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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