The British are not a nation of shopkeepers, as Napoleon said, but rather one of property speculators. This is why a government notionally devoted to fiscal austerity has decided to use its balance sheet, up to £130bn (8 per cent of gross domestic product), to guarantee mortgages as part of its “Help to Buy” scheme. The government claims it is helping first-time buyers. It is really helping those who wish to keep housing costly: today’s owners, banks and housebuilders. The government is strengthening a conspiracy to keep house prices exorbitant.
The scheme has two parts. The first is for the government to finance a share in the equity. Under this, it will advance up to 20 per cent of the price, allowing buyers to put up a mere 5 per cent deposit on new properties worth up to £600,000. The cost of this scheme is expected to be £3.5bn and it is intended to help 80,000 buyers of new homes. The second part consists of mortgage guarantees – the UK equivalent of Fannie Mae and Freddie Mac in the US. The state would guarantee lenders up to 15 per cent of the value of a loan on properties worth £600,000, or less. This would cap the risk to lenders at 80 per cent of the value of a property, even if they lent as much as 95 per cent.
David Cameron, prime minister, justified the new schemes as a way to correct a “banking failure” that had resulted in lenders wanting large deposits. Is this a market failure? No, it is mere prudence, particularly when house prices are so high. Note, too, that the scheme helps not the poor, but the cash-limited. Even at a ratio of six to one, the household income needed to afford a 95 per cent mortgage on a property worth £600,000 is £95,000. This is well over twice the average income of a two-earner household.