Rishi Sunak to launch UK sub-prime mortgage scheme...

[dutchman]

Treasury will guarantee portion of loans on homes in England worth up to £600,000



Ministers are set to announce a new mortgage guarantee scheme to help buyers on to the housing ladder, an intervention that experts have said is likely to push up house prices.

The scheme, which will be announced as part of Wednesday’s Budget, will allow buyers in England to obtain a mortgage with only 5 per cent of the property’s value to put down as a deposit.

The Treasury will guarantee a portion of the loans on homes worth up to £600,000, encouraging banks and building societies to begin providing riskier, higher loan-to-value mortgages again.

Lenders pulled their riskiest products as the economic outlook deteriorated in the months following the outbreak of the coronavirus pandemic.

The new scheme will be available to existing homeowners as well as first-time buyers, with ministers anticipating that the latter group in particular will make use of high loan-to-value mortgages to get on to the housing ladder.

Neal Hudson, an independent market analyst, said the move would push up prices. “This makes an 8 per cent increase much more likely than an 8 per cent fall,” he said

The intervention would give lenders confidence that the government would act to prevent house prices falling, added Hudson.

“If the government is effectively taking a stake in the market, they are not going to want prices to crash. There’s a bit of mixed messaging about who they are trying to help; my suspicion is that they are trying to help the market,” he said.

Bankers warned the government against encouraging irresponsible lending when the prime minister first signalled plans to introduce a new guarantee scheme last October.

[dutchman]

Yay, a sub-prime mortgage boom!

What's the worst that could happen?

[rebbonk]

Worked so well last time, didn't it?

Oh, how short memories are.

[dutchman]

There is no happy ending to the 2021 housing boom



By rights, there should be no premises on the High Street so full of tumbleweed as estate agents. The economy has shrunk by ten percent in a year, there are nearly five million people out of work. The level of economic uncertainty – which markets tend to hate – could not be greater. And yet? We are in the midst of a housing boom. According to the Office of National Statistics the average UK home increased in value by 7.5 percent in the year to January. What’s more, it seems to be getting bigger, with estate agents reporting huge levels of demand.

Of course, there may be some hyperbole involved. Estate agents almost always claim that demand is picking up – even in the depths of a slump: it’s their way of trying, well, to boost demand. Moreover, given that viewing property is one of the few allowable excuses under lockdown laws for venturing out of your local area, I wouldn’t put it past some people to book viewings just to get a day out. Nevertheless, it is clear that the housing market is at complete odds with the rest of the economy. In February, transactions were 48 percent up on the same month last year. What on Earth is going on?

Government intervention is going on, that’s what. I call it the housing ‘market’ but it is only really a market in one direction. When things are bubbly, the Chancellor lets the good times roll. When they are bad, he dreams up endless wheezes to reinflate the bubble. It started with Gordon Brown, who, having promised to abolish boom and bust decided that he rather enjoyed boom and settled on merely trying to abolish bust instead. We had first time buyer schemes, keyworker housing schemes. The official inflation index was fiddled to exclude the cost of buying housing – allowing interest rates to be kept low.

When the bust did come, government intervention in the housing market was supercharged. With banks no longer prepared to take on the risk of 95 percent loans, George Osborne decided the taxpayer would do it instead. His Help to Buy scheme pumped up prices yet again. Then came Covid, and what seemed like an inevitable plunge. Yet Rishi Sunak then came up with his stamp duty holiday. I am all in favour of low stamp duty, but permanently low stamp duty. To do as Sunak did and introduce a time-limited discount repeated the same error that Nigel Lawson committed in 1988 – when a deadline for changes to mortgage interest tax relief sent an already-frothy property market spilling over into a madness which exacerbated the size of the subsequent slump.

When it became clear that Sunak had done the same, and generated a property boom out of nothing, what did he do? Extend the stamp duty holiday and reintroduce taxpayer-backed 95 percent mortgages for first time buyers. So now we have an even-bigger boom – in the midst of an economic slump. It isn’t just that buyers want to take advantage of the stamp duty cut while it is there; the market is being propelled upwards by investors who have taken a strong message from repeated government interventions in the market - they have worked out that property investment has become a one-way bet. If house prices rise, the government will do little to stop them, but if prices threaten to start falling, it will do everything in its power to create more froth.

There can be no happy ending to this. There is an obvious danger that one day the government will run out of the stuff you put in your Sodastream machine to make the bubbles, and the whole thing will go very flat, very quickly. Or it will succeed in keeping prices high – in which case it will make life even more difficult for first-time buyers, widening social divisions, and adding to the anger of a generation which feels cheated of the opportunity to do as its parents’ and grandparents’ generation achieved with ease: to get on the housing ladder.

The stamp duty holiday was supposed to be part of a package to help the country recover from Covid. Instead, it has itself become part of an economic disease: uncontrolled bloating of house prices.