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The Tory leadership is betting the house on house prices – it might not end well

By Peter Hoskin
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2013-05-21 14.19.40

Strolling through Brixton a couple of weeks ago, it wasn’t so much the new, half-finished block of flats that caught my eye as the way those flats were being promoted. A sign had been pinned onto the boarding outside, highlighting the bare facts of the Government’s new Help to Buy scheme: “5% Buyer’s Deposit, 20% Government Loan, 75% Mortgage.” And then, underneath that, the words “Don’t Miss Out”.

For those in No.11, it’s probably the happy housing equivalent of those “Cheers to the Chancellor” signs appearing outside pubs to mark the fall in beer duty: homebuyers can have one on George, and don’t you forget it when the next election comes around. But, to my eyes, it’s all rather worrying. The two-part Help to Buy scheme announced in the Budget – £3.5 billion’s worth of government loans for people buying newly-built homes, and £12 billion’s worth of underwriting for mortgages – contains plenty to fear.

The first terrifying possibility was raised by Mervyn King a few days ago. He’s worried that the scheme, currently scheduled to last three years from next January, could be extended into something bigger and more permanent. As he put it, “this scheme is a little too close for comfort to a general scheme to guarantee mortgages.” And if that were to come about, then taxpayers would face a massive liability should everything go a little bit sub-prime. “We do not want what the United States has, which is a government-guaranteed mortgage market…”

But, even putting that dread possibility aside, there’s the effect that Help to Buy could have on homebuyers themselves. While it may help some people saunter on to the property ladder now, there’s a possibility that it will block many more from doing so in future. After all, if demand for properties is increased, then prices are sure to follow. That converted garage in Camden could just go from half-a-mill’ to three-quarters-of-a- mill’ in five years’ time. Great news for anyone who manages to squeeze into in now. Not so great for people looking to buy then, who either won’t benefit from the same government schemes or for whom the government schemes may prove insufficient.

As it happens, there are already signs that a new housing bubble is being inflated, at least in parts of the country. A report by Rightmove, published yesterday, revealed that the average house price in England and Wales is now £249,841. In Greater London it’s £509,870, and has risen by 8.6 per cent over the past year. Little wonder why today’s inflation figures show the headline rate – which doesn’t include house prices, but which currently underpins the Bank of England’s policy decisions – declining from 2.8 to 2.4 per cent, while the rate for house prices rose from 1.9 to 2.7 per cent. As the Independent’s Ben Chu suggests, it’s a rum set-up.      

And, remember, what goes up sometimes comes down. Should the housing market ever correct itself, then a lot of people stand to lose out. We know this because it’s already happened, in limited form, since the financial crisis. In six of ten regions of the UK, house prices have fallen over the past five years. In the North East, the average price has gone from £127,900 in August 2007 to £99,295 now. For the Government, more people taking on more debt may spell recovery. But for the people themselves, it could just mean more debt.

Of course, from Burke through Thatcher and on to Cameron, conservatives have tended to value property-ownership. But, with the market as subverted as it is, it shouldn’t be regarded as an unalloyed good; and particularly not when a government-sponsored borrowing binge is required to bring it about. A more helpful solution – as, yes, Polly Toynbee suggests in her column today – would be to build more affordable housing. This may not be as easy as underwriting mortgages, nor boost the assets (and secure the votes) of the baby-boomers, nor create an illusion of prosperity, but that’s precisely the point – bricks have more worth than bubbles.


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