Taxpayer to take on mortgage risks of first-time buyers

[Guest]

Taxpayers will underwrite mortgages totalling hundreds of millions of pounds under plans to “unblock” the housing market and revive the flagging economy. The mortgage guarantee will result in lenders providing loans with significantly lower deposits than the 20 per cent or more that is typically demanded. The taxpayer, however, could be liable for losses in the event that a home is repossessed. In addition, £400 million of taxpayers’ money will go to to property developers to subsidise 16,000 homes.

In parallel, the Government is intending to take on board comments from developers in support of its relaxation of the planning laws for housing. It looks as if the "presumption in favour" will go through and to hell with the green belt. Meanwhile, major infrastructure projects will be given the go-ahead just on a nod. Additonally, a proposal would double from £26,000 to £52,000 the discount available to council tenants wishing to buy their home, although it will not be available retrospectively to earlier buyers.

http://www.telegraph.co.uk/news/politics/8903125/Taxpayer-to-take-on-mortgage-risks-of-first-time-buyers.html

Readers of the Telegraph are not so much unimpressed as livid. Some describe this latest move from the Government as insane. A few urge that the army steps in on behalf of the people to drive out the Government. The time for revolution, they say, has come. Many contend that this will be a venture into sub-prime mortgages and guarantee a worse economic crash than that of 2008. Defenders of the scheme argue that it is different because plenty of people can afford mortgages but not the deposit. Some might question the credibility of a strategy that will lock more people into 25 year commitments when long term jobs are disappearing. Arguably, it is also hard to see how selling off the remaining council houses could benefit the poor and those on low incomes.

Once again it seems that well-off companies are holding the general public to ransom. Finanically, heads they win and tails we lose. Directors will still be receiving huge bonuses for what will be described as risk-taking when it is only a risk to the taxpayer. It may be time to prepare ourselves for more bailouts just as life becomes far less affordable. The jury seems to be divided as to whether those who currently have properties will see the values of those rise or fall. If they continue to rise, it is unlikely that the younger generations will benefit in huge numbers. If they fall dramatically, all families with property will be much worse off and potentially lose a vital lifeline. That could have a detrimental impact in the longer term on both the young and the old.

The charity Empty Homes estimates that across the UK there are currently 914,000 empty homes and that many of those are in London. Even the Government accepts that over 300,000 homes have been empty for longer than six months. It also recognises that under the existing planning legislation, several million homes could be legitimately built on brownfield sites. However, these are not apparently the sites that developers prefer. In a fence-sitting response, Hilary Benn said of the proposals to underwrite some mortgages for "new-build" homes: "People are relying on the government to get this right - it would be yet another false dawn if the scheme artificially raised house prices or further risked the stability of banks." In other words, folks, it is a gamble!

[Flosshilde]

I've just heard the basics of this on Radio 4, & one of my immediate thoughts was 'taxpayers subsidising house purchase', which used to be the complaint about tax relief on mortgages. Then, that it's the Tories helping their friends in housebuilding.

If the present govt want to create a real housing strategy they should look at one of the roots of the present housing problem - the Thatcher govt's 'right to buy' policy, & the restrictions put on the money raised that prevented councils from re-investing the proceeds in building new rented housing. (of course, the present front bench on both sides is too young to remember this - they were still in primary or preparatory school). This started the present obsession with the idea that owning your house waqs a 'right', that it was an 'investment', & that if you rented your flat you were a 'failure'. People have to be re-educated so that renting your accomodation is seen as perfectly reasonable - indeed sensible - & that money paid in rent is not 'wasted' (I think if a potential mortgagee was told at the start how much they would actually be paying over 25 years or so - far more than they are likely to recover when they sell their house - they would be shocked.)

[amateur51]

Bravi to Flossie and Lat - I was just girding up my wossernames to write something when I find that they've covered all the points I wanted to make and more.

The Government needs to swallow its Thatcherite objection to local authority-controlled housing and get stuck into encouraging local authorities to undertake massive housing developments in partnerships with Registered Social Landlords (Housing Associations as was). They should also encourage stair-casing whereby poor would-be house-buyers can take out a mortagage on a portion of the total cost & pay lower rent for the rest. The banks should be bullied into providing these mortagages (after due diligence of course!) too. Did Osborne sell Northern Rock to Branson with loads of conditions about this sort of thing? Did he buffalo! He sold it to his pal Richard for considerably less than he needed to and tries to blame ex-Chancellor Darling for that.

Scum!

[Frances_iom]

all help to 1st time buyers does is to drive up price of housing - as most have pointed out this government is by the rich for the rich but adenoidal kid has it seems no better ideas

[PhilipT]

The banks should be bullied into providing these mortagages ...

Er, no. No matter how good the due diligence, if the loans went sour and the banks went bust the poor old taxpayer would be on the hook to bail them out again. It's one thing to bully the banks into lending money to businesses for capital expenditure, it's quite another to bully them into lending money to individuals on mortgages.

I completely agree that having the taxpayer guarantee loans on mortgages is foolhardy, but to bully someone else into doing something you wouldn't do yourself is, er, not a recipe for success.

[amateur51]

Er, no. No matter how good the due diligence, if the loans went sour and the banks went bust the poor old taxpayer would be on the hook to bail them out again. It's one thing to bully the banks into lending money to businesses for capital expenditure, it's quite another to bully them into lending money to individuals on mortgages.

I completely agree that having the taxpayer guarantee loans on mortgages is foolhardy, but to bully someone else into doing something you wouldn't do yourself is, er, not a recipe for success.

I defer to your greater expertise and clarity of thought but wasn't that what Building Societies were set up for (to help people to save for their own & others' housing), and didn't the banks take over the building societies in their race for growth?

When are the banks, which have been helped so much recently, going to see that they have a social responsibility too as well as to their shareholders and to their directors. All power to those kids at St Paul's (or wherever they are now)!

[Serial_Apologist]

Bravi to Flossie and Lat - I was just girding up my wossernames to write something when I find that they've covered all the points I wanted to make and more.

The Government needs to swallow its Thatcherite objection to local authority-controlled housing and get stuck into encouraging local authorities to undertake massive housing developments in partnerships with Registered Social Landlords (Housing Associations as was). They should also encourage stair-casing whereby poor would-be house-buyers can take out a mortagage on a portion of the total cost & pay lower rent for the rest. The banks should be bullied into providing these mortagages (after due diligence of course!) too. Did Osborne sell Northern Rock to Branson with loads of conditions about this sort of thing? Did he buffalo! He sold it to his pal Richard for considerably less than he needed to and tries to blame ex-Chancellor Darling for that.

Scum!

Strongly second your toast to Lat and Flossie for putting over the essentials on this so clearly, AM51. I too caught this on Toady, and heard Ed Balls compliment the government on "at last" taking the sort of re-stimulation measures necessary he'd been advocating, but... not going far enough...

Would Balls be old enough to remember council housing? He looks about my age... but I guess they all do nowadays...

[PhilipT]

... wasn't that what Building Societies were set up for (to help people to save for their own & others' housing), and didn't the banks take over the building societies in their race for growth?

When are the banks, which have been helped so much recently, going to see that they have a social responsibility too as well as to their shareholders and to their directors. All power to those kids at St Paul's (or wherever they are now)!

Yes and partly yes (some Building Societies are still independent), but social responsibility cuts both ways. If the Government bullies banks into lending on mortgages they will lend on mortgages (they're not in a strong position at the moment), and leave it to the Government to sort out any mess that results. I don't think we should try to mortgage our way out of a debt crisis, and certainly not when interest rates are at an all-time low. When rates start to rise, how will that affect those who borrowed when they were low, and how will it affect the spending power of the economy?

[amateur51]

Yes and partly yes (some Building Societies are still independent), but social responsibility cuts both ways. If the Government bullies banks into lending on mortgages they will lend on mortgages (they're not in a strong position at the moment), and leave it to the Government to sort out any mess that results. I don't think we should try to mortgage our way out of a debt crisis, and certainly not when interest rates are at an all-time low. When rates start to rise, how will that affect those who borrowed when they were low, and how will it affect the spending power of the economy?

Excellent points PhilipT - so can I take it you're in favour of a massive building programme for local authorities via RSLs?

[ahinton]

Bravi to Flossie and Lat - I was just girding up my wossernames to write something when I find that they've covered all the points I wanted to make and more.

The Government needs to swallow its Thatcherite objection to local authority-controlled housing and get stuck into encouraging local authorities to undertake massive housing developments in partnerships with Registered Social Landlords (Housing Associations as was). They should also encourage stair-casing whereby poor would-be house-buyers can take out a mortagage on a portion of the total cost & pay lower rent for the rest. The banks should be bullied into providing these mortagages (after due diligence of course!) too. Did Osborne sell Northern Rock to Branson with loads of conditions about this sort of thing? Did he buffalo! He sold it to his pal Richard for considerably less than he needed to and tries to blame ex-Chancellor Darling for that.

He doesn't try to blame Darling for it; he's merely pointed out that it had to be sold eventually, withon a prescribed timescale set down by Darling during the previous administration. Whilst the loss to the taxpayer is indeed immense, the best that one could do is surminse that it would be greater still had the unavoidable sale been postponed - and, after all, it was the previous administration that got the taxpaying shareholders involved in the first place (albeit without asking any of them first).

I don't really think that the housing association and local authority housing idea is a solution, frankly; if the local authorities don't have sufficient funds for the maintenance and if council tenants default on the rent, the properties won't be properly maintained and the council taxpayers en masse will lose out. Also, local authorities can neither purchase existing properties nor build new ones unless they have the funds to do so - and nowadays they are increasingly dependent upon local taxpayers and less on central government for funding (although central government itself is likewise dependent upon taxpayers' money for everything that it funds, as it has no money of its own).

That said, this latest proposal to divert tax revenues to fund for private mortgages seems not only quite astonishingly daft but astonishingly ill-timed, coming as it does just after we've all been told how much we've lost over the Rock sale; it's very poorly thought out and not even a risk, since it's pretty obvious that it will fail in almost any circumstances rather than might fail in certain ones.

[ahinton]

When are the banks, which have been helped so much recently, going to see that they have a social responsibility too as well as to their shareholders and to their directors.

Whatever social responsibility they have - or ought to have - they will be able to honour it only to the extent that they prioritise it over their own greed and are allowed to do so by a non-bullying government.

When all's said and done, however, I take leave to doubt that there is any such thing as a financial transaction of any kind in someone's favour that is not at the same time to someone else's disadvantage, irrespective of the identities of the parties to such transactions; I include in that the payment of salaries and pensions, all lending and borrowing at all levels and all sales and purchases. As to the much-vaunted "transaction tax", my rooted opposition to its implementation is motivated not only by the fact that the City of London (and, as a direct consequence, the British economy as a whole) will be disadvantaged by it but because it will in all cases be passed on to the defenceless customer as is almost always the case in such affairs.

[amateur51]

He doesn't try to blame Darling for it; he's merely pointed out that it had to be sold eventually, withon a prescribed timescale set down by Darling during the previous administration. Whilst the loss to the taxpayer is indeed immense, the best that one could do is surminse that it would be greater still had the unavoidable sale been postponed - and, after all, it was the previous administration that got the taxpaying shareholders involved in the first place (albeit without asking any of them first).

I don't really think that the housing association and local authority housing idea is a solution, frankly; if the local authorities don't have sufficient funds for the maintenance and if council tenants default on the rent, the properties won't be properly maintained and the council taxpayers en masse will lose out. Also, local authorities can neither purchase existing properties nor build new ones unless they have the funds to do so - and nowadays they are increasingly dependent upon local taxpayers and less on central government for funding (although central government itself is likewise dependent upon taxpayers' money for everything that it funds, as it has no money of its own).

.

Well as I understand it, Darling's sale window ends in 2013 - it would be good to know why Gideon thinks now is such a propitious time to sell - or did he think that Branson's offer was too good to resist (ahem!).

The local authority schemes worked well-enough post-war and in SuperMac's house-building boom and you build a sinking fund for repairs into the rents. A house-building programme would be a fine Keynesian work-creation scheme too. Not one council house was ever built in Britain without recourse to some private money.

[Serial_Apologist]

Whatever social responsibility they have - or ought to have - they will be able to honour it only to the extent that they prioritise it over their own greed and are allowed to do so by a non-bullying government.

I normally look to your contributions for logical consistency, ahinton, but I don't find it here. Is it not the case that it was when left to themselves that the banks prioritised their own greed over their social responsibility? And if that is indeed the case, who would have been best placed to, er, persuade them to change their ways?

When all's said and done, however, I take leave to doubt that there is any such thing as a financial transaction of any kind in someone's favour that is not at the same time to someone else's disadvantage, irrespective of the identities of the parties to such transactions; I include in that the payment of salaries and pensions, all lending and borrowing at all levels and all sales and purchases.

Ah - so you're winding us all up. Sorry, must have been me having a temporary sense of humour hiatus.

[johnb]

Did Osborne sell Northern Rock to Branson with loads of conditions about this sort of thing? Did he buffalo! He sold it to his pal Richard for considerably less than he needed to and tries to blame ex-Chancellor Darling for that.

An interesting aspect of the Branson deal is that he is planning to fund a third of the £750M by extracting £250M from Northern Rock and Virgin Money. The bulk of that will be from Northern Rock where he is planning to lower the capital ratio from 20% to 15% - making it less secure. In fact Branson (other than squeezing Virgin Money) is only putting £50M of Virgin's own cash into the deal - the rest is coming from overseas 'investors'.

[french frank]

Not one council house was ever built in Britain without recourse to some private money.

There seems to have been less press coverage for the publication of the prospectus for the rather larger (£500m) Growing Places Fund which was published a fortnight ago. This apparently prioritises the creation of jobs and housing, and places the funds with Local Enterprise Partnerships (local councils plus local business). I'm not sure how the housing aspect of this works, but it is a stated priority.

As for the taxpayer angle: would they prefer to fund the university education of the children of the middleclasses or the mortgages of the middleclasses? Building houses may make profits for the big guys, but it also provides jobs - a much more concrete benefit to Mr Everyman than young people with degrees but no graduate-type jobs to go into.