Help to Buy will inflate another housing bubble

One major part of the scheme, hurriedly brought forward by three months in an attempt to counter Labour’s populist announcements, is potentially toxic.

The Conservative Party has spent the past fortnight accusing Labour of reviving 1970s-style socialism in the form of policies such as a temporary freeze in energy prices. The irony is that it has done so while undertaking the largest-ever state intervention in the housing market. With the introduction of its Help to Buy scheme, the government that arrived in office committed to rebalancing the economy away from its reliance on property and private debt has adopted a policy that will encourage the reverse.

The first part of the scheme, which came into effect in April, is a justified intervention. By allowing buyers to borrow 20 per cent of the value of a new-build home worth up to £600,000, the government is seeking to incentivise housebuilding, which last year stood at its lowest level since the 1920s. After six months, it has had some success. In September, construction activity grew at its fastest rate since November 2003, helping to stimulate growth and employment.

It is the second part of the scheme, hurriedly brought forward by three months in an attempt to counter Labour’s populist announcements, that is potentially toxic. George Osborne, ostensibly a fiscal conservative, has issued £12bn of state guarantees for up to £130bn of mortgage lending. The offer applies to all properties, whether new-build or not, and will allow buyers to purchase homes worth up to £600,000 provided they make a deposit of at least 5 per cent.

In an attempt to emulate the success of Margaret Thatcher, whose Right to Buy council house scheme increased the Tories’ electoral fortunes among low- and middle-income groups, David Cameron has presented the intervention as one aimed at supporting first-time buyers. He declared during the Conservative conference: “As Prime Minister I am not going to stand by while people’s aspirations to get on the housing ladder are being trashed.”

Yet the early signs are that Help to Buy will do less to aid would-be buyers than Mr Cameron suggests. Those banks participating in the scheme are offering interest rates around 5 per cent, above the level that many can afford when average earnings are still 1.7 points below inflation. As such, the policy risks acting primarily as a subsidy for existing homeowners seeking to trade up or to borrow against the value of their property. Mr Osborne’s decision to set the cap for aid at £600,000, when the average house price is £172,000, is evidence that he is more concerned with creating a pre-election feel-good factor among Tory-leaning owners than he is with aiding firsttime buyers.

Even as it allows some to make it on to the ladder, the scheme risks blocking the route for others by further widening the gulf between prices and earnings.

David Cameron meets two first time buyers as the Government launches the Help to Buy scheme. Image: Getty

This article first appeared in the 11 October 2013 issue of the New Statesman, Iran vs Israel

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Andy Burnham's full speech on attack: "Manchester is waking up to the most difficult of dawns"

"We are grieving today, but we are strong."

Following Monday night's terror attack on an Ariana Grande concert at the Manchester Arena, newly elected mayor of the city Andy Burnham, gave a speech outside Manchester Town Hall on Tuesday morning, the full text of which is below: 

After our darkest of nights, Manchester is today waking up to the most difficult of dawns. 

It’s hard to believe what has happened here in the last few hours and to put into words the shock, anger and hurt that we feel today.

These were children, young people and their families that those responsible chose to terrorise and kill.

This was an evil act. Our first thoughts are with the families of those killed and injured. And we will do whatever we can to support them.

We are grieving today, but we are strong. Today it will be business as usual as far as possible in our great city.

I want to thank the hundreds of police, fire and ambulance staff who worked throughout the night in the most difficult circumstances imaginable.

We have had messages of support from cities around the country and across the world, and we want to thank them for that.

But lastly I wanted to thank the people of Manchester. Even in the minute after the attack, they opened their doors to strangers and drove them away from danger.

They gave the best possible immediate response to those who seek to divide us and it will be that spirit of Manchester that will prevail and hold us together.

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