Special Feature: Another sub-prime boom?
The Help to Buy initiative is only a couple of days old but already it is copping a fair bit of flack in the media.
Admittedly the details have yet to be finalised, George Osborne has said as much himself, but what a growing number of observers are concerned about is that Help to Buy could create another property bubble before the last one has burst.
House prices are still head and shoulders above earnings even in areas where values have fallen and as for the capital, let’s not even go there.
The worry is that the mortgage guarantee element of the Help to Buy scheme will create considerably more demand for property, and significantly drive up transaction levels, which will in turn drive up prices.
There is also a concern that the new guarantees will encourage people who perhaps shouldn’t buy, to buy and that Help to Buy could land us back in the kind of geared housing crisis that triggered this whole mess in the first place – large mortgages secured on overvalued property.
After all what happens when rates finally start to edge up? And what happens if house prices collapse as yet they might?
Homeowners, not to mention the UK taxpayer who is ultimately backing the scheme, will once again be vulnerable.
As one journalist put it, there are already accusations that Osborne is prescribing the same medicine that the patient overdosed on in the first place.
Whatever you think of Help to Buy, for the Chancellor it really is an extreme case of “damned if you do, damned if you don’t’.
For a few years now the public and media have been crying out for the high street banks to start lending again at higher loan to values, albeit responsibly.
The moment George Osborne comes up with a scheme that may well fire up the property market again by empowering those with smaller deposits, he gets it in the ear for being irresponsible and risking another sub-prime property boom.
Personally, I don’t think Help to Buy will trigger a new bubble. Geared and irresponsible lending is a dark place banks just don’t want to go back to and even if they feel more assured because of the government guarantee, they will not be reckless.
As for George Osborne, whatever he does is not enough. Oh to be in politics.