Help to Buy won't bring a sub-prime crisis to Britain – but it does move us closer to one

Boosting house prices is a funny way to solve the housing crisis, writes Preston Byrne.

As I write, a banner atop my Gmail account announces: “Help to buy... 5% deposit, 20% government loan, only 75% mortgage needed.” Gmail, of course, makes money by scanning user e-mails for key "phrases that a customer would use when referring to… products or services” and delivering the appropriate advertisements. The all-seeing eye of Google will long ago have figured out that (1) I am a renter, (2) I am a yuppie and (3) I have a keen interest in the Help to Buy program – admittedly, not yet as a consumer but as a writer.

Given Britain's seemingly insatiable demand for housing, I am therefore not at all surprised that this advert has appeared. The reasons should be plain enough. Housing is tremendously expensive, and “Help to Buy” is a convenient tagline for what are, in fact, two separate government programs to make it easier to access:

  1. An “equity loan” component where the Exchequer will top up a 5 per cent deposit with an additional 20 per cent of equity on a new-build mortgage worth up to £600,000, and
  2. A “mortgage guarantee” component which is in effect a state-backed insurance policy made available to banks lending into the sector where up to 80 per cent of their lending will be backed by the government for a period of up to 7 years after a relevant loan is originated.

Opinions on the wisdom of the scheme diverge widely. For its part, the Government “insists” that the scheme is benign, as the “intervention in the housing market is a prudent one,” “the scheme will run for only three years", and it will help “families who aspire [see what they did there?] to buy a newly built home, and the construction industry, too." Furthermore, as far as the mortgage guarantee is concerned, the Government argues that “evidence shows that loans are unlikely to default” after the seven-year lifetime of the guarantee has elapsed. Friendly media therefore gush that the program might “be [the] start of [a] renewed mortgage market”, and one which is “very welcome and will provide a real option for people currently unable to buy” at that.

The scheme is not without its detractors, who tend to take the view that the program is fuelling an already overheated housing market. One industry commentator describes it as “absolutely insane… building a sub-prime mortgage sector just as they did in the US,” and others accuse the government of creating “another housing bubble pushing prices up at the expense of buyers.”

The arguments on either side have their merits; in my view, neither is entirely correct. As to the Government, arguing that the scheme “only lasts three years” is a touch misleading; the taxpayer bears the downside risk on the mortgage guarantees over a seven-year timescale, a fact which acquires particular relevance when we consider that house prices in the United States, awash in cheap credit, took a mere four years to decouple from their underlying assets, grow exponentially and then collapse. On the equity loan side, the taxpayer eats the loss of the capital value of the each loan in its first six years (when it is interest free); interest thereafter is 1 per cent above RPI, hardly a market rate. As to the scheme's detractors, talk of sub-prime mortgages and housing bubbles are simply not appropriate analogies: the American securitisation markets did and continue to operate on a scale multiple orders of magnitude larger than the £130bn of guarantees and £3.5bn of equity lending entailed in Help to Buy.

The truth lies somewhere in the middle. As subsidy, Help to Buy is likely to capitalize not only into the value of eligible new-build property, but also into the prices of existing housing stock to the extent that such housing is substitutable with the new-builds. As house prices rise, consumers will need to borrow more in order to enter into the market – and in the current low-interest rate environment, they will be pushed to pick variable- rather than fixed-rate mortgages.

Here the American comparison is more apt. In Bush's America, a low interest-rate environment encouraged borrowers to take advantage of adjustable-rate mortgages which would be prohibitively expensive in a higher interest-rate environment. However, as put by Adam Levitin and Susan Wachter, these “(were) a poor financing choice given that rates were likely only to adjust upwards in the future,” with the consequence that “housing finance was becoming relatively cheaper, even as it was becoming riskier.” And this, of course, risks, though does not necessarily ensure, a housing bubble: in another paper, Levitin and Wachter argue that “the (U.S. housing) bubble was, in fact… a supply-side phenomenon, meaning that it was caused by excessive supply of housing finance.”

Whether Help to Buy will constitute “excessive” supply remains to be seen; it is impossible to predict with certainty what the eventual macroeconomic outcome of the scheme will be, so I will not attempt it here. We do, however, know some things for certain: Help to Buy has been linked to a “surge in optimism over house prices,” though not a bubble; where interest rates are currently at historic lows, inflation is risinglaying the groundwork for interest rates to follow. What we are left with is a situation that bears some hallmarks of the American housing crisis, though not all of them.

This is not to say government has no role to play in easing the housing supply crisis: to the contrary, liberalising planning law would go some way to doing so without injecting mispriced credit into the market and incentivising highly leveraged house purchases which borrowers – including millions of yuppies with Gmail accounts – would, if interest rates were higher, be ill-able to afford. Given what we know about the American experience, though, if a long-term solution to the housing crisis is the Government's objective, Help to Buy seems a very funny way of going about it.

Photograph: Getty Images

Preston Byrne is a fellow at the Adam Smith Institute.

Photo:Getty
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Labour is a pioneer in fighting sexism. That doesn't mean there's no sexism in Labour

While we campaign against misogyny, we must not fall into the trap of thinking Labour is above it; doing so lets women members down and puts the party in danger of not taking them seriously when they report incidents. 

I’m in the Labour party to fight for equality. I cheered when Labour announced that one of its three Budget tests was ensuring the burden of cuts didn’t fall on women. I celebrated the party’s record of winning rights for women on International Women’s Day. And I marched with Labour women to end male violence against women and girls.

I’m proud of the work we’re doing for women across the country. But, as the Labour party fights for me to feel safer in society, I still feel unsafe in the Labour party.

These problems are not unique to the Labour party; misogyny is everywhere in politics. You just have to look on Twitter to see women MPs – and any woman who speaks out – receiving rape and death threats. Women at political events are subject to threatening behaviour and sexual harassment. Sexism and violence against women at its heart is about power and control. And, as we all know, nowhere is power more highly-prized and sought-after than in politics.

While we campaign against misogyny, we must not fall into the trap of thinking Labour is above it; doing so lets women members down and puts the party in danger of not taking them seriously when they report incidents. 

The House of Commons’ women and equalities committee recently stated that political parties should have robust procedures in place to prevent intimidation, bullying or sexual harassment. The committee looked at this thanks to the work of Gavin Shuker, who has helped in taking up this issue since we first started highlighting it. Labour should follow this advice, put its values into action and change its structures and culture if we are to make our party safe for women.

We need thorough and enforced codes of conduct: online, offline and at all levels of the party, from branches to the parliamentary Labour party. These should be made clear to everyone upon joining, include reminders at the start of meetings and be up in every campaign office in the country.

Too many members – particularly new and young members – say they don’t know how to report incidents or what will happen if they do. This information should be given to all members, made easily available on the website and circulated to all local parties.

Too many people – including MPs and local party leaders – still say they wouldn’t know what to do if a local member told them they had been sexually harassed. All staff members and people in positions of responsibility should be given training, so they can support members and feel comfortable responding to issues.

Having a third party organisation or individual to deal with complaints of this nature would be a huge help too. Their contact details should be easy to find on the website. This organisation should, crucially, be independent of influence from elsewhere in the party. This would allow them to perform their role without political pressures or bias. We need a system that gives members confidence that they will be treated fairly, not one where members are worried about reporting incidents because the man in question holds power, has certain political allies or is a friend or colleague of the person you are supposed to complain to.

Giving this third party the resources and access they need to identify issues within our party and recommend further changes to the NEC would help to begin a continuous process of improving both our structures and culture.

Labour should champion a more open culture, where people feel able to report incidents and don't have to worry about ruining their career or facing political repercussions if they do so. Problems should not be brushed under the carpet. It takes bravery to admit your faults. But, until these problems are faced head-on, they will not go away.

Being the party of equality does not mean Labour is immune to misogyny and sexual harassment, but it does mean it should lead the way on tackling it.

Now is the time for Labour to practice what it preaches and prove it is serious about women’s equality.

Bex Bailey was on Labour’s national executive committee from 2014 to 2016.