The aspiration of home ownership has long been a somewhat inherent British attitude. Unlike in countries like Germany where a larger number of people rent their home, buying a house in the UK is almost viewed as a social rite of passage. Conversely, it’s led to some attitudes of people snobbishly turning their noses up at those who choose (or are compelled) to rent long term and contributed to the unwarranted stigma of living in social housing.
There are obvious advantages (and disadvantages) to buying a home over renting. But for many, it’s often a sign of successfully climbing the social ladder. Governments in recent history have therefore sought to capitalise on that and facilitate home ownership for those that would otherwise be frozen out from getting on the property ladder. Most recently, the government has introduced Help to Buy with the same intention. Yet like many government schemes, populism trumps pragmatism and Help to Buy is no different.
Help to Buy is allegedly aimed at people for who raising a deposit is their main obstacle to buying a home. Typically, that should mean people who may be on modest incomes that prohibit them from saving or those without the traditional middle class route to a deposit from parents, family or inheritance. With Help to Buy a deposit of as little as 5% is required. While a mortgage of up to 95% is made available via a traditional lender with a seven year government backed guarantee of 15% of the mortgage.
In principle, Help to Buy seems sensible and will undoubtedly open up home ownership to a group that traditionally may not have had the social or economic clout to achieve it. Similarly, at face value, so did Right to Buy (Margaret Thatcher’s policy of giving social housing tenants the opportunity to buy their rented home at a discount). Though just as an acute lack of social housing has been a legacy of Right to Buy, the potential consequences of Help to Buy are far from completely positive.
In defence of Help to Buy, David Cameron said "As prime minister, I'm not going to stand back while people's aspirations to get on the housing ladder, to own their own flat, to own their own home, are being trashed." Well, that’s very noble of him, isn’t it? Cameron’s Conservative-led coalition government is responsible for some of the least egalitarian social and economic policies since Thatcher. So why is his stance different when it comes to home ownership? Ideologically, home ownership is a very conservative (and therefore Conservative) ideal so perhaps Help to Buy shows Cameron hasn’t forgotten his party’s ideological roots.
While Help to Buy is intended to help those who would struggle to raise a deposit, there are many potential eligible applicants who aren’t struggling per se to raise the cash for a down payment. Rather, many well-off applicants will be perfectly able to raise the money but Help to Buy will facilitate not needing to do so. Are they the kind of applicants that come to mind when thinking of those struggling to raise a deposit? I think not. Moreover, with Help to Buy being offered on properties with a value of up to £600,000, it’s highly questionable that anyone seeking to buy a house of that value would be struggling with a deposit. As a result, I’m cynical of who Help to Buy is really primarily intended to help.
The government seemingly also hasn’t considered the impact of increasing the amount of money being lent in the housing market. Nor has it considered the consequence of increased demand for property when it’s allegedly trying to help first time buyers struggling with their deposit.
By guaranteeing 15% of a mortgage, the government is giving lenders more confidence through Help to Buy. That means more money will be lent with a knock-on effect of higher house prices and the likelihood of a housing bubble. That won’t help first-time buyers but merely push home ownership further out of their reach. It’s basic economics but a principle the government has ignored. Similarly, they’ve not taken heed of recent history in how high loan-to-value mortgages can lead to disastrous outcomes for the housing market and the wider economy. And compounded by a scheme where the government guarantees 15% of the money borrowed, it’s not difficult to see the significant risk Help to Buy presents to the economy.
Supporters of Help to Buy will argue that it will help to stimulate the housing market. But it could instead precipitate events akin to the subprime mortgage crisis with more irresponsible borrowing. The government has assured critics of Help to Buy that stricter eligibility for borrowers will mitigate that risk. Nonetheless, I’m sure lenders will find a way to creatively circumvent that if they desire. After all, there is a precedent for it and sadly the financial sector has enough influence over the government to make it happen.
I’m not averse to enabling home ownership for those that aspire to it. Indeed, I’m sure Help to Buy will make that a reality for some people who would otherwise be unable to get on the property ladder and I’m not bemoaning that. But the wider consequences of the scheme could be dire. Help to Buy doesn’t address the ongoing concern of providing affordable housing; it simply exacerbates it at the expense of the very people it’s claimed to be assisting.
There are obvious advantages (and disadvantages) to buying a home over renting. But for many, it’s often a sign of successfully climbing the social ladder. Governments in recent history have therefore sought to capitalise on that and facilitate home ownership for those that would otherwise be frozen out from getting on the property ladder. Most recently, the government has introduced Help to Buy with the same intention. Yet like many government schemes, populism trumps pragmatism and Help to Buy is no different.
Help to Buy is allegedly aimed at people for who raising a deposit is their main obstacle to buying a home. Typically, that should mean people who may be on modest incomes that prohibit them from saving or those without the traditional middle class route to a deposit from parents, family or inheritance. With Help to Buy a deposit of as little as 5% is required. While a mortgage of up to 95% is made available via a traditional lender with a seven year government backed guarantee of 15% of the mortgage.
In principle, Help to Buy seems sensible and will undoubtedly open up home ownership to a group that traditionally may not have had the social or economic clout to achieve it. Similarly, at face value, so did Right to Buy (Margaret Thatcher’s policy of giving social housing tenants the opportunity to buy their rented home at a discount). Though just as an acute lack of social housing has been a legacy of Right to Buy, the potential consequences of Help to Buy are far from completely positive.
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While Help to Buy is intended to help those who would struggle to raise a deposit, there are many potential eligible applicants who aren’t struggling per se to raise the cash for a down payment. Rather, many well-off applicants will be perfectly able to raise the money but Help to Buy will facilitate not needing to do so. Are they the kind of applicants that come to mind when thinking of those struggling to raise a deposit? I think not. Moreover, with Help to Buy being offered on properties with a value of up to £600,000, it’s highly questionable that anyone seeking to buy a house of that value would be struggling with a deposit. As a result, I’m cynical of who Help to Buy is really primarily intended to help.
The government seemingly also hasn’t considered the impact of increasing the amount of money being lent in the housing market. Nor has it considered the consequence of increased demand for property when it’s allegedly trying to help first time buyers struggling with their deposit.
By guaranteeing 15% of a mortgage, the government is giving lenders more confidence through Help to Buy. That means more money will be lent with a knock-on effect of higher house prices and the likelihood of a housing bubble. That won’t help first-time buyers but merely push home ownership further out of their reach. It’s basic economics but a principle the government has ignored. Similarly, they’ve not taken heed of recent history in how high loan-to-value mortgages can lead to disastrous outcomes for the housing market and the wider economy. And compounded by a scheme where the government guarantees 15% of the money borrowed, it’s not difficult to see the significant risk Help to Buy presents to the economy.
Supporters of Help to Buy will argue that it will help to stimulate the housing market. But it could instead precipitate events akin to the subprime mortgage crisis with more irresponsible borrowing. The government has assured critics of Help to Buy that stricter eligibility for borrowers will mitigate that risk. Nonetheless, I’m sure lenders will find a way to creatively circumvent that if they desire. After all, there is a precedent for it and sadly the financial sector has enough influence over the government to make it happen.
I’m not averse to enabling home ownership for those that aspire to it. Indeed, I’m sure Help to Buy will make that a reality for some people who would otherwise be unable to get on the property ladder and I’m not bemoaning that. But the wider consequences of the scheme could be dire. Help to Buy doesn’t address the ongoing concern of providing affordable housing; it simply exacerbates it at the expense of the very people it’s claimed to be assisting.
