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Bank of England
Monetary Policy Committee
Help to Buy
During the past few weeks the media has been continually talking about house prices and the various areas in which the government has been meddling in a bid to gain support during political party conference season.
Not unusual given that property prices and the affordability of property is a pretty key point when it comes to vote winning at election time – home owners are important to the main parties.
The most talked about policy has been Help to Buy – a cunning ploy from the Tories to subsidise buyers in the form of either lending part of the deposit to those that are unable to save for it, or with Help To Buy part 2 – the government (or tax payer) will underwrite 15% of bank lending (in the form of an insurance type deal at a cost to the lender) to presumably encourage more lending by the banks themselves.
On the face of it (before applying any rational or logical thought) this all seems very pleasant indeed. The problem however is it is very rare indeed that any government does anything nice without there being a few issues round the corner.
It would appear the cracks are already beginning to show in the first round of the Help to Buy policy with many commentators, industry professionals and charities all suggesting it will lead to a new housing bubble – although few have specifically said why – which subsequently has led to many supporters of the scheme (house builders, land owners and bankers) insisting it's a good idea – also without any real clarification as to why.
In what would seem to be a move to deflect the negative criticisms of the Help to Buy policy (or possibly a bout of madness), Chancellor George Osborne has taken the move to hand over control of the policy itself to the Bank of England – shrewd move one might think on the face of it, until you look at the Bank of England track record when it comes to their understanding of both the housing market and failure to regulate mortgage lending correctly.
Whilst I have written about the BoE's serious failings with respect to mortgage lending in the past (click this link to see the post in full) this single statement made last year by Professor David Miles (Monetary Policy Committee Member at the Bank of England) should go a long way to illustrate where I am going with this:
"It probably never made sense for there to be 100pc mortgages. There may be no price at which it makes commercial sense for such a loan to be available."
Whilst we are all well aware that 95% is not 100% - the announcement of the scheme in the budget this year (bear in mind that no-one can actually complete on a property using this scheme just yet) has led to house prices rising by 4.55% according to Nationwide
Whilst this rise in prices has perhaps created a bit of feel good factor for current home owners – it has made the market even more unaffordable for those that are not. Add in the fact that wages have not increased by anywhere near that amount (if at all) and unemployment figures are not looking any better either – one has to wonder what the government thinks affordability really is?
Not to be out-done, the opposition has piped up with its own "fix it quick" solution by simply stating they are going to build 200,000 houses a year and that it's the lack of supply that is the problem. Again, this is something I have written about before and using government statistics, proved that even when there are high numbers of new houses coming onto the market, it does not make them any more affordable; if anything the opposite occurs – see the stats for yourself here.
The reality is neither of these schemes is capable of correcting the housing market to an affordable level for a sustained period of time and yet no-one appears to have asked why? Or, what will?
As usual in the political world, those in charge (and those that want to be in charge) will only publish the shiny parts of their policies - the bits that sound good to the media and gain votes in the short to mid-term – all with total disregard to the long term stability of the country, the economy or the people.
Is there a solution? Well sort of – the problem is it won't win any votes or very many friends; it involves a long hard look at why the housing market is in the state it is now and a trip to the 70's.
Fancy a challenge? See if you can figure out the house price paradox
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