.

George Osborne used his last Budget of the parliament to announce an individual savings account (ISA) to encourage people to buy new homes. The Tory chancellor's initiative will give first-time buyers a 25 per cent deposit subsidy - equivalent to an extra £50 for every £200 they save.

With maximum monthly deposits of £200 it will take savers nearly five years to build up £15,000 - a 10 per cent deposit on an average British home.

The subsidy was criticised by economists and housing experts, who said it could simply stoke demand for homes without addressing the problem of the lack of supply. Many called for a big increase in housebuilding instead.

Labour hopes that its new policy will solve that problem by diverting the ISA savings into housebuilding.

Mr Miliband was set to announce the manifesto commitment - claiming that the Future Homes Fund could build 125,000 homes over the course of the next parliament - at a party rally in Warrington.

The party has a commitment to increase construction levels to 200,000 homes a year by 2020.

Home ownership has fallen to its lowest level in 30 years amid a corresponding increase in homes for rent. Meanwhile, housebuilding is close to record lows despite numerous attempts by the coalition and the last Labour government to encourage more construction.

Labour appeared to have made its announcement in a hurry, calling the new policy both "Future Homes Fund" and "Future Homes Investment Fund."

On its press release the party also mistakenly called the new ISA the "First Time Buyer ISA" rather than by its correct name, "Help to Buy ISA".

Labour's Treasury team also appeared to be unaware of the details of the policy - initiated by Mr Miliband's advisers - on Friday night.

Mr Osborne said the Labour policy was "badly thought through".

The party said that money saved in Help to Buy Isas would be "put to work" by investing it in housebuilding in new "Housing Growth Areas" where local first-time buyers would get priority.

"The new investment fund will not require any additional borrowing or spending because it will be financed by the new First Time Buyer ISA announced in last month's Budget," it said.

"Savers will still be guaranteed the same return on their investment and be able to withdraw their money at any time."

The policy is likely to raise questions about how investors will be able to withdraw their money if it is tied up in property projects.

But a Labour aide said: "It is a £5bn pool which people will pay into and take out. There will be enough liquidity for them to do so at any point."

Mr Miliband said the state would underwrite every pound of these ISA investments by extending existing government guarantees on all money in the Future Homes Fund.

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