Thursday, 10 October 2013

'Help to Buy' is a mouse: what a relief!

One thing that's very noticeable about the current administration (and was a hallmark of its predecessor) is the massive gulf between rhetoric and action. There are lots of reasons for this. Globalization has reduced the ability of national governments to do anything; so have the rising complexity of modern life, and the mounting, conflicting demands of consumers and voters. So have the gradual transfer of powers from the United Kingdom Parliament at Westminster to Edinburgh, Cardiff, Belfast, Brussels and international bodies such as the World Trade Organisation.

But another reason is their own poor decision-making: policy-making driven by inexperienced amateur Special Advisers, advised by poorly-resourced think tanks who have little sense of yesterday's experiences, let along the long history of policy failures in the UK. Whose sense of interlocking, organic, complicated economic processes often stretches no further than 'I want this and this and this to happen' - without considering the unintended consequences and quicksand nature of each and every one of their actions.

That's why we get ridiculous proposals like the idea that landlords will check tenants documents - a law that will very likely be ineffective, intrusive and destructive all at once. But I digress.

The one really good example of this over the past week has been the much-derided second stage of the Government's Help to Buy initiative. In case you've been asleep for the past year, the idea goes like this: issue state guarantees for 15 per cent of people's 95 per cent mortgages, in return for a fee from the banks. And then, hey presto! Frustrated young tenants who might be able to meet mortgage repayments, but don't have massive twenty per cent deposits, would suddently be able to buy houses. The gummed-up mortgage market that's been refusing to disgorge cash to the under-40s would start working again. Just like that.

Except that it won't.

It's an inherently bad idea, actually, pouring petrol on the flames of a London housing market that's now showing dangerous signs of spinning entirely out of control - and putting houses even further out of the reach of those unlucky enough not to pile into the market over the next few months or years. That's not usually been financed by UK mortgages at all, actually, but the savings of the global rich. Even so, pumping in even more demand isn't any way to restrain the steadily-mounting social costs of South-East England's absurdly high property prices. 'Help to Buy' should be cancelled forthwith, or at least withheld from purchases in London and the South East and only paid out to first time buyers - as this blog has argued again and again. It's all just so reminiscent of all those disastrous government schemes of long ago - Option Mortgages, Mortgage Income Tax Relief and the like - that have sucked up so much British capital for so long.

But put that to one side. The scheme's not even going to work in practice, because the banks' actual terms tell us exactly what they think of the risks involved. They're charging pretty high interest rates on these products, of above five per cent - much higher than the sub-three per cent deals you can get with a sizeable wad of cash in your back pocket. One estimate is that Help to Buy mortgages might end up £6 a week cheaper than existing products, and might be just as hard to get because of the stringent credit histories that that banks are going to insist on.

So we were all worried that Help to Buy was going to turn into an economic Godzilla, ripping up our economic future like a rampaging monster. Instead, it does now seem as if a tiny mouse has scuttled out of the skirting board. It's all an enormous relief - though one in no part attributable to HM Government.