Tim Almond

“The most terrifying words in the English language are: I’m from the government and I’m here to help.” Ronald Reagan

The government has announced it’s going to “help” with the housing market. One of the measures is fine - raising the stamp duty threshold to £175k for the next 12 months, and presumably, that’s the end of the dithering over stamp duty holidays that has caused so much indecision.

It’s the other ideas that bother me:-

Lending first time buyers up to 30% for 5 years for FREE? Hazel Blears explained on the radio this morning that this was because banks and building societies were now demanding higher deposits on properties and people couldn’t afford to move. There’s a good reason why lenders aren’t doing 100% mortgages. When property is rising in price by 10%, it’s a safe-ish investment. You lend someone 100K, and if a year later they stop making payments it’s risen to 110K. Whilst repossession will take some costs and you won’t be able to sell for a full market price. When property is falling by 4%, if you lend someone 100K, after a year, it’s worth around 4K less, and the same rules of selling for below market, and repossession costs will apply. So, to lend at the same interest rates, they have to have a larger deposit.

Apart from that, lending people free money is just insane. Anyone considering buying a home who is saving a deposit and applies for this will now leave the money in a long-term savings account collecting interest while everyone else pays 30% of their interest bill.

The ultimate result of this policy is simply to raise prices above their correct market level. In other words, to make properties more expensive to FTBs than they should be, while costing the taxpayer (including people struggling already).

The second idea seems to be the idea of switching mortgage to local authority rent and clear people’s debts. So, presumably, someone living in a pleasant part of town can go to the council, sell their house to them, continue living where they’re living and pay the council a much smaller rent than their mortgage. If it’s not subsidised, then I don’t see councils being able to do it for any less than what a building society can charge by switching someone to interest-only. There was a debt in buying the property that has to be serviced. Either the person or the taxpayer has to do it. Unless the council can work out a way of doing it more efficiently than a building society, it’s not going to be cheaper.

The best thing that the government can do is to leave well alone with the housing market. High house prices are neither a good or bad thing. If you’re jetting off to the USA to live for the rest of your life, they’re a good thing. If you’re a first time buyer, they’re a bad thing. In the long term, it would help if the supply of land to build on were increased. The market for housing would then adjust more quickly to sharp rises, and prevent the massive fluctuations that we have now.

Tags: Politics //