Help to Buy: still moronic?

David Cameron launched his much-maligned mortgage scheme this morning, amid even more criticism.

by Emma Haslett
Last Updated: 24 Feb 2016
So now we know how much having a 5% deposit on a house is going to set buyers back: if you’re signing up for a mortgage with NatWest or RBS, it’s going to be 4.99% for a two-year fixed rate mortgage, or 5.49% for five years. With Halifax, it’s 5.19% for a two-year fixed rate, on top of a £995 free.

Other banks have yet to announce their rates, although HSBC, Virgin Money and Aldermore bank have all said they’ll join the scheme ‘later this year’.

Alright, so Help to Buy, which was launched this morning by David Cameron, three months earlier than originally planned, isn’t daylight robbery (when NewBuy, the earlier form of this scheme, launched in 2012, Nationwide offered rates as high as 6.2% on a 95% loan-to-value ratio). But it isn’t exactly cheap, either.  

In an interview on this morning’s Today programme, chief secretary to the Treasury Danny Alexander rejected any notion that the scheme is going to cause a bubble.

‘I don’t see this boom going on that some… commentators seem to imply,’ he said.

‘People who think there’s a housing bubble should get out… of Kensington and Chelsea and go to Manchester or Birmingham, and major towns across the country.’

He is at least half-right – there isn’t a boom in Manchester or Birmingham. But that’s got more to do with the availability of jobs than it does with the availability of mortgage finance. And that comment does nothing to help the people who are looking to buy in central London – or, indeed, anywhere within the M25.

With most of London’s supply of new homes being sold off-plan to buyers abroad (49% of new-build purchases in the prime central London market were by non-UK residents, according to figures by posh estate agent Knight Frank this morning), prices are continuing to rise. And the cost of commuting makes moving out of London impossible – so they’ll stay stuck in rental property; Help to Buy or no Help to Buy.

Criticism of the scheme is plentiful, from those who point out that putting young people in hundreds of thousands of pounds of debt that they can’t afford is sort of how we ended up with a financial crisis in the first place, to those (the Commons Treasury select committee, to name one) who argue that the scheme will push up house prices, rather than stimulating new supply.  

Many critics’ points are that even without Help to Buy, the recovery in the housing market is well underway. Figures published this morning by the Royal Institute of Chartered Surveyors found that over the past month prices rose in every region across the UK, except for the North East. Surveyors are now more confident prices will continue to rise over the next three months than at any time in the past 10 years. The market is undoubtedly going well.

What’s interesting is that as part of its announcement this morning, the government revealed the fact that it would charge banks a one-off fee of 0.3-0.9% per home loan it guarantees. Depending on how popular the scheme ends up being, this could be a nice little money-spinner for the Treasury. No wonder David Cameron was so keen to launch it scheme early.

As ever in these scenarios, only time will tell whether Help to Buy is a success. While the politicians are all very keen to trumpet its leveling effect on house buyers, others are hoping it’ll die a quiet death, to be laid to rest alongside other attempts at stimulating the housing market like NewBuy and, well, the first version of Help to Buy.  

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