Thursday, 21 March 2013

New build scheme

Is this a good idea?

Loan to value subsidy mortgage?
Considering where we are and how we got here, it looks like NO!

 The government will lend 20% of the purchase price, on an interest-free basis for five years, to buyers able to find a 5% deposit. 

Isn't this where we came in? With all the debt, and the over lending over valuations and the inability to repay and the big bubble and the 4.5 x the made up salary, 125% mortgages ? the situation we are in, isn't this just a practical idea?
Doesn't this allow those close to being able to buy, but unable to pay the current above market rentals and save for a deposit at the same time, a good chance for home ownership? 
The difference in the rental/mortgage payments will add significantly to a first time buyers disposable income. As will the end of the requirement to save every spare £1 for a deposit.

And those first time buyers are the ultimate spenders. Think of all the soft furnishings, white goods, household, kitchen utensils, seating, cooking, lighting, bathroom, ladders,entertainment and music, tv, tools, paint and decorating equipment and gardening stuff that suddenly needs to accompany the first permanent home.

Isn't this policy just the fastest possible way to get the system moving again. If Interest rates are going to be low for 5 - 10 years {citation and crystal ball needed} then does it matter that people are borrowing to afford a high priced house, rather than the hope that house prices will fall the 10-20% that would be needed to self correct the market? 

We are where we are. There aren't enough houses  and there isn't enough money. Making people pay save more than they need to, pay more for rental than they need to, and not build up any equity as they do so, is stopping our economy from moving. Osborne has accepted that and tried to do something about it. He's moving into the sub-prime market, knowing there's a risk, but expecting the short term boost to be worth the long term problems. And the very difficult longer term slowing of the economy without causing a crash will be a problem for someone else and he/we need growth now.

This is a really good scheme ?

Isn't it?


dearieme said...

Or perhaps effing madness. Along with the BoE's new flexibility, it seems the govt is going for the inflationary solution, which is doubtless just what Labour would have done. And is therefore axiomatically wrong.

Anyway, anyway, time to buy housing before the money flood of Jan 2014. And foreign currency.

Anonymous said...

So there are lot's of people living on the streets with paying jobs then?


So how can there not be enough houses?

Our houses are overpriced for far more reasons than availability.

New builds as well are having all kinds of taxes slapped onto them, round and round we go on the government money roundabout.

Stupid policy for a stupid system.

Anonymous said...

"There aren't enough houses and there isn't enough money."- there _are_ enough houses though (in Manchester, for example, almost 6% of the housing stock is empty or unused). The problem is that the current system incentivises property owners to withold or hoard property. What about all the tax-free 'land banking'? The tories are continuing the labour policy of allowing empty homes to pay reduced council taxes. What other industry/area gets tax breaks for creating scarcity? Its ass-backward.
And what about the restrictive planning laws?
Introducing a punitive tax on unused planning permission given to large building companies and those who keep houses empty would sort the problem out immediately.

But then, of course, how many members of Parliament have land or property holdings???
Theres your answer right there.

I happen to know several people who 'cant pay their mortgage' but have let the property out and are living off the proceeds. Low rates are assisting them. None of them have permission to Let from the banks and none of them are declaring to the revenue.

Its a mad situation and it can only end badly.

Clive said...

That is it. No, I really mean it. That. Is. It. Sometimes you get to a tipping point in a situation, something that takes a finely balanced, could go this way could go that way balance and gives it a good shove over the edge.

The Chancellor has, in the form of the New Build Scheme, achieved so much. But not in a good way unfortunately. Previously, I might have given the government the benefit of the doubt with regards to its competence on the economy. Or that there might be some nice, gentle (-ish) way out of our predicament that I couldn't quite fathom myself but clever minds than mine might have spotted. /all those doubts have been swept aside. We're screwed and the Powers That Be have no answers, no cunning plans, no vision apart from trying in a vain attempt to recreate that which has gone before.

Because, ladies and gentlemen, boys and girls, the only hope for our forlorn economy is... ta-da ! ... a new housing bubble. How does everyone feel about that then ?

Yes, my thoughts exactly.

But wait ! There's more ! it gets worse, if that were possible. If you can say one thing about this government, it was that it at least went through the motions of having an ideological underpinning to its actions. You didn't want to scratch too far beneath the surface of this overarching vision, but from a fair distance it seemed fairly okay, a kind of dreamy, fuzzy treacle pudding of Free Market flim flam. It wasn't much of a set of principles. Poor little things, maybe they did all they could. Certainty they did all they could to make cynical the thoughts and weary the sole. But principles they were. Every action was in support of The Free Market. Mostly.

But now, even that notion has gone. The "market" (whoever and whatever that was ever supposed to be) is stating clearly and unambiguously that it will not lend on a huge margin (say, 90%+ typically -- by historic standards that is big, big leverage) to first time buyers at house price "valuations" that are currently in play. I certainly can't come up with any reasonably robust counter arguments why that is obviously an incorrect judgement.

Uncle George however thinks different, apparently. Well, he acts like he does although I suspect he knows that the credit analysts in every commercial lending institution is correct. So he pony's up £130bn that no sane owner of real capital would ever gamble.

All that £130bn will buy is some dodgy housing product from the spec builders made out of paper mache in dismal locations blighted by the council house mentality neighbours in the "affordable" "homes" for "local people" next door.

If the government doesn't mind handing out cash, then why, for Heaven's sake, no spend it on something that at least has some utility value. Think of anything you like... 20 gigawatts of nuclear power plant. A Severn barrage. High Speed rail to anywhere, or nowhere. It cannot -- cannot -- be worse that what this £130bn could end up owning.

The one saving grace is that I don't think anyone will, literally, be buying it. When I said tipping point at the start of this little rant-a-thon, I've a hunch that the population at large isn't quite so dumb as to go for it. My own personal pseudo indicator of actual real world sentiment has put it far better than I ever could:

Blue Eyes said...

It's a bad job, but given the current circs I think anything to get momentum going. We are in a depression.

I think I prefer the subsidy for new builds in pure economic terms.

Personal note: In the next few years I will be one of the potential second time buyers. My friendly local estate agent tells me that I could easily sell my flat to a BTL hoarder because for cash buyers the yield would be spectacular, but that first time buyers cannot take advantage of that opportunity because nobody will lend on ex-RTB flats these days. So, from my point-of-view and those queuing up to buy their first place who under normal circs could easily be said to be able to afford it, this wheeze is probably a good one.

As long as the next govt knows when to take its foot off the gas...

Jan said...

I accept he's doing it for the right reasons and approve of that.

I heard someone on the radio this am saying that he's consistent in wanting the private sector to come up trumps rather than increasing public sector housing but of course we as taxpayers are backing the 20% subsidy so I'm not sure.

We shall have to see how it works out in practice. It could push up the cost of housing even more as there is a lot of pent-up demand from first-time buyers who will all be rushing to buy now.

I'm not sure what happens to the 20% when it's time to sell if prices go down. Does the government get 20% of the proceeds or does the seller take the hit?

If it helps first-timers rather than BTL landlords it will be a good thing. So given we are where we are I suppose I think it's a good thing.

I bet housebuilders have cracked open the champagne. In a way it's a subsidy to them.

Demetrius said...

Are there that many people now around who can afford all this? Or is it intended to ramp up high levels of personal and consumer debt again that will be unsustainable once interest rates move up. But if the rates are kept down and personal savings and pensions evaporate what then?

Botogol said...

sigh, every intervention the government makes seems to be aimed at keeping house prices high, from

- increasing subsidies to people buying them
- punitive stamp duty to discourage anyone from ever moving, so reducing liquidity
- low interest rates to make massive mortgages affordable (albeit if yoi can get one)

Botogol said...

also really need to think about the glib term 'first time buyer'

Does it just mean 'doesn't currently own a house' or 'never has'

If the family home is in my name, and we buy a holiday home in cornwall in my wife's name - is she a first time buyer?

If I bought a flat in the 1990 bubble, failed to keep up with the mortgage, had it repossesed, have lived in social housing eversince, and now want to buy, am I a first time buyer?

If I sold up in 2003, went to Qatar, and am now moving back and have no property in the UK -- am I a first time buyer?

Basically there is no definition of first time buyer and no one knows who is one...

Botogol said...

add - if a couple get divorced and have to sell the family home -- are either / both / neither of them first tine buyers?

Woman on a Raft said...

This is the bit where Bialystock and Bloom are in prison and the first thing they start doing is offering shares in the production of Prisoners of Love.

Bill Quango MP said...

Botogol: The definition of affordable housing is even looser. Its basically housing that is affordable.

Anonymous said...

Suicide for the Tories.
I hope some of them read this blog or can pass a message to them:

Cautious Clara said...

If the current uncertainty in the jobs market remains, there may well be a reluctance to jump on board this new bubble. The previous bubble was stoked by folk having reasonable certainty of remaining in work for many years ahead - a situation which may not necessarily be so today, especially if your livelihood is in retail.

Bill Quango MP said...

Good comments as ever.

dearieme: The new immigration. May not be that many. But even 30,000 is too many if they all pitch up in two or three cities like the last time.

Anon: The housing in the right areas. its not just about how many houses there are. But where they are.
There needs to be jobs, schools, transport, shopping to attract people. The areas with the best schools have the highest house prices.

And there's neighbours, local amenities, noise, flooding and all the other factors to consider.

Your proposals have much merit. But making housing available doesn't make it desirable. Many new buyers would rather have a smaller, modern home/ parking/ manageable decking garden/ low energy cost,windmill on the roof, double glazed starter than a difficult older house/apartment.

Clive: Great rantoff. And I know what you mean. Is this the end of sanity.
But we know that a boom creates growth. And a housing boom doubly so.
At the very least it will give the construction sector a lift.

I despaired that the Brown/Darling/ Osborne answer to the bankrupt economy was to get the banks back into the finance game as quickly as possible. Because that was the only solution available in the time available.

It would take 20 to thirty years to get our manufacturing base into a semi-German type shape. We need the tax receipts now. So..banking brings in 10% of all revenue..And its made out of nothing much..pump pump pump.

BE: Changed games. LAs should be all over you for your accommodation. 2 bed isn't it? And 1st time buyers, such as you did, would jump at it.

As for knowing when to take the foot of the inflating bubble pump..No one knows when is the right time. And no government ever does it anyway.

Jan: Who gets what , when..don't know. I didn't look.
And you're right. Housebuilding shares on a bit of a climb.

Alex said...

It's a great idea if the following are true ...
Houses are underpriced.
Moral hazard doesn't exist.
The role of government is to compensate people for bad decisions.
Taxpayers should subsidise home-buyers.
What we really need at the moment is for more individuals to take on debt.
What we really need at the moment is for the government to take on more debt.
Subsidising the purchasers of houses won't push up the price of houses.
When the government sprays money on rushed, badly thought-out gimmicks it always goes well.
House prices can only ever go up. And that's a wonderful thing for everybody.
I just saw a hobbit riding a unicorn.

agence web said...

"The government will lend 20% of the purchase price, on an interest-free basis for five years, to buyers able to find a 5% deposit."I think this is a good idea.It is useful and intersting really in my opinion.

Bill Quango MP said...

Demetrius: I think you're right. i fully expect in the detail people will discover that if they really desperately need the assistance they won't qualify. While those that can manage without will be eligible.

Anon: Actually fairly positive responses from what I saw on the tv. Whether that translates into votes?
Most thought it a good ploy.
Especially considering the toxicity of the coalition.

Even their childcare initiative, that should by any objective measure have been welcomed by at least by women, was slammed by the press.

Cautious Clara.I think that's a truth. Pepole will be careful about rushing into debt again.

I know that i never ran up the debt that i could have, mostly because I'd been caught out in the 85-93 house price slump.
{Didn't stop me buying at probably the absolubte peak of the peak of the market in 2007..Oh well...}

Blue Eyes said...

Ideally the government wouldn't introduce schemes like this because in the long term they are madness as people have pointed out. The problem is the we have this totally mad boom-bust housing cycle. The boom was insane. The problem is that the busy is similarly insane. Why won't the banks sell mortgages on entirely sensible terms? I think George is right, the mortgage market is broken.

BQ is also right (as ever) not many people will take this up because the people who qualify won't need to and the people who need it won't qualify. It will also get delayed into insignificance (note George has today said that his announcement was an announcement of a consultation not an announcement of a package to come into action immediately).

I think the primary role of the announcement is, like the Bank of England remit amendment, an attempt to get people to move slowly and steadily towards the exit.

Ryan said...

Hmmm, I think this might have an interesting dynamic and might work out better than you expect.

Bascially the buy-to-rent middle-classes are crewing both the government and young people by buying up all the spare housing so nobody else can have it. Then young people find they can't buy a house but life goes on so they either rent direct or get pregnant thus forcing the local council to house them but no council housing so they end up paying for their rent instead. This has created a huge market for people renting against their will that end up having to pay higher rents than if they were buying - which is clearly wrong.

What will happen now is that suddenly a lot of young people that couldn't buy will be able to buy and the bottom will fall out of the buy-to-let market thus forcing rents down. This will make buy-to-let less attractive as an investment thus freeing up yet more property for young buyers.

Unless... the government continues to stay in the EU and ever more Europeans with no real job realise that they can come to the UK and get a house just by getting up the duff, because under Schengen rules they have absolutely the same rights as British citizens. Noooo, I can't imagine that happening can you? Thos Romanians wouldn't want to do that. I know there are 30,000 that have moved here already because they are "self-employed" (includes pimps and prostitutes) but surely they wouldn't spread the news that out welfare set-up means just anyone can come here and get a house essentially for free?

Ryan said...

Oh, and don't forget you also get free schooling. Which is importaqnt. Because now we have 200,000 extra school places to create for the immigrants who came here and then immediately decided to have a baby to ensure their free-house would be delivered promptly.

Anonymous said...

I raised this issue yesterday with the question "How bad are those loans that the Bnaks have."

No one seems to think another housing boom is needed. Jan raised the question of the 20% government-back deposit required to be repaid after 5 years - in the situation of negative equity.

Stupid idea, stupid policy unless....

.. the Banks' balance sheets are significantly worse than anyone thinks.

.. or GO is an economic idiot.

My money is on significant inflation to ensure negative equity (NE) is minimised - leading to banks reducing their exposure to NE - leading to happy voters - leading to landslide win in 2015. Or so the theory goes.

Buy land, buy Euros, buy gold.

Anonymous said...

@BQ - I'm not entirely sure I follow your logic here:
"..making housing available doesn't make it desirable.." but it doesnt make it undesirable either. The point was that current policies subsidise the removal of a taxable resource. Its like promoting a life on the dole for people in work. That's be a good election slogan for the Tories - "You'd be better off not working" - they might not be talking it, but they're cetainly walking it.

Your other point "There needs to be jobs, schools, transport, shopping to attract people." Well, yes but these things follow development, they dont precede it; thats why its called 'development'.
Your logic is circuitous; surely there needs to be people living in an area before schools, jobs and transport arrive? Nobody is going to build a row of shops and a clinic in the middle of a field hoping people will build houses nearby.

Bill Quango MP said...

Anon; I'm referring to price. The price of the house in the good street by the nice schools on an easy commute with a short drive to John Lewis is..well its in Richmond or Kingston or Hampton Hill. And the house prices there START at £150k for a studio bedsit. A two bed flat in a part social housing, not very desirable, 500 flat block is almost £350k.

And that is where the second homes buyer want to move to. And those areas are not getting more common because they are not numerous.
Only something like a new tube line/train route - motorway - Free school - shopping centre etc can make a less desirable area more desirable.
Eventually it happens organically. Not everyone can fit into Chelsea. Some had to live in downmarket Fulham. And those who couldn't get in there into Hammersmith. And so eventually those areas regenerate prosperously. But it takes a long time.

As you say building shops in a field won't make people visit them. {And I have blogged before - i think- about a retail developer who did just that, with predictable results}
Enlarging Merthyr Tydfil won't make people live there.

So I'm saying that the house price rise continues because the most desirable property prices will continue to rise, as long as someone can afford it.

The extreme example,and London has plenty of its own examples, being Monaco where a no bedroom/one reception bedsit type apartment will set you back €1,500,000 or more.

Electro-Kevin said...

There may not be enough houses (for the way we live - fragmented and dysfunctionally) but there are enough bedrooms.

There are loads of old ladies living on their own in large family houses and there is way too much immigration.

This is a clever move on Osborne's part.

If it works it works. If it doesn't ...

Labour inherit the mother of all hangovers in 2015.

No less than the bastards deserve.

My point of view is that this house market boost is not the sort of growth we need. A busy economy is not a growing economy - especially if all those new TVs and microwaves come from China.

We need an export led recovery and nothing else will do.

Electro-Kevin said...

Multi generational occupancy is the way people live in failing economies.

A good economy begets a good house market.

A good house market does not beget a good ecnonmy

Budgie said...

I don't think this is about housing actually, its about helicoptering money onto (some of) the population. Better than giving it to the banks directly, anyway.

Timbo614 said...

@Budge - good theory! My thoughts while I was watching were, if this is an austerity budget, why the generosity in some areas? We are so small a company that the £2000.00 national insurance break has real meaning. How long that holiday will last is what he did not say.

The beer thing is populist crap, he obviously does not know the pubs only move prices by 5p up these days nothing even crisps ends in odd pence.

The housing mortgage thing is a vote grab, that's why it's not quite ready yet. It also scares me, "sub-prime problem in 5 years then" was the first thought, but helicopter money? maybe that's what all the give-aways are?

Electro-Kevin said...

Budgie - I think you're getting confused with that old Barratt's advert.

Bill Quango MP said...

EK -Patrick Allen was the actor. The original and the best 'voiceover man'.

He was a decent actor, but is only in minor roles. Night of the Generals and he crops up in the Wild Geese.

But his voice was everywhere. Blackadder, Roland Rat, Reeves and Mortimer, and of course sampled onto the multi million selling
Two Tribes by FGTH.

But probably best known as the bloke who looked like he was flying over Barratt houses for no real reason. Probably subliminally to reassure us that they won't blow away from a bit of rotor wash.

CityUnslicker said...

I have been busy and missed a great thread - gutting.

Clearly we need more houses, but we already have cheap mortgages so that was not the problem. Better to have spent the money on social housing to build on brownfiled sites in London with RTB opportunity.

Blue Eyes said...

I agree with CU, better to give the cheap loans to housing associations to build good quality cheap housing. If it later gets sold off, meh.

Ryan said...

"Better to have spent the money on social housing to build on brownfiled sites in London with RTB opportunity"

Great idea CU. Because that would fit in with the British view of London having been totally invaded by downmarket immigrants with no real worthwhile jobs living off white tax payers in the shires who are the ones really providing the immigrants food and housing.

Who knows, you might actually create a situation so obviously unjust that no amount of BBC soothing words will calm matters and civil war will break out.

Anonymous said...

This move is a sop to the banks and voters by the following mechanism:

People who currently own property are falling into arrears because they 1. overpaid for their houses and/or 2. withdrew equity to live high on the hog from 1998-2008. Now entering their 50s they find they are utterly f*cked with no jobs, reduced income and no pensions and a huge mortgage still outstanding.

What Osbourne is trying to do is allow these people to remortgage their properties and by doing so avail of the 20% 'free money' scam. This will have the immediate effect of reducing their mortgage payments by a commensurate amount BUT it will also relieve the pressure on the banks tattered (and unravelling more by the day) mortgage books.

This is a taxpayer funded scam to stave off bankruptcy for the clowns who over-borrowed during the boom. It is can kicking at its best. Unfortunately the young will be left with the bill because the govt are propping up the homeowners who are living in houses they could not, cannot and will never be able to afford. This removal of 'natural wastage' from the system would allow prices to revert to the mean and recycle the housing stock - young with families in larger houses, old ladies with cats in smaller houses.
This isnt just a financial f*ck-over, its a societal, economic and generational one too.

Incidentally, BQs last reply shows him to be shockingly out of touch with reality. Sad really as I had thought more of him.