Thursday, 8 August 2013

New housing scheme

Just a couple of years before a general election, as we are now, the Government will strive to convince us that its plans for the future are designed for the good of the country and, most especially, for our own good since it cares for us deeply.

That is why we need to scrutinise its proposals even more closely than usual and that brings us to Chancellor George Osborne's Help To Buy scheme which, he claims, is designed to revive the housing market.

In effect, the Government is underwriting part of the plan since would-be property buyers need find only a five per cent deposit, with 20 per cent being provided by a government loan and 75 per cent coming from a bank or building society. So, assuming all that financial help becomes available, we are looking at a scheme under which a potential buyer can purchase, let us say, a £100,000 property with a deposit of just £5,000.

What guarantee of credit status and ability to repay will have to be provided by the prospective property purchasers to whom the Government is proposing to lend our money and how much Government pressure will be applied to banks and building societies to take similar gambles with our money?

Recent statistics indicate house prices are rising at their fastest rate for more than three years and I am certain we shall see that trend continue, fuelled by Government-contrived low interest rates. This may achieve the Chancellor's political objective of making house owners feel good and therefore more inclined to vote Conservative. Unfortunately, it may also produce another house price bubble, falsely inflating property prices and making it even more difficult for first-time buyers to get on the house-buying ladder.

We must also remember that, although over time property values usually rise, sometimes they fall. For instance, in the United States some properties fell 40 per cent from their 2007 peak prices. Land is a long term investment.

The Chancellor's feel good proposals are politically very clever and may even play a part in helping the Tories win the next general election but two old and well-founded sayings come to mind. The first is that if something looks too good to be true it probably is. The second is Caveat Emptor, or Buyer Beware.

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