Recent sharp rises in house prices have raised the spectre of another property bubble. But with the second, altogether riskier, phase of George Osborne’s buyer-support scheme only opening for business today, we ain’t seen nothing yet.
The impact of the first part of Help to Buy – under which those purchasing a newly built home can apply for a cheap loan of up to a fifth of its value – is already being felt. Combined with improving consumer confidence, low interest rates and government assistance for lenders, the scheme has helped jerk the housing market out of post-crisis torpor. Prices have now been on the up since March and September saw the fastest monthly rise in six years.
But it is too soon to talk of bubbles. Take London out of the calculations and an annual rise of 3.7 per cent drops back to a mere 0.8 per cent. Furthermore, by restricting assistance to buyers of new properties, Mr Osborne is – rightly – targeting the supply constraints behind ever-rising prices.
If the first stage of Help to Buy is defensible, however, the second – registration for which starts today – is not. From January, successful applicants will have a portion of their mortgage guaranteed for the first seven years. And this time the help is available to everyone. Cue soaring demand in a market where demand already outstrips supply by 150,000-plus homes annually; which means rocketing prices.
The Chancellor’s aim is obvious. Not only might a new cadre of grateful homeowners vote Tory in 2015; higher prices will render the property-owning class as a whole more kindly disposed towards Mr Osborne’s party. The problem is that the Chancellor is creating the illusion of recovery by giving the addict more drugs. Lacklustre prices are an unavoidable, even healthy, consequence of the debt-fuelled boom that went before. Nor is his latest concession convincing. It is fine for the Bank of England to be charged with ensuring that the market is not over-heating. But an annual review – and the first of them not until September – is insufficient.
The details that have leaked out ahead of the launch of Help to Buy II are a hint of good news. After all, it is no bad thing for the Treasury to stand to make a profit, given that the taxpayer will pick up the tab in the event of a default. It is also arguably welcome that first-time buyers using Help to Buy may face costs little different from those market rates. It can only be hoped that the more exposed may be thus deterred from over-extending themselves.
Such comfort is scant, though. The Chancellor is still approaching the issue back to front, politics ahead of economics. Britain needs more houses not more buyers. Mr Osborne’s Government should be tackling sclerotic planning rules; and Mr Osborne himself should be unblocking lending to the companies that will build rather than the individuals that will buy. Help to Buy is not just a quick fix; it is a quick fix of the wrong problem.