When Help-to-Buy Will Become Just "Help!"

The Coalition make a free gift to Labour

We learn with some incredulity that house prices rose in London by 10%, up £50,484 to an average of £544,232, in October; according to a Rightmove survey. No such boom exists outside the M25 however where the real economy remains much more muted. These ridiculous ramps within London aren’t a good thing, especially for the buyers, no matter how much politicians herald a new coming of economic prosperity. Unfortunately, it’s more likely a mendacious electioneering Jedi Mind Trick which will have consequences.... it always does.

On a national level, accelerating house prices in London are unhelpful lest they influence the Bank of England’s interest rate decision making. Mr Carney of course could introduce special measures for separate lending criteria within the London conurbation from the rest of the country. There is no reason why this should not be done and there will be some head scratching going on in the Carney inner circle. Citizens in the North West, North East or South West should hardly pay the price for the London market taking off like an unguided missile.

The Cameron and Osborne Help-To-Buy scheme which offers buyers interest free loans for 20% of the house price and a government guarantee to lenders of 15% will not correct in their words, “a mortgage market failure.” It will make it much, much worse.

It won’t surprise many readers to learn that UK houses have never been more expensive relative to average earnings. They have yet to revert to the long term average and were last at these stretched levels just before the crisis. So, where on earth does the logic come from that suggests encouraging young singles, many of whom are weighed down by student debt, and young married couples is a good thing?

The whole housing lift off appears anyway, contrived. Lloyds Bank (or rather its major shareholder, the Government), which in practice is a geared play on UK housing, benefited from positive housing headlines when £3.21bn shares were sold in an offering in September at 75p. Moreover, as another in a series of blatant electioneering bribes it appears too convenient and obvious by half. If the clowns in the coalition think the population is going to be cheered as they’re reading their new fuel estimates for the winter by the fact that a four bedroom house in Fulham went up by two hundred  grand in September then they are very much mistaken.

 

 "don't call me Stupid.."

Some, if not many buyers will be helped by their parents. For the most wealthy section of society to exploit an opportunity is not unlawful nor is it immoral but it hardly helps those at the bottom of the pile or even half way up the ladder. Lighting a fire under house price inflation is unwise because the rise in house prices simply makes them more unaffordable, not less. The screaming lunacy about this racket is that Cameron himself said, “"The current system only allows people to buy homes if they have rich parents and that “is simply not fair“. (Why do I keep thinking of “don’t call me stupid,” Otto in A Fish Called Wanda.” 

no, it's not clever to buy houses when interest rates are at multi century lows 

Moreover, the resultant lift in interest rates will bury the already struggling consumer. It’s not smart or clever to borrow huge sums of money when interest rates are below the lowest level for 320 years. To encourage them to do so is just stupid and irresponsible.

Incidentally, one might also ask if anyone has considered which direction prices will go when the subsidy is pulled. Great choice here, higher interest rates or negative equity. Sounds like a great plan.

There is only one way to help affordability and that is to increase supply, especially at the young marrieds / first time buyer end of the market. The government’s role here is in long term planning and infrastructure; something that Neville Chamberlain understood as chancellor in the 1930’s. If the Coalition was serious about wealth creation it would avoid quick illusory fixes, the implications of which they barely understand, and they would focus on economic growth and that means tax cuts. If they want to be creative for the young, they can do something about the penal rates of travel in the UK which force individuals to spend considerable amounts of their income on getting to and from their place of work.