“Throwing another £10bn at the subsidy scheme will do nothing to improve the UK’s underlying housing problem
When former chancellor George Osborne launched his help to buy housing scheme in 2013, wise heads warned that, once a government starts subsidising mortgages, it will find it hard to stop.
So it is proving. Another £10bn is to be thrown at help to buy, the government has said in a supposedly crowd-pleasing announcement. This is a 50% increase on the sum already spent. City analysts calculate it will take until 2027 for all the money to be distributed. For as far as the eye can see, help to buy is here to stay.
On the evidence since 2013, the only guaranteed beneficiaries will be housebuilders. With a prop under house prices, their profit margins have returned to the 25% mark. Returns on capital are fatter in many cases. Yet this lovely cash hasn’t fuelled a golden era of housebuilding. Instead, the companies are returning their “surplus capital” to shareholders. Top executives, incentivised to do exactly that, are becoming richer than pre-crash bankers.
It isn’t even obvious that first-time buyers, as a group, have gained much. The ability to buy a new home with a 5% deposit is of questionable benefit if the price of the house has been artificially inflated and the government’s “interest free” portion of the mortgage doesn’t last forever.
Back in 2013, Osborne had excuse of sorts – he could plead that the banks were still in post-crash recovery mode. By contrast, the Bank of England these days frets about too much credit in the system, not too little. The situation cries out for imaginative policies to boost the supply of housing – especially regeneration projects. Another sugary serving of help to buy will do nothing to improve the underlying problem.
“We mustn’t let this scheme turn into a permanent scheme,” warned Lord King, governor of the Bank when help to buy was launched. His argument was that the policy was “a little too close for comfort to a general scheme to guarantee mortgages”. Too late now. Help to buy has acquired a life of its own and no politician dares to stand in its way.”