George Osborne has used his Budget to try to drive Britain’s recovery through tax cuts for companies, support for the housing market and more aggressive monetary policy.
He announced “Help to Buy”, a large scheme to underpin the housing market, with new government-backed loans for mortgage deposits worth up to 20% of the value of a newly built home to “anyone looking to move up the housing ladder”.
Homes costing over £600,000 will not qualify. He also promised up to £12bn of government guarantees sufficient to support £130bn of mortgages, for borrowers with low deposits, to enable homebuyers to benefit from lower interest rates.
The scheme will run for three years from 2014. Analysts called the new “Help to Buy” scheme a game changer. Noble Francis, economics director at the Construction Products Association, said: “This should feed through to a major expansion of housebuilding over the next few years, especially in key areas of demand like London and the southeast where raising a deposit has been an issue.”
However, Ian Williams, analyst at Peel Hunt, questioned whether housebuilders would increase the number of homes built. “Every £1 on the selling price ‘of the home’ is £1 on ‘housebuilders’ pre-tax profit so there would be massive scope to increase profits simply by selling the same houses you were going to build and sell anyway,” he said.
Jeremy Raj, residential property partner at Wedlake Bell, agreed: “It will serve primarily to prop up house prices, rather than bringing them down.
The only sure way to achieve affordability is to calm the market down by creating more supply.” The Independent notes that the announcement was cautiously welcomed by lenders and estate agents.
Mark Clare, CEO of Barratt Developments, described the scheme as a “major boost for homebuyers and house-builders”. The Telegraph reports that the new mortgage guarantee scheme has been criticised by some financial experts, who said it amounted to “sub-prime lending” and concerns have been raised that it could create another housing bubble.
Meanwhile, Ross Clark in the Thunderer column in the Times says that the best that can be said about the new “Help to Buy” scheme is that it cuts out the middleman.
He adds that in a future housing market crash we won’t have to watch greed and reckless bankers being bailed out with our money as they sink beneath a burden of bad housing loans, we will be bearing the losses directly.
Mr Clark concludes that we will never have a healthy housing market until the Treasury lets prices fall to a level that buyers can afford without money from the taxpayer.
Ashworth, writing in the Times, believes that it may fall to Mark Carney, the new Governor of the BoE, to compel the banks to participate in the schemes.
Source: The Times, The Daily Telegraph, The Guardian
We say: It seems to us that there are currently two problems with the UK housing marking, and they are related.
The first is that there aren’t enough houses: the second is that (as a result of the first) they are too expensive.
Surely it doesn’t take a genius to work out that the only way to remedy a shortage of houses is…er… to build more houses?
Well, we suppose there is technically the alternative of exterminating some of the population to reduce demand but we’ve kind of discounted that as raising quite a number of difficult practical and electoral issues and even one or two moral ones.
Isn’t it likely that the principal effect of making more money available will be to keep house prices at their current level? That may be great news for property developers and property owners: but has the policy been thought through beyond the next election?