The country is £1.2trillion in debt. The national debt has tripled in the last 10 years and the cost of interest to service this debt is the fourth largest cost to the country, behind education, welfare and health. The interest payments on the national debt cost each of the 30 million UK taxpayers more than £1,650 a year. Yet this Chancellor appears to have “spare money” to give to house builders? In a little under a year, according to figures from the Home Builders Federation (HBF), 55,000 reservations have been made using Help to Buy. Now the scheme has been extended to 2020, at the current rate around 385,000 new homes could be sold using the Help to Buy state-subsidy.
The Bank of England interest rate has been stuck at 0.5% for five years now – the lowest rate for 300 years. Who has this benefited? The winners are – anyone with a mortgage they shouldn’t really be able to afford, companies looking for cheap debt and the government, which has been able to add to the national debt aided by the very low rates. Oh and those that own shares, especially house builders shares.
Despite housebuilder’s results last week reporting an average 16% increase in the number of homes they had built during 2013, house building output is actually 11.3% below pre financial crisis levels. The number of new homes started in 2013 was 122,590, the highest since 2007. But this is still HALF the number experts say are needed each year to meet housing demand, let alone addressing the shortages from previous years.
However, the number of new homes completed last year actually fell by 5% to 109,370. The Government’s schemes have not helped either, creating easier access to borrowed money resulting in boosted demand rather than increased supply, sending house prices soaring, especially in the south.
Home ownership has now fallen to its lowest level in 25 years. The number of people sleeping rough in England has increased by over 30% since 2010. The proportion of working households claiming housing benefit is now higher than 2010. Hardly a success story Mr Cameron! At the same time, the large plc housebuilder’s are returning cash piles generated from the record profit increases, to their shareholders.
This week five national plc house builder’s reported record profit rises as they cash in on the state sponsored Help to Buy feeding frenzy. According to recent figures from the DCLG , 89% of the Help to Buy loans have gone to first-time buyers since the scheme began in April 2013. With an apparently never ending stream of undiscerning, naive first timers flocking to builder’s sales offices, buying whatever is available, what incentive do house builders have to improve quality of the homes they build?
You also have to question why the government is currently advertising it’s Help to Buy scheme on national television, when the figures released by these major national builders during this week demonstrate that this advertising is totally unnecessary.
Greed is good and greed is back, as both builder CEOs and their shareholders receive payouts from the excessive profits generated from the government’s Help to Buy subsidy. New Home Blog saw this coming!
Builder’s report record profit increases – but not improving quality!
Here we go again: “Profitability, Cash generation, Completions, Average selling prices, Earnings per share, Land banking, Trading outlook” yada-yada! The only house builder to make any meaningful statement regarding a commitment to improving quality and customer service was Barratt, with reference to their consistent HBF “customer satisfaction” 5-Star rating and their record 102 NHBC quality awards in 2013.
“Dream of owning your own home but need a little help?” Not content with creating another housing bubble – Nationwide report house prices have risen 8.8% since January 2013 – HM government is now advertising its Help To Buy scheme on the television with a taxpayer-funded 30 second commercial. You can see it here!
Why? Surely people who cannot afford to buy their own home, should not be persuaded to buy by the government? It’s a bit like payday lending for home buyers. They know they cannot afford it but hey, the government is making it easy, so why not?
The advertisement says the scheme is for “People who can afford a mortgage, but not a big deposit” So it’s for people who cannot afford to save 5% – 10% of the purchase price – the very same people who will struggle to meet the monthly repayments when interest rates eventually go up. To buy the average UK home costing £176,500 a buyer(s) would need to be earning at least £42,000 based on a mortgage of four times earnings. Surely someone earning over £40,000 a year (£31,300 a year – £2,610 a month after tax and NI) should be able to save a sizeable deposit in a few years? After all, it is just a question of priorities.
A bubble housing market with fewer homes being sold? Could the reason be Stamp Duty? A report in The Times highlighted that in the 1980’s, around 12% of all houses changed ownership every year. Last year the figure was just 4%. There are thought to be several reasons for this. More people are buying for an investment rather than to live in the home. Older people are living longer, meaning fewer of their homes are coming onto the market. The higher price of homes is also preventing people from trading up to a larger home as their families grow, with the government controlling both supply, via planning rules and high taxes and demand, bubbling up prices with schemes and subsidies such as Help to Buy.
But the main reason why many are staying put is the huge rise of the cost of stamp duty. In the 1980’s, no stamp duty was payable on homes that sold for less than £30,000 and only 1% was payable on everything else. Today, you pay nothing on homes under £125,000, but the rates increase until you are paying 4% on a £500,000 home and 5% on £1million property and that is on the total price, not just the proportion above each threshold. It could get worse in the future if nothing is done.
In teh UK a house worth £100,000 in 1985 (£150,000 in 1995) would cost about £525,000 today. In 1995, the stamp duty payable would have been just £1,500. If prices had gone up by general inflation since then (a lot less than they have) you would pay £2,442 stamp duty in today’s money. But even at today’s prices, at 1% you would still be paying only £5,250. But to buy the same house now, the stamp duty payable is £21,000. No small wonder people are not moving as often as they used to!
The coalition’s Help to Buy scheme is nothing short of taxpayer-funded electioneering. The only people who openly have a good word to say for it are politicians, house builders and estate agents. Everyone else can see it for the cynical disaster in waiting it is. With an election in 17 months time, the government is hell bent on helping house prices rise until then. Any economic growth will be based on debt, as home owners feel better off due to rising property prices and start spending again – it is the same old story. But this time, it will be the British taxpayer left without a chair to sit on when the (low interest rate) music stops.
Help to Buy (1) Equity Share, subsidises the cost of new homes by up to 20% and has even boosted the prices of older homes as it gave the market a psychological shot in the arm. It is said that Help to Buy is only supposed to be a temporary measure, designed to help people buy a home until the banks start lending again, but the evidence is that they already are! Help to Buy (2) Mortgage Indemnity, is not really needed, it will make very little difference to mortgage availability and does nothing except give the lenders an additional 15% comfort zone for potential losses on loans they would have given anyway, all at the expense of the taxpayer.
Help to Buy (1) has resulted in house builders building more homes. Why wouldn’t they? They have a ready supply of subsidised buyers, they are reporting record reservations and profits whilst increasing average selling prices, some by as much as 11% in the last 6 months, without any loss of demand.