History repeats itself, first as tragedy, then as farce. One need not be Karl Marx to notice this happening, as we speak, under the title “Help to Buy”.
As the nation breaks down estate agents’ and mortgage lenders’ doors with pent-up demand for home ownership they cannot afford, my Cassandra warning will no doubt fall on deaf ears. But warn I must.
When I first wrote about Phase 2 of Help to Buy being rolled out three months early, I thought it was a misguided political gimmick, foolish and amoral.
Now the details are emerging, it is clear to me that it is actually a massive scam on the British public.
What the government is doing is effectively bribing lenders – with a guarantee which protect, them, but not the buyers – to advance dangerously high 95 per cent loans, exactly like those which brought the housing market to its knees in the first place. Sub-prime, anyone?
The lenders, having effectively been given their orders to start doing this immediately for the sake of a Party political stunt with no notice, are protecting themselves with high-interest products – mostly over 5 per cent. People with normal deposits can shop around for much better rates (under 3 per cent), hardly surprising when the Bank of England base rate is still held at 0.5 per cent, for good reasons.
On not-so-close inspection, the expressions “Phase 2” and “rolling out” are economical with the truth. The new scheme is nothing like the original Help to Buy, which was also an ill-conceived scheme but not nearly so dangerous. In Phase 1 the buyer was given the 20 per cent loan to top up a 5 per cent deposit to buy a newly-built property. The lenders were virtually on the sidelines, offering 75 per cent mortgages on competitive terms like they have been doing since the Credit Crunch. The main beneficiaries were, of course, the builders, but the main harm was to people struggling to sell home they neded to move out of, facing unfair competition from the new-build sector.
But Phase 2 is seriously bad, not least because it is already fuelling a market frenzy which I suspect will deliver nothing but higher prices and more frustrated buyers borrowing themselves into penury,
It well help benefit largely estate agents, who are hoping, alongside Government ministers, to see a leap in sales and therefore commissions. It may help buyers who income has rocketed so that they afford massive monthly repayments, but who can’t or won’t wait to save up for a 25% deposit.
The Treasury Select Commiittee and its ever-vigilant and independent chairman, Andrew Tyrie, has joined the chorus warning that if successful, Help to Buy Phase 2 would inflate house prices without increasing supply. I agree, but I also think we will escape economic instability, not because the genius of George Osborne will prevail but because Phase 2 will fail.
When faced with the hard facts and the even harsher figures of reality, the borrowing frenzy will abate. Left on the beach will be aspiring home buyers nursing broken dreams and renewed cynicism towards all poliiticians.