“The policy is a nonsense so profound you simply couldn’t make it up.”
The government’s back in the business of underwriting mortgages, in a move that sees Rishi Sunak using a taxpayer-funded helicopter to spray petrol on to the house price wildfire currently burning.
The market was running hot before this latest intervention, which sees the state underwriting 95 per cent mortgages for homes worth up to £600,000. Rightmove, for example, recently reported a 2.1 per cent jump in asking prices month on month, taking them to a record £327,797. The annual increase was 5.1 per cent.
That’s what happens when a shortage of supply meets heavy demand, the first lesson your child will learn when they start taking economics classes, but something Mr Sunak, a former banker, seems to have forgotten.
There are multiple reasons for this: the forthcoming end of the stamp duty holiday, the gradual opening up of the economy post-lockdown, people reassessing their circumstances as home working is much more widely adopted are just a few of them.
The problem with throwing the government-backed mortgages into the mix is that it will further increase demand, and thus prices, by bringing an army of new buyers when there will be no corresponding increase in supply.
It has justified this, and similar policies, by arguing that it’s helping people to get on to the housing ladder.
But the policy is ultimately self-defeating because, sure, some buyers who couldn’t raise the deposit for a 90 per cent home loan will now be able to get on the ladder at 95 per cent (although mortgages at this level are proving to be quite expensive).
Trouble is, it doesn’t matter if your mortgage is for 95 per cent of a home’s value, 90 per cent or even 100 per cent, you aren’t going to get one if you can’t pass the strict affordability tests financial watchdogs force lenders to apply.
So Peter, who’d saved diligently for a deposit for a home he could just afford prior to the scheme, gets robbed by Paul, who, with a higher salary but less savings, can afford to buy at a higher price through one of the new subsidised 95 per cent loans.
This is exactly what happened with the previous help to buy schemes, a point made by housing charity Shelter.
“The fundamental problem with help to buy is that it tries to solve the problem of unaffordable house prices by making it easier for potential buyers to access a mortgage.
“As the amount of mortgages issued are a key driver of house prices, the schemes push up prices further,” it said.
History looks set to repeat itself. Think about this as well: to afford a 95 per cent mortgage for one of the £600,000 home at the top of the scheme you’ll need to be among the fortunate few with an annual household income of £127,000 or more.
Quite why the government is subsiding home loans for these people at a time when it’s next to impossible to get a council house in some parts of the country is beyond me.
The policy is a nonsense so profound you simply couldn’t make it up.
The biggest beneficiaries will inevitably be the fat cats at the top of the big house builders, who must be drooling right now. Profits – and CEOs’ bonuses – are set to go through the roof.
Meanwhile, Britain has a chronic shortage of affordable housing, while those forced to rent privately have few rights and scant chance of making genuine homes of the properties they live in given they can be turfed out whenever it’s convenient for the landlord to cash in.
And don’t even get me started on cladding and Grenfell.
But that’s Tory housing policy for you: a disaster whichever way you look at it.