so th ill-conceived help to buy scheme will now start this week.(73 Posts)
How come they found money for that then? Surely it's going to cost more than the bedroom tax saves?
Osborne reveals the true aim of Help to Buy: to inflate house prices
"Hopefully we will get a little housing boom and everyone will be happy as property values go up," the Chancellor reportedly told the cabinet.
Mervyn King once memorably complained of David Cameron and George Osborne's "tendency to think about issues only in terms of politics, and how they might affect Tory electorability". Rarely has there been a better example of this than the Help to Buy scheme.
While Cameron and Osborne publicly state that the aim of the policy is to help first-time buyers, their real aim is to create a pre-election feel-good factor among Tory-leaning homeowners by inflating prices. With the cap for support set at a £600,000 (the average house price is just £172,000), Help to Buy will act as a giant state subsidy for homeowners seeking to trade up or borrow against the value of their property.
Today we learn that Osborne has told the cabinet as much. The Independent's Andrew Grice quotes the Chancellor as saying: "Hopefully we will get a little housing boom and everyone will be happy as property values go up."
This is undoubtedly smart politics; 45% of homeowners voted Conservative in 2010 and are more likely to remain loyal to the party if they're feeling flush by 2015. But it is terrible economics and a policy that no one genuinely committed to expanding home ownership should support.
Even while allowing some to make it onto the ladder, the scheme risks blocking the route for others by further widening the gulf between prices and earnings. There is much that the government could do to ease the housing crisis, including increasing supply by allowing councils to borrow to build (as Vince Cable has proposed), penalising developers who sit on unused land, and improving conditions for private tenants. But none of these objectives are aided by an electoral bung less aimed at delivering more homes than more votes.
@ HesterShaw - no, I'm not a homeowner and I am vehemently against this scheme. It is designed to make buyers imagine that (a) house buying is more affordable and (b) they must buy now!!! before prices rise further. The media is assiduous in pushing both these lines. Neither is true - the latter becomes a self-fulfilling prophecy as it is repeated by the newspapers, but there is nothing inherent in the scheme that makes it easier for FTBs to buy and hence pushes up prices. All it does is supply 95% percent mortgages. But these were available BEFORE the govt introduced this scheme, and at CHEAPER rates. So FTBs could have got a mortgage with a low deposit already - this scheme added nothing.
The PUBLICITY, however, has worked wonders, for terrifying FTBs into buying an over-priced rabbit-hutch, just in time to push prices up before the election. And give a 'feel-good' factor to the economy. And then pronto - interest rates rise as soon as the election is out the way, said FTBs can't afford their huge mortgages, get repossessed, but that's OK, because the banks are protected by the taxpayers, while the Tories and their cronies get to snap up some cut-priced repossessions.
Trebles all round!
Also, forgot to add that the govts' balance sheet is helped by the fact that the lenders have to pay for the govt guarantee - about £1000+ per mortgage. So for every 1000 over-priced mortgages the govt manages to persuade
mugs FTBs to take on, the govt gets another billion in its coffers to help ease the problems its caused by mis-managing the economy. So lots of free Wonga leading up to the election, to bribe the electorate with/pretend the Tories haven't ballsed up the public finances. Then as soon as the election is out the way and this scheme is phased out, the pendulum swings the other way, as the taxpayer starts to be hit for the billions in mortgage guarantees.
@ NicholasTeakozy - it is not only for new builds. That was the first part of the scheme. The most recent part applies to any property.
The mind boggles. The need for low cost housing has never been greater not has the need to get developers building on sites they are holding onto. This seems to be the general consensus from the public and yet.... We get the opportunity to buy a crappy new Barrat Box home instead which truly most benefits the developers. Delightful.
It's a scam according to this article. It's a Ponzi scheme, according to Max Keiser. Even Gidiot has admitted he sees house prices rocketing in the short term. He's right about that. But then even a stopped clock is right twice a day.
Because this is for new houses only, and house building is at an all time low, prices will rocket only to slump when interest rates go up and people struggle to make repayments on their diminishing incomes. There are three groups who will benefit from this: the banks, because part of the loan is guaranteed by us. The house builders, who are set to make a killing and, further down the line, cash rich people who'll snap up repossessed houses for next to nothing.
And no Hester, I'm not a homeowner.
Are all the people who think it's a totally mad idea homeowners themselves?
I think in principle the help to buy scheme is a good idea but think it should have remained only available to FTB and newbuilds (a limit of £600000 seems crazy). It will allow a lot of people who are paying ridiculous rents to finally get a step on the housing ladder because previously they could not afford said ridiculous rent plus saving for a deposit plus rising living costs). My niece and her boyfriend are buying a house this way and will be paying a lot less on their mortgage for a two bedroom house than on their rented one bed flat. They intend to spend that saving on paying off the capital on the house rather than lining the pockets of a landlord.
Have economists taken into account the possible effect of this on the rental sector? Hopefully it will cause the bottom to fall out of the rental market and a) rents will drop and b) house prices will fall because there will be less demand for people buying houses to rent out (sorry, very little sympathy for buy to let landlords).
And failure to be able to afford their mortgage when interest rates rise is obviously going to be a problem for a hell of a lot of people, not just those on help to buy schemes (in fact I read the other day that help to buy scheme mortgages tend to have higher rates anyway, so are perhaps less vulnerable to rises?).
Damnauto - I agree: no more building on green belt. There are plenty of brown field sites that should be used.
Thank you, Breadandbutterfly, for clarifying.
I have never owned a house. I really wanted to when my children were younger, but could never afford one as a single parent on a teacher's salary. We lived in a three-bed council house for 16 years, and in those days I was able to feel secure as long as I kept paying the rent. The rent I was paying went into the maintenance and upkeep of the council housing stock. It was a good, fair system. It didn't cost the state anything, because we paid our rent and it covered the costs. The people on housing benefit would have been receiving HB whether they rented from the council or private sector. The difference is that the HB they were receiving went back to the council, and not into the pockets of private landlords.
A lifetime of renting in those circumstances wasn't too bad, and took the edge off not ever being able to buy. But a lifetime of insecurity in the private rented sector (and I have now spent 12 years paying rent to private landlords) can be sheer hell when you have young children.
The answer to the housing crisis is to build more council houses and to occupy the empty buildings bought as tax scams. There is nothing else the govt can do that will make the situation any better. First time buyers could spend a few years paying a rent to the council that covers the costs and doesn't include a huge profit for a landlord. That might make it possible for them to save. But the govt won't do that, because they don't want house prices to go down. So they fiddle around producing stupid schemes to try to make themselves look good.
We are constantly being let down by this government.
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I do think its brilliant it's not just for new builds. This incessant need to keep building new homes makes me so cross, there's no need for the amount of countryside destruction (and wildlife desimation) that there is.
I'm a renter and exactly the person this is aimed at, the long term affect worries me, e.g false rise in house prices, interest rate rise, after 2 years will they be able to renew at a decent rate?
Spot on, Breadandbutterfly.
I agree it is confusing and I think deliberately so. The Tories have never had any interest in helping FTBs and this policy does not do so. It enables a few who can already qualify for a 95% LTV mortgage to get a slightly cheaper one - but for 2 years only. And then they are screwed - as the policy provides no long-term support, and interest rates shoot through the roof (as a welcome gift to the new Labour govt to deal with?).
It also allows FTBs to buy an over-priced new build and lends them some more cash on top of their already-huge mortgages so they can get around the affordable-lending criteria the govt supposedly espouses. Then after 5 years - as interest rates go through the roof - it demands this loan back along with loads of extra interest.
Cue loads of recent buyers way over their heads in debt, sky-high interest rates, and huge amounts of property repossessed, prices down low. I'll leave you to imagine what cash-rich Tories and their cronies plan to do when this happens - is it bail out the unfortunate buyers or fill their boots with cheap properties??
Beware Tories bearing gifts. It's no free money. The free money is for house builders and banks ONLY.
You'll notice that all the positives are neatly timed to occur before the election - nicely rising house prices fanned by taxpayer-funded bungs.
The shit is due to hit the fan the second the election is out the way - that's when interest rates rise and the two-year fixes end.
THINK AHEAD before you vote.
I have to admit I am confused by it all and I think that there are hundreds out there equally as confused.
I am a renter and can afford my rent but could not get a mortgage for the value of property for the size needed. I know of a few people who believe this to be a scheme whereby the govt will give the buyers a deposit of x amount meaning there deposit will be bigger and therefore able to get a bigger mortgage? After reading this thread that obviously is not the case and so I think a lot of people are in for a huge disappointment.
If something seems too good to be true it usually is.
The people who could benefit are tax payers also
If you were referring to my post about the tax payer absorbing the risk, then yes, that should probably have read "public money" - no digs at low or non tax payers or in fact tax payers at all. I was referring to the use public money, which we all have a right to be concerned about.
The people who benefit by getting on the ladder, will also be on the receiving end of the risk if it all goes belly up, along with everyone else
apart from the banks as their dosh will be guaranteed by the state.
That looks to be promising breadandbutterfly, about time too.
Fedupandexhausted, you have to admit it is unusual for a thread like this to be pretty much unanimously against, I couldn't quite believe what I was reading; and I didn't say the voices here are the ones of authority, I said Vince Cable's was.
Incidentally, hardly reported but of much greater significance to those who rent is this:
Eric Pickles' plan to allow tenants to demand longer tenancies, expected to be between 2 and 5 years. This would go some way to giving tenants the security of tenure enjoyed by renters on the Continent, and is way overdue.
fedupandexhausted - I am against this policy massively even though we rent and in theory this policy is aimed at us - because, contrary to your claim that "people still need to pass the affordability criteria for paying the mortgage", and therefore can pay the mortgage, mortgage rates now are ridiculously low by historic standards, and when they rise - which the markets expect to be within a couple of years - then those supposedly "affordable" mortgages will be anything but.
Affordability assessments which only look at whether you can afford the mortgage based on current rates are meaningless - the fixes offered under the scheme will last for 2 years, the mortgage for 25. If you take out a 95% mortgage, you will be on the hook for that money for 25 years, no matter whether house prices fall, interest rates rise or you lose your job. There is 0% chance that current rates will last for the full term of the mortgage - there is a reason you cannot get a 25 year 95% mortgage at those rates or even a five or ten year mortgage. As soon as artificial bucks to the market like Funding for Lending, Help to Buy, and QE are stopped, interest rates and mortgage rates WILL rise - a lot. This will happen within 3 years at most. So do not take out a 95% mortgage unless, as I said, you are sure your income will rise a lot within the next few years to cover higher rates when they appear - which they will.
Because when that happens, a lot of people will need to sell = more supply and lower demand = lower house prices. If you're buying to live in not "invest", it doesn't matter - as long as you can afford the mortgage.
The people who could benefit are tax payers also
I also think it's a good idea. People spouting when they don't even understand the scheme are hardly the voice of authority. This new scheme has no equity loan which needs to be paid back - people still need to pass the affordability criteria for paying the mortgage. It's just part of the mortgage is guaranteed should someone default. I really hope it gets things moving again and people who are struggling to raise huge deposits to buy or upsize will be able to.
Presumably, the tests relating to credit-worthiness, income & affordability are still going to be pretty stiff but, if the mortgagee defaults, the hit would be split between the bank and the exchequer rather than just one or the other. Spreading the risk.
Not sure it's safe to presume anything. And just why the tax payer should be absorbing any further risk brought about by the darn shoddy risk taking of our finanical institutions is utterly beyond me. They should hang their heads in shame.
Apart from that, am I right in thinking absolutely no-one on this thread, right, left or centre, thinks this is good idea? Except those who are understandably tempted by the carrot of home ownership, although most (on this thread) are still about it?
Vince Cable is the only proven voice of reason on the economy, no-one listened to him before the crash, we need to now.
Agree Rotterwallah, we could easily afford a mortgage - pay rent and save £500 a month for a house deposit.
I think I may take a trip to a mortgage advisor (independent?) and just see where we are at.
I hear what you are saying (not you katieperez) and i do understand, but..there is a whole generation of people who are entirely unable to buy a home. we can easily afford a mortgae, even with interest rate rises, most of us are paying rents in excess of what a mortage on an equivalent house would be.
It is just that saving £20 - £40K for a deposit on an averagely priced home is unachievable
we are in our early 30s, we earn about the national average, mid £20ks, we have worked our entire adult lives. everyone i know is in the same boat, no one, and i'm not exaggerating, has been able to buy a house without help from parents or an inheritance
yes, home ownership isn't everything, but most of us are delaying starting families because of the insecurity of renting, then we run into fertility issues. housing is a big issue for anyone aged 20ish - 35ish
it's fucked up, and for a lot of people this scheme is a faint glimmer of light at the end of a long, dark tunnel
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Can I clarify - there is no loan from the govt available or offered for those using the new Help To Buy Mortgage Guarantee scheme to buy a non new-build. For those wanting to use the new scheme to buy a non- new-build, they will need to apply for - and have earnings high enough to get - a 95% mortgage, same as now. There seems to be some confusion on this thread with the earlier Help to Buy Equity Loan scheme (for those buying new builds ONLY) which offered a 20% equity loan from the govt, which started costing lots of interest on top of the mortgage, if not paid back within 5 years - clearly a bad idea.
The mortgage guarantee scheme is not really as revolutionary as it is being made out to be - the only difference to now is that the govt will guarantee the lender that if prices fall and your property is repossessed, they ie the taxpayer will pay the lender the next 15% of the value of the property - on top of your 5% that the lender has taken too. So the govt guarantee is not to protect the buyer, it is to protect the lender.
The only supposed benefit for would-be buyers as a result of this guarantee, is that banks are supposedly going to offer 95% mortgages at better rates than they do now, when all the good rates go to buyers with large deposits of their own. But 95% mortgages are already available and the rates on the open market don't sound very different from those mooted as likely under the new scheme eg the Telegraph suggests rates of 4.5-5% for a 2 year fix, which is worse than you can get currently anyway.
So suspect the scheme will actually make very little difference to first time buyers, whose problem is that house prices are just FAR TOO HIGH. They would be foolish to take out a 95% mortgage on a 2 year fix when rates are at historic lows and about to rise, unless they are sure their earnings are likely to rise soon too considerably to keep up with the costs once interest rates shoot up.
The govt has introduced this prior to the election to try to ramp up prices and bring on a housing inspired boom to present the image of a growing economy - just in time for it all to crash the second the election is out the way.
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