The Government’s help to buy scheme gets a much better than expected start, with RBS and Halifax receiving a combined total of 2,384 applications, up to £365m in mortgages. But is the scheme a cause for celebration, or a ticking time-bomb waiting to go off?
The scheme certainly is a very popular initiative, allowing young families a much needed helping hand to get onto the housing ladder. It is also most certainly a personal favourite of Prime Minister David Cameron, recently writing an article in the Sun venerating the scheme, declaring it to be a “key part” of his “plan for Britain”. In brief, the scheme enables a family to make it on to the housing ladder buy putting a mere 5% deposit down on a house below £600,000, and also 15% of the loan being guaranteed by HM Treasury.
Certainly it is a policy that tugs heavily at the heart strings of many Conservatives, harking back to the “Right to Buy” policy of the Thatcher administration, one that advocates property owning, and support for the family, both core tents of the conservative ‘ideology’. However, it is at odds with neo-liberalism, and laissez-faire economics, which many Conservatives have adopted. Hayek would no doubt disprove of a government meddling in the private sphere – especially as such meddling will inevitably rapidly re-inflate the housing bubble.
Not only are the numbers large, it also promises to expand. At present there are few lenders participating in the scheme, with just RBS, Natwest and Halifax of the big lenders currently participating. However, big guns HSBC and Barclays have both detailed plans to throw their weight behind it, and the UK’s second largest lender Nationwide, also looking likely to back the scheme.
However, the bigger the scheme, the more demand that will be created. However in the face of limited supply, it will no doubt result in a housing bubble. A time will come when this rapid demand collapses, but the supply surpasses its requirements. Such an event could potentially leave the construction industry in a worse state than it was in the years after the first financial crisis, and with further implications for the economy as a whole.
For once I find myself, in part at least, agreeing with the Labour Party. Chris Leslie, the shadow chief secretary to the Treasury, who responded to the government scheme by arguing that “rising demand for housing must be matched with rising supply, but under this government house building is at its lowest level since the 1920s”. Conversely however, it should not warrant a call for more government intervention, which could prove costly, and suck the taxpayer into responsibilities that they should never have to burden. Instead, it is the Help to Buy Scheme that must be that should be scaled down rapidly, or eradicated entirely.
True the policy has brilliant social benefits, and helps hard working families get on to the property ladder. My other half and I are also intrigued by the Help to Buy Scheme, which could potentially give us that extra bit of help in order to get us on to the ladder. However, although it may prove a useful scheme for individuals such as ourselves, it will not prove beneficial to the economy – in fact, quite the opposite. When the housing bubble bursts, which it indubitably will, the impacts on the rest of the economy will be catastrophic to our already fragile recovery.
The Financial Policy Committee, the arm of the Bank of England responsible for preventing a housing bubble, has declared the scheme will be reviewed next September. That could prove costly – they must review it now, or it will be the nation that suffers the consequences.