The Treasury Select Committee has asked what might be the best question yet about the government's Help to Buy scheme, which is how would you stop it? Some things are easy to start. That's not been true of this scheme, to which only RBS and Lloyds have signed up as yet. But many schemes, once going, are a nightmare to stop and this one is very likely to fall into that category.
Just imagine the turmoil in the market in three years time when the scheme is drawing to a close and people rush to buy. We saw what happened in 1988 when people rushed to buy property to get tax relief for mortgage loans for the last time: a bubble was created and a crash followed. MIRAS, as it was called, was much less significant than this new relief in many ways. What Osborne's creating is a monster: the Freddie Mac and Fannie Mae scenario for the UK where the government's finances are inextricably linked to overvalued property prices.
There is only one way this scheme can end, and its tears whatever happens before this one is over.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
What’s the objective of the policy?
If it’s re-election in 2015, great. It might work, but probably won’t, looking at the polls; and if it doesn’t, having the Labour party in power when the crash comes means that they’ll take the blame.
If it’s a further transfer of wealth from the young to the old, better still.
Best of all, increasing the indebtedness of the salaried classes is a further transfer of wealth to our generous friends in the banks; and that’s a gift that keeps on giving.
I am not so sure this is a bad thing. Firstly outside London the market hasn’t recovered. This scheme can only help people.
The banks have the keys to the controls. They determine who gets money, and how much they will lend them.
The surveyors have the control to how much a property is worth. The surveyors like the bankers have a lot to learn from their last property disaster. No one is shouting jail the surveyors. Try to buy a house with a mortgage without using them. They decide the price, no one else. NOT even the market.
The market does not need to ‘recover’. It is too expensive
What we need are houses and this won’t deliver them
With all due respect. I would suggest that people who were encouraged to buy, via cheap money, during the last boom need prices to recover. Many families are still in negative equity and this helps them to move.
The provide relief for negative equity
Do not screw the economy as a whole
Yes, Richard, we need to point out that the word ‘recovery’ is a grotesque euphemism designed to dupe people. It is true that in parts of London house prices are rising faster per day than the equivalent average wage(!) But it is not only London-prices in parts of the country prices are rising at 5%.
See: http://www.theguardian.com/business/2013/sep/27/nationwide-survey-house-prices
This is a disaster on top of the previous on, though, be assured, it will turn out ok for the hedge funds, the rest of us can expect debt peonage.
The system has run out of tunes to play. LVT is the only answer here. Michael Hudson pointed this out in Saturday’s Keiser report saying this was another case of ‘screw the people to help the banks.’
Keiser points out the following sequence: with reference to the US situation:
1. Banks give out asymmetric no income no asset loans.
2. Foreclosure takes place and the fraudulently sold houses are taken back on an insider trading basis.
3. 5-6 years later these houses are bought and rented to the people from whom they were taken using 0% interest rate cash.
4) Next bailout of collapsing hedge funds!
Why is there no outrage?–because the Government knows that hardly anyone will be able to understand what is going on and the house ownership fetish is like an idol that people continue to worship and they will only discover it was a false god when the last sou has been syphoned from their pockets and they are left burnt-out and withered.
We don’t have Foreclosure in the UK. We have repossessions which haven’t increased that much over the past 5 years.
Do you deliberately miss the point?
“Of course not everybody can win and the UK taxpayer finds him and herself financing all this in another example of the type of financing round-tripping that I have described in the Euro area. As described above the home buyers, banks and indeed the government are all in the process of making gains at the expense of increased liabilities for taxpayers. They bankroll the cheap funding for the banks which they are already either explicitly supporting or providing an implicit guarantee. The banks make a wide margin on these funds and have even managed to get the taxpayer to guarantee the riskiest part of the mortgages! It would be much simpler to give the banks an annual tribute.
Even the government is taking a share of the money rather in the manner of a pimp taking his/her cut.
Underlying this round-tripping ponzi scheme is the poor beleaguered UK taxpayer most of whom probably feel that the phrase “contingent liability” is not that important”
http://www.mindfulmoney.co.uk/wp/shaun-richards/how-help-to-buy-becomes-help-to-sell-and-finally-help-for-banks/
“Consider the following numbers:
Over the last 12 months lending to private nonfinancial firms has fallen by 2.1%.
Lending to manufacturers has fallen by 3.9%.
Lending to construction firms has fallen by 6.7%.
Lending to SMEs has fallen by 3.2%.
Mortgage lending has risen by 0.6%.
So, whilst lending for house purchases is on the rise, lending to ‘real economy’ firms continues to fall. And yet the government’s widely signalled [priority is a further boost to mortgage lending”
http://touchstoneblog.org.uk/2013/09/help-to-buy-odd-priorities
And what is pumping money into housing going to do to house prices? Raise them and put housing even further out of reach of people.
Mortgages are a con anyway; nobody actually owns their home till that mortgage is paid off…the banks owns the house and keeps it if you default! This is dangerously pumping money into a useless asset in order to buy votes from gullible people. If you purposely wanted to blow up the economy, you couldn’t find a better method!
The government has underwritten this for £120 billion, so guess who is going to be on the hook yet again if, as is very likely, it all blows up!
Hint: it won’t be the banks!
Actually, i is £12 billion
Well yes, but according to this article in The Telegraph, and others as well, the underwritten costs are more than 10 times that:
“The Chancellor wants to underwrite £130 billion of mortgage lending with state guarantees in an attempt to help people struggling to buy a property.”
http://www.telegraph.co.uk/news/politics/conservative/10197095/George-Osbornes-Help-to-Buy-is-very-dangerous-expert-warns.html
…and the Conservative minister for Wales was telling desperate social tenants in Blaenavon hit by the bedroom Tax that he was ‘sorry’ they had to move (to nowhere!) as the country needed to ‘save’ the projected 480 million! Money is found for Ponzi scheme but not there for a relatively small number of hard pressed people. Words fail me….
Poor depressed people do not vote.
Upwardly mobile people do, especially when someone is subsidising their mortgage.
Expect more electoral bribery as 2015 approaches and look for gerrymandering.
Agreed