Help to Buy is no answer to our housing crisis

It's easy to see the appeal of this scheme, but while the political rewards may be great, that does not make it good economics

Share

Nothing gives a homeowner more of a sense of material well-being than the news that house prices are on the up. In our debt-fuelled economy, a property is not just somewhere to live; it is a measure of wealth, a pension fund and security for a bank loan, all in one. Though we might know that owning a house is an unproductive way to get rich, and even that ever-rising prices place an impossible hurdle before those trying to get started, this is still the one and only form of inflation greeted as good news.

Hence the cheers for yesterday’s figures showing that house prices have recorded their biggest year-on-year rise for six months – evidence, it appears, that the economy is at last escaping the post-2008 slump. Meanwhile, there were other numbers which the Government was equally keen to spread – namely that 10,000 people have submitted applications under the Help to Buy scheme introduced by the Chancellor in his March Budget. In this initial stage, the programme offers interest-free loans for five years for anyone purchasing a new home with a value of up to £600,000. In the second stage, which kicks off in January, the state will underwrite £130bn worth of mortgages, to encourage banks to keep lending.

It is not difficult to see the appeal of Help to Buy. The next general election is less than two years away. The Government needs evidence of a growing economy and rising expectations if it is to hold on to office. Help to Buy is putting money into the economy, bringing confidence back to the construction industry, and helping ensure that house prices do not stagnate.

But while the political rewards may be great, that does not make the scheme good economics. Why? Because Help to Buy addresses the wrong problem. The issue is not that there are too few people wanting to buy a place to live; in June alone, 25,000 first-time buyers secured mortgage loans, a 30 per cent increase on the previous year. The issue is a shortage of homes for them to purchase.

Making more money available to buyers, increasing demand without increasing supply, will inevitably push up prices which are already, on average, above the peak reached before the 2008 crisis. As the chief executive of the housing charity Shelter, Campbell Robb, warns: “Some will see house price inflation as good news, but with a priced-out generation and their parents worried about their prospects of climbing on to the property ladder, the result will be many people tempted to overstretch themselves.”

When a mortgage is underwritten by the state, the lender profits if the loan is repaid and the taxpayer loses if it is not. Any such scheme will obviously encourage lenders to be more adventurous, even though it was so-called “sub-prime” loans, made at no risk to the lender, which triggered the banking crisis from which we are still suffering. The bubble has burst once: we do not need to reinflate it.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Business Manager

£32000 - £40000 per annum: Recruitment Genius: A Business Manager is required ...

Recruitment Genius: Operations Manager

£45000 - £55000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Panel & Cabinet Wireman

£20000 per annum: Recruitment Genius: Panel Wireman required for small electro...

Recruitment Genius: Electronics Test Engineer

£25000 - £27000 per annum: Recruitment Genius: An SME based in East Cheshire, ...

Day In a Page

Read Next
Newspaper stands have been criticised by the Child Eyes campaign  

There were more reader complaints this year – but, then again, there were more readers

Will Gore
 

People drink to shut out pain and stress. Arresting them won’t help

Deborah Coughlin
A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?