So the taxpayer is going to back 95% mortgages for first time buyers to buy new build homes. Now where have we seen this before? Governments fiddling in the housing market. Such a bright idea, it goes horribly wrong each and every time. You’re grubbing about with what is probably most people’s single most valuable financial asset, purchased on a highly leveraged basis. Small errors can get magnified stupendously.
What on earth could go wrong? Well, for a start the impecunious are usually better off looking to the second-hand market to get better value. It’s why I have never bought a new car. I could afford it, but I have no desire to take the sucker punch for that brand new kudos. Same for houses. I’ve never bought a new one, because the value is so poor. Let other people take the brand-new premium first. So why the heck is the Government screwing the first time buyers by making this mortgage guarantee conditional on them buying a new house? Yes, it’s good for the housebuilders, but why get the most cash-strapped to take the hit too?
There seems to be a belief that it’s every Briton’s human right to be able to buy a house in ther 20s. It isn’t. Some people are too poor to buy a house. That’s tough, but there are alternatives and have been throughout history. It’s called renting, and also sharing with others.
Let’s take a look at the decision-making process in how people buy houses. People look at what they can afford to spend at the time they are buying. If they are really clever they look ahead a little bit and allow for the extra cost of children, should that be a consideration. They then imagine that will carry on for the foreseeable future, and spend right up to that limit.
Make financing easier? Buyers will drive the capital cost of the houses up, as they can finance higher capital sums. Apply distorting measures to starter homes? Starter homes will go up more than second-rung homes. It’ll be harder for those that don’t qualify for the distorting measures, and the distorting measures will go into the pockets of house builders. It will take longer for the ‘beneficiaries’ of the largesse to pay off the increased prices they paid, because the largesse comes in the form of mortgage guarantees, encouraging them to overpay.
It’s about time the government discovered the value of the one of the principles of Hippocratic Oath in meddling in the housing market.
Primum non nocere – First, Do No Harm
Just leave it alone, Dave, let it be. That way existing house owners that benefited from the rising prices in the past get to take the hit, as they have to drop their prices to get a sale at all. The history of UK government intervention in the housing market is littered with epic fails.
Let’s hear it for:
- Mrs Thatcher in the 1980s selling council houses for below cost price to buy votes. What could possibly go wrong? Britain has no effective social housing any more, inflated property prices, and people so poor they would never buy houses elsewhere in Europe end up overpaying for houses they can’t afford and can’t maintain properly. They used to be able to rent from professional landlords on a reasonably stable basis. Now they have to rent from BTL amateur landlords on 6 month shorthold tenancies.
- Mortgage Interest Relief At Source What could possibly go wrong? Make mortgages less expensive and the punters will bid up the price of houses till the amount they pay is the same. At least this was axed a while back
- 95% taxpayer-backed mortgages for first time buyers to buy new build homes. What could possibly go wrong? So we’ve subsidized foolish banks like Northern Rock that lend people more than they could buy, then flogged them to Richard Branson at a loss. Hey, let’s just cut out the middleman and lose the money straight off. What’s going to happen? People will bid up the cost of first time starter homes and expose themselves to the risk of negative equity, but never mind, the taxpayer will underwrite the losses.
Twits. When is government going to learn to butt out of the housing market. Their job is to provide equitable contract law, building controls, town planning and a Land Registry so that buying and selling houses is safe for both parties and the necessary disclosures and titles are made. Some basic regulation of rents, requiring some professionalism in landlords and taxing BTLers on their capital gains is probably as far as they need to go.
We’re about to enter a second long recession. Jobs will go. The last thing we should be doing is influencing people to take a long term illiquid investment on at a higher price than the market would normally set. It took me 10 years to recover from the cock-up of buying a house at a price inflated by stupid government intervention, Nigel Lawson, you know who you are. I wouldn’t do that now, but you can’t put an old head on young shoulders. I was lucky enough to keep my job and not need to move for those 10 years, the likelihood of that happening to a first-time buyer now is a lot less.
We probably shouldn’t actually stop house buyers acting foolishly in the face of market volatility, but as society we really shouldn’t wilfully add to that volatility. The housing market is a zero-sum game. Make it easier for today’s first-time buyers to buy a house, and you make it harder for the next bunch that comes along. What’s so hard to understand about that?