Help To Buy is in a mess - here's how Osborne can rescue it

To avoid a "second home subsidy", the government must limit the scheme to first-time buyers.

The government’s Help to Buy scheme - a handout to the big beasts of the construction industry wrapped up as a fluffy social policy giving the hard pressed a leg up - has had an inauspicious start to life.

The scheme will share out £3.5bn in interest-free loans to buyers who can rustle up a mortgage deposit of just 5 per cent, each loan offering up to 20 per cent of the value of a new-build property worth £600,000 or less, and taxpayer backing for up to £130bn of mortgage lending.

From the off, the policy faced criticism for artificially stimulating the housing market, threatening another disastrous cycle of boom, bubble and bust.

Even the Treasury select committee felt moved to share its concerns about the risks of channelling public money into an investment whose value - like all good property speculators know - could go up as well as down.

But the biggest problem with Help to Buy is the loophole in the mortgage guarantee scheme that will allow existing home owners access to a loan. Parodying the government’s own 'spare room subsidy' (or 'bedroom tax'), shadow chancellor Ed Balls found a new moniker for the policy: "the second home subsidy".

On BBC1’s Sunday Politics show this week, Conservative MP Nadhim Zahawi was challenged on this issue yet again. He gave a halting and stumbling response, which cleared absolutely nothing up and raised new fears about the perverse impact these loans might have.

Asked what the government could do to stop the policy being used to buy second properties, Zahawi said:

One of the things we have to look at is the detail. How do you decide? If parents want to help get [children] to get a 5 per cent deposit in place or if someone is selling a smaller property to help their family into a bigger place?

Clear as mud. But look again at what he asking us to consider: how do you decide if a parent purchasing a second home to help their child onto the property ladder - buying it for them, or with them, or using their existing owner occupied property as leverage - is using or abusing equity loan scheme?

It’s worth remembering that, when he unveiled Help to Buy in the Budget, chancellor George Osborne said that home ownership was now "beyond the great majority who can’t turn to their parents for a contribution. That’s not just a blow to the most human of aspirations, it’s a setback to social mobility."

What is this fudged idea over public funding for second homes if not a double-bolted cap on social mobility?

Allowing parents to purchase a second home through to the scheme to support their younger family members removes the opportunity of government support from the children of those who could never offer them an independent leg up, and uses public funds to consolidate wealth in the hands of those who already have it. And if that’s the case, it must be stopped. Immediately.

Writ large, a policy like this only exacerbates social inequality, with its disastrous consequences for us all (no need to rehash the excellent work of Richard Wilkinson and Kate Pickett here). It’s not clear that this is exactly what Zahawi meant in his fumbled answer to Andrew Neil’s forensic questioning; perhaps he was just having a bad morning, or feared falling foul of the party machine. Either way, a vacuum will be filled with speculation, so government must clarify exactly how, and by whom, Help to Buy will be accessed.

Another dangling question for the coalition is whether Help to Buy has actually pushed the construction industry to develop more homes? We know there is demand for decent housing; the problem is with the lack of supply. Builders aren’t building, and where they are they’re not building the right sort of homes.

As David Orr, chief executive of the National Housing Federation, explained in his response to Help to Buy: "Our housing market has long been weakened by the lack of new houses being built... the government should be focusing on unlocking investment to build more new homes as a way of managing down the housing benefit bill and boosting the economy."

If the policy has only managed to put down the foundations for £600,000 Barrett ‘dream homes’, what is its value to first time buyers?

But listen up, Osborne, because you can rescue Help to Buy with three simple measures:

1. Reduce the limit to 20 per cent of any property valued at the national average of £238,293, rising to £350,000 for London and the South East.

2. Only allow first-time buyers to access the mortgage guarantee scheme.

3. Only open the scheme up to properties with three bedrooms or less, forcing developers to build the type of affordable housing that is so desperately in demand for first-time buyers.

The Chancellor may feel reports that house prices are on the rise for the first time since 2010 confirm that his policy is working. I believe it demonstrates quite the opposite.

George Osborne meets with a couple at the Berkeley Homes Royal Arsenal Riverside development in Woolwich. Photograph: Getty Images.

Hannah Fearn is contributing editor of the Guardian local government, housing and public leaders networks

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Leader: The unresolved Eurozone crisis

The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving.

The eurozone crisis was never resolved. It was merely conveniently forgotten. The vote for Brexit, the terrible war in Syria and Donald Trump’s election as US president all distracted from the single currency’s woes. Yet its contradictions endure, a permanent threat to continental European stability and the future cohesion of the European Union.

The resignation of the Italian prime minister Matteo Renzi, following defeat in a constitutional referendum on 4 December, was the moment at which some believed that Europe would be overwhelmed. Among the champions of the No campaign were the anti-euro Five Star Movement (which has led in some recent opinion polls) and the separatist Lega Nord. Opponents of the EU, such as Nigel Farage, hailed the result as a rejection of the single currency.

An Italian exit, if not unthinkable, is far from inevitable, however. The No campaign comprised not only Eurosceptics but pro-Europeans such as the former prime minister Mario Monti and members of Mr Renzi’s liberal-centrist Democratic Party. Few voters treated the referendum as a judgement on the monetary union.

To achieve withdrawal from the euro, the populist Five Star Movement would need first to form a government (no easy task under Italy’s complex multiparty system), then amend the constitution to allow a public vote on Italy’s membership of the currency. Opinion polls continue to show a majority opposed to the return of the lira.

But Europe faces far more immediate dangers. Italy’s fragile banking system has been imperilled by the referendum result and the accompanying fall in investor confidence. In the absence of state aid, the Banca Monte dei Paschi di Siena, the world’s oldest bank, could soon face ruin. Italy’s national debt stands at 132 per cent of GDP, severely limiting its firepower, and its financial sector has amassed $360bn of bad loans. The risk is of a new financial crisis that spreads across the eurozone.

EU leaders’ record to date does not encourage optimism. Seven years after the Greek crisis began, the German government is continuing to advocate the failed path of austerity. On 4 December, Germany’s finance minister, Wolfgang Schäuble, declared that Greece must choose between unpopular “structural reforms” (a euphemism for austerity) or withdrawal from the euro. He insisted that debt relief “would not help” the immiserated country.

Yet the argument that austerity is unsustainable is now heard far beyond the Syriza government. The International Monetary Fund is among those that have demanded “unconditional” debt relief. Under the current bailout terms, Greece’s interest payments on its debt (roughly €330bn) will continually rise, consuming 60 per cent of its budget by 2060. The IMF has rightly proposed an extended repayment period and a fixed interest rate of 1.5 per cent. Faced with German intransigence, it is refusing to provide further funding.

Ever since the European Central Bank president, Mario Draghi, declared in 2012 that he was prepared to do “whatever it takes” to preserve the single currency, EU member states have relied on monetary policy to contain the crisis. This complacent approach could unravel. From the euro’s inception, economists have warned of the dangers of a monetary union that is unmatched by fiscal and political union. The UK, partly for these reasons, wisely rejected membership, but other states have been condemned to stagnation. As Felix Martin writes on page 15, “Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing . . . statistic.”

Germany’s refusal to support demand (having benefited from a fixed exchange rate) undermined the principles of European solidarity and shared prosperity. German unemployment has fallen to 4.1 per cent, the lowest level since 1981, but joblessness is at 23.4 per cent in Greece, 19 per cent in Spain and 11.6 per cent in Italy. The youngest have suffered most. Youth unemployment is 46.5 per cent in Greece, 42.6 per cent in Spain and 36.4 per cent in Italy. No social model should tolerate such waste.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving. In these circumstances, the surprise has been not voters’ intemperance, but their patience.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump