Why has help to buy 2 been rushed out the door?
A lot of people were taken by surprise by David Cameron’s decision to bring forward the start of help to buy 2 from January 2014 to next week. Not least, it seems, his own business secretary.
But then again Vince Cable made his thoughts about state-backed mortgages pretty clear during his speech at the Lib Dem party conference earlier this month when he warned in no uncertain terms of “an old fashioned housing bubble”.
But there’s evidence Sunday’s announcement wasn’t long in the making. I’m told that when the “quad” (Cameron, Osborne, Clegg and Alexander) met three weeks ago to agree and sign off on government announcements, there was no mention about an acceleration of the flagship housing policy.
Instead, apparently it’s been rushed forward as a counter to Ed Miliband’s “cost of living” attack which included a plan to build hundreds of thousands of affordable homes – to address the “real” problem in Britain’s dysfunctional housing market, as Labour would have it- a chronic lack of supply.
Either way it does seem clear the policy’s being kicked out the door in rather a hurry since the key part of help to buy 2 – the government guarantee itself – still won’t be available until next January.
So what will start happening next week (to be clear the week starting 7 Oct) is that the mortgage providers will begin marketing and offering their deals three months earlier than planned.
Natwest has its NatYES adverts ready, as does RBYES. But they will likely only fuel the fire of those who claim this is a policy destined to backfire as the availability of 95 per cent loan-to-value mortgages boosts demand which in turn pushes up house prices and fuels the wrong kind of economic boom.
The type where interest rates rise and cash-strapped households find themselves suddenly unable to make the payments on their hugely over-leveraged house purchase. Sub-prime mortgage anyone?
Of course that’s exactly what kick-started this whole crisis in the first place, only this time round, through help to buy 2, it’s us, the British taxpayer, on the hook for the riskiest 15 per cent of the loan book, should things start to go wrong and people start to default.
That’s not the smartest outcome, surely, for a government with the deficit still going in the wrong direction? It’s true the £12 billion of help to buy guarantees have been set up cleverly as an “off balance sheet” transaction which won’t hit the books, but any future losses certainly will.
The government would argue – and Philip Hammond did on our programme – that house price increases and transaction volumes are still way below their peak before the crisis hit. And it’s not fair that people earning decent salaries are either being stopped from taking out high loan-to-value mortgages or can’t afford the interest rates even if they’re approved.
Others would argue that’s no bad thing. That increasing the supply of houses while waiting for buyers to save their own deposits is exactly what our housing market needs, working to lower prices over time not cranking them up.
But the government has shown it’s determined to press ahead regardless. And judging by the number of times they’ve mentioned the new powers given to Mark Carney, the governor of the Bank of England, to stop a bubble developing, I don’t think you’ll have to look too far to see who’ll be to blame if it all goes wrong.