Today’s Sunday Times has news which would be laughable, if it were not to plausible. That George Osborne intends to pour some more petrol on the property market fire next week by extending his discredited Help To Buy equity loan scheme – in effect, a flagrant example of politicians using taxpayers’ money in an attempt to buy votes. It’s a sign that Osborne intends to use help-to-buy as an election weapon, and as loaned money doesn’t show up on the deficit figures he’s quite relaxed. Here’s the start of the Sunday Times story:-
The Help to Buy scheme, designed to help people get on to the housing ladder, is likely to be extended in this week’s budget. George Osborne is expected to frame his budget around improving the lives of working-class voters in marginal Conservative seats by helping them to buy their own homes and pay less tax. The chancellor is tipped to increase the personal tax allowance to £10,500 and also to extend the Help To Buy scheme beyond 2016. Under this equity-loan programme, the government offers buyers of newly built homes that are worth up to £600,000 a loan of up to 20% of the value of the property. The loan is interest free for five years.
Help to Buy was brought in so Osborne could lend taxpayers’ money to people to whom the banks would not lend (usually because they were deemed too large a credit risk – that’s why help-to-buy is dubbed right-to-default). That was when 95 per cent mortgages were a rarity. Now they’re everywhere, the housing market is booming, and from Cumbria to Chelsea you’re seeing valuations as heady as they were at the peak of the last bubble.
Britain’s property market – new-build or not – does not need help from the taxpayer. Rather, Osborne should be worrying about it overheating and thinking of ways to cool it down. Government should not be in the business of lending money to consumers, no matter how tempting it may be. This distorts markets, and almost always means greater pain further down the line.
The last conservative leader who tried to manipulate the property market for political purposes (to claim to voters he was on the side of hard-working people etc) was George W Bush – and we all know how subprime lending worked out for America. But before its damage, it did create a property boom, which itself begat a consumer spending boom. Brown did the same. And Osborne seems intent on replicating this now.
To extend Help to Buy after 2016 makes no sense: it should have been ended when the banks brought back 95 per cent mortgages. It has so far been used by 14,823 house buyers, with another 5,000 on the way. A well-paid friend of mine is using it to buy a one-bedroom pad in Soho, arguing that if the government is daft enough to give him an interest-free loan, it’d be rude not to take it.
Economists are astounded at all this. Bloomberg surveyed 33 analysts recently and almost three-quarters said UK property at risk of overheating. Its report, published on Friday, went on to quote Nomura’s Philip Rush saying that…
Help to Buy “is encouraging a worsening of fragilities, creating the illusion of wealth by subsidizing house prices and encouraging a further leveraging up.”. Introduced by Osborne a year ago, the incentive program has helped boost mortgage lending. This stimulus, combined with a strengthening recovery and record-low interest rates, has bolstered demand for property and fuelled concern that a bubble may be forming.
If a Labour Chancellor were doing this craven attempt a bribing voters with their own money, he would be lambasted by the Tories – for precisely the same reasons as Ed Miliband is lambasted for his plan for state intervention in the energy market.
So what should conservatives be saying about help to buy? Here’s Albert Edwards, who heads up SocGen’s global strategy team:
‘Why are houses too expensive in the UK? Too much debt. So what is George Osborne’s solution for first-time buyers unable to afford housing? Why, arrange for a government-guaranteed scheme to burden our young people with even more debt! Why don’t we call this policy by the name it really is, namely the indentured servitude of our young people I believe it truly is a moronic policy that stands head and shoulders above most of the stupid economic policies I have seen implemented during my 30 years in this business.’
And to Andrew Bridgen from Fathom Consultingy:-
‘Had we been asked to design a policy that would guarantee maximum damage to the UK’s long-term growth prospects and its fragile credit rating, this would be it’
But who’s thinking long-term? Help to Buy is about the Conservative Party, about the next election, and how the Tories can use Help-to-Buy as an election promise.
PS A friend texts to say that property is a “broken market” which justifies state intervention. But this is what Ed Miliband says about energy, and David Cameron calls him a “Marxist” for intervening. I’d be interested to hear any CoffeeHousers point out a fundamental difference
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