The government has brought forward the second phase of its ‘Help to Buy’ scheme that subsidises low deposit (higher risk) mortgages on houses worth up to £600,000. The first phase was restricted to new build homes, now it can apply to any house.
Given the desperate shortage of housing many will look to the move with hope – research suggests two thirds of young adults hope to use the scheme to move or buy their first home.
But the Independent’s Mira Bar-Hillel quoted Karl Marx saying “history repeats itself first as tragedy, then as farce” to describe the prospect of a new housing boom resulting from the scheme.
What is Help to Buy?
The government guarantees 95% mortgages, shielding banks – not buyers – from 20% of the losses if a loan goes bad.
While the poor are hit with a brutal bedroom tax, Chancellor George Osborne seeks to curry favour in the Tory heartlands with £12 billion of immediate support for buyers.
According to Andrew Grice in the Independent he cynically told the cabinet: “Hopefully we will get a little housing boom and everyone will be happy as property values go up.” To state the obvious, rising prices won’t help people to buy. But he expects rising house prices to be welcomed by home owners who stand to gain.
As much as £130 billion of mortgages could be financed by the scheme over the next three years with the government underwriting them in the event of default.
The scheme opens the potential for a massive further bailout for the banks – so much for Osborne’s claims to be ending a ‘culture of debt’.
Even big business mouthpieces have been alarmed by the move. Peter Mackay in the Mail poses the question: “So, a win-win situation – new houses for some and electoral help for the Tories? Or, lose-lose – a housing bubble which, if it bursts, leads to a backlash against the Tories for causing it in the first place?” The headline gives Cameron his answer “Don’t buy votes with reckless loans, Dave”. Even the IMF has expressed concern.
Risk of defaults
The banks worry what would happen in a future crash, including the political fallout of another bailout and what happens to borrowers when interest rates rise.
Even now, with historically low interest rates, one in 35 homes are at risk of repossession in parts of England according to research by housing charity Shelter.
Stretched home owners could suddenly face big increases in repayments and default – shades of the sub-prime crisis that hit the US state-linked mortgage lenders Fannie Mae and Freddie Mac during the financial crash.
The policy springs from desperation. Despite positive noises about economic growth from Cameron and Osborne, they know the underlying position is desperately weak.
Osborne appears to have learnt nothing from the crash, representing a capitalist class addicted to parasitical finance-dominated capitalism.
Many will be excluded from the scheme leaving them in unregulated, insecure, private rented accommodation while others are drawn into unsustainable loans.
As the Independent warns: “Left on the beach will be aspiring home buyers nursing broken dreams and renewed cynicism towards all politicians.”