Tag Archives: help to buy

I missed it yesterday, but have just caught up with Lib Dem chief secretary to the treasury Danny Alexander’s (rather flailing) attempts on BBC Radio 4’s Today Programme to justify the second stage of the Coalition’s ‘Help to Buy’ scheme for folk wanting to buy their own house. You can listen to it here or below.

There are two stages to ‘Help to Buy’. The first, announced by George Osborne earlier this year, offered anyone purchasing a newly built home costing less than £600,000 the opportunity to apply for a 20% government-guaranteed loan with just a 5% deposit. The Economist explains the rationale:

The basic economic thrust makes sense. Rental rates are high in Britain, meaning punishing payments to landlords. Given that a mortgage can be cheaper, wider home ownership could put more disposable cash in Britons’ wallets. In an economy where private consumption accounts for four-fifths of spending cutting housing costs in this way is likely to boost GDP. And since this part of Help to Buy is tied to building, it should work even if the new nests end up in the hands of buy-to-let landlords: a bigger housing stock should drive down rents, and provide jobs for the workers that build them.

The big problem comes with the second stage of ‘Help to Buy’, which breaks the explicit link with new-build housing. From this month, pre-owned property also qualifies. If widely taken up, it will stoke demand among eligible buyers but do nothing to increase supply: a recipe for house price inflation in many areas, especially London and the south-east. That will be good for the equity of home-owners like me, but rubbish for those not yet on the housing ladder who find themselves once again priced out of the market. Here’s The Economist again:

The prospect is unnerving, especially since the new part of the scheme may well distort banks’ incentives by driving a wedge between what they lend and the risks they face. With the housing market already rampant in London—up 20% annually in the trendiest parts of the city—and pepping up in the rest of the country too, Help to Buy is adding heat to a market that does not need it.

The Coalition appears to be banking on the winners from the scheme being happier and more numerous than the losers. Depressingly, there’s a chance they’re right. After all, Margaret Thatcher’s ‘Right to Buy’ did serious damage to the country’s social housing stock, but was (unsurprisingly) highly popular with those it helped. That said, the latest polling on ‘Help to Buy from YouGov suggests the public, post-credit crunch, is more alert to the dangers of house price inflation than it was: by 58% to 17%, voters reckon the new scheme risks creating a housing bubble.

Danny thinks it’s all worth the risk: “Our housing market has to be opened to a wider range of people,” he says. Don’t we all? The way to do that, though, is by increasing housing supply, not by the kind of blatant market-manipulation the Coalition (rightly) slams Ed Miliband for when he makes similarly ill-thought through promises to fix energy prices.