David Cameron has announced, ahead of the Conservative conference in Manchester, that the second phase of the controversial ‘Help to Buy’ scheme is to be brought forward by three months and will be available from 7th October 2013. This comes despite numerous criticisms and warnings from many top economic experts that Help to Buy will create and fuel another house price bubble.
He rejected these concerns, including those of his Business Secretary Vince Cable of the prospect of an unsustainable boom in house prices, particularly in the south-east of England. Speaking in Manchester, David Cameron said: “talk of a housing bubble to people here in Manchester or Salford, and they would literally laugh in your face”. He also claimed that the number of first time buyers is still almost half what it was before the financial crisis and the number of mortgage approvals is still well below pre credit crunch levels.
However, according to figures from The Council of Mortgage Lenders, mortgage lending rose 12% in July to £16.7bn, up 24% on July 2012. In July, 25,300 loans were advanced to first time buyers, 42% up on July 2012. There are now also 10,000 different mortgage products available.
The second phase of Help to Buy, where the government underwrites 15% of the value of a mortgage, “allowing people to buy properties with a 5% deposit on homes up to £600,000”, had been due to start in January 2014. Applications for loans using the scheme can now be made from next Monday, although it is not yet known when the loans will be made available. It is estimated that the scheme could mean another 200,000 buyers now have the chance to buy a home with just a 5% deposit.
Cameron added: “I’m not going to stand back while people’s aspirations to get on the housing ladder… are being trashed. If we don’t do this it will only be people with rich parents to help them who can get on the housing ladder – that is not fair, it is not right.”
The Prime Minister also urged people to “trust” the Bank of England, which has been given a greater role to monitor the effect the scheme has on house prices. Halifax, RBS and Nat West, are among mortgage-lenders that had already signed up to the scheme, but the UK’s biggest lenders; HSBC, Santander, Nationwide and Barclays have yet to decide whether to take part.
The scheme will see the Government taking on the bulk of the risk of high loan-to-value mortgages, encouraging lending with state guarantees of up to £12 billion on £130 billion-worth of homes. The scheme is intended to run for three years to January 2017.
Considering all the concerns already expressed about Help to Buy, bringing it forward seems almost reckless on the part of the government. According to Hometrack, house prices have risen at their fastest rate in more than six years in September. The CML figures indicate that loan availability is not the problem the PM thinks it is. The Help to Buy mortgage indemnity is just transferring the higher risk of low deposit loans from lenders to the taxpayer, whilst at the same time making lower interest rates available for those with only a 5% deposit.
Instead of building more houses, government policy appears to be to focused towards making it easier to buy and sell them. The policies are aimed at increasing the availability of loans and bringing down the cost of borrowing, both have historically increased house prices. A quarter of all new private sector jobs created have been in estate agency. There are now 500,000 people employed selling houses, one for every 150 people living in the UK.
Low risk loans help lenders. The Funding for Lending scheme – providing cheap government loans for banks – is hurting savers, who outnumber borrowers by six to one and are seeing the real value of their savings being eroded by a combination of high inflation and ultra-low interest rates.
