tony's blog

Monday, May 19, 2014

Don't get hung up about Help to Buy

Among many other revelations on March 16th in the budget the Chancellor announced that the Help to Buy (HTB) scheme would be extended for new build homes. This is the so-called Help to Buy 1  shared equity scheme rather than the guarantee scheme. So is this a mistake, stoking up a housing bubble further, a dastardly plot to get his hands on more stamp duty, a shallow political scheme to get more votes or a genuine move to continue support for a key component of the economy? To answer this you have to consider the financial assistance that has been provided in the round. Help to Buy is a relatively small component of this and that probably gives you a hint about where I’ll be going with this.

When the funding crisis kicked off in 2007 the UK economy, global banking system, mortgage markets and housing markets were facing a massive problem. Armageddon is not an exaggeration. And the Bank of England and Government dealt with it. Eventually.  Not to have provided any support doesn’t bear thinking about and any quibbles about potential housing bubbles are irrelevant against that backdrop.

In my view the two biggest forms of support for the economy , mortgage and housing markets are not HTB but instead are QE – some £375bn of which has been pumped into the system and Funding for Lending. But taken as a whole all of the schemes including HTB have played their part. In some ways the role of these schemes is to underpin confidence and looking at the markets and economic regeneration underway today that seems to have been achieved.

So is HTB likely to cause a bubble? I don’t think so. All of the feedback I hear is that the majority of users of HTB are outside of the superheated London and South East areas and are for loans of less the £300k and so the £600k limit could easily be reduced without effect. Is the Chancellor doing all of these things just to ensure the health of the housing and mortgage markets or does he have ulterior motives? Well who can know with certainty but the election is near. I stress again though, other stimuli is having a much greater effect than HTB in my opinion. Will it all end in tears?  Well I hope not for all our sakes but there are various levers that the Bank of England/PRA have – so called macro prudential levers and of course interest rates. I’m sure these will be used as and when necessary and with care so as to not cause unnecessary shocks. I don’t think the industry should get hung up about HTB in my view.

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