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What is Help To Buy all about?

New build flats are popular with first-time buyers

One of the big surprises of the 2013 Budget is the new Help To Buy scheme. This will see the government topping up deposits of home buyers in a way more commonly done by parents via the so-called “Bank of Mum and Dad.”

There will be two strands to Help to Buy:

Help to Buy: equity loan – Starting 1 April 2013, the Help to Buy: equity loan will be opened up to provide equity loans worth up to 20 per cent of the value of a new build home, repayable once the home is sold. The eligibility criteria for shared equity will be widened, with the government saying the scheme will be open not only to first time buyers but also to all those looking to move up the housing ladder. The maximum home value will be £600,000 and there will be no income cap constraint.

Help to Buy: mortgage guarantee – The Government plans to create a mortgage guarantee scheme to “increase the availability of mortgages for those with small deposits across the UK”. This scheme will begin in January 2014 and will run for three years. It will offer a Government guarantee to lenders who offer mortgages to people with smaller-sized deposits of 5-20%.

The big potential benefit of these schemes will be enabling those with smaller self-saved deposits to access lower mortgage rates, thanks to the Government taking a share to raise the overall deposit.

Read the details for yourself by downloading the 2013 Budget document in full.

Why Help to Buy?

Cheerleaders for the new schemes will point out that not everyone has rich parents, and that even modestly well-off parents are becoming less able to remortgage their own homes to provide deposits for children due to rising living cost.

Critics of Help to Buy will argue that it looks like more support aimed at keep UK house prices inflated. That might be justifiable given our economic predicament, but would it not be more sensible to increase social housing provision to support housebuilders and provide plenty of new jobs and homes, without encouraging people to take out ever-larger mortgages in a market charging even higher prices due to this influx of new money? Such newly State-built homes could have been sold off into private hands at a later date via the Right to Buy scheme.

Surely the last thing we need is a new house price boom?

Help to Buy explained

Regardless of the rights and wrongs, many will want to know how to get their mitts on this government money, and whether it’s a good idea from their own perspective.

The scheme has only just been announced, but the Treasury has already released the following graphic to help us understand what’s on offer:

What is Help to Buy? Click to enlarge and find out!

What is Help to Buy? Click to enlarge and find out!

So what do you think about Help to Buy? Is it a sensible way to tackle Britain’s arguably iniquitous housing issues?

And would you consider using Help to Buy, or would you rather own all your own home for yourself?

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{ 43 comments… add one and remember nothing here is personal advice }
  • 1 Guy March 20, 2013, 4:45 pm

    As someone who does not own a home I’d rather the government stopped trying to prop up the ridiculous house prices in this country. Why the hell would I want to spend my entire life paying off a mortgage and saving for retirement?

    Best regards,

    Guy

  • 2 JON March 20, 2013, 5:59 pm

    Jon,

    Agree with Guy. The UK housing market is completely distorted my politicians. The US governement will do everything it can to stop a stockmarket collapse, the UK government will do everything it can to keep the housing market afloat to hide “real” bank liabilities.

    Meanwhile a whole generation grows up without the realistic opportunity of ever owning their own home.

  • 3 Greg March 20, 2013, 6:10 pm

    This is absolutely crackers.

    I’ll resist going on a massive rant about politicians and short-termism but I’ll post some thoughts on possible pitfalls.

    It appears to me that there are two things which define house prices:
    – People’s ability to get together a deposit
    – People’s ability to make the monthly repayment.

    This leaves some simple questions:
    – What happens if house prices fall? How do people move house?
    – What happens if interest rates go up? I assume people will have to sell as they won’t be able to make the repayments?
    – What happens if interest rates go up and cause prices to fall?

    Of course, if someone currently can afford the repayments and later loses their job then surely the fact they couldn’t get together a deposit, they won’t have savings to tide them over? Perhaps they should get a PPI plan!

    All of this is a symptom of out insane house prices and the ‘need’ for everyone to own their own home.

    What about:
    – Building a load of houses
    – Increasing the long-term rights of tenants.
    – Making it socially fine to rent.
    – Making people see property as a place to live in rather than a thing to “earn” money.
    – The above three points could be reconciled by getting rid of the buy-to-let culture and having large institutions doing most of it? What about pension funds or some sort of sovereign wealth fund?
    – Working out some way for houses to (more than) half in price in real terms smoothly over a protracted period of time.

    Now, I haven’t really though the above through very well and it wouldn’t be a quick fix, but surely there could be a way for something that would work properly to be put together?

    Greg

  • 4 The Investor March 20, 2013, 6:13 pm

    I think even if you accept the case for trying to manage down (in real terms) house prices rather than allow an outright collapse due to the bank’s vulnerabilities and the employment knock-on in the construction sector — and I can see that argument (even as one who called the house bubble a bubble for 3-4 years ahead of 2008) as I say above it’d surely be better to leave ultra-low interest rates/affordability to do the heavy lifting, and to do state house funded council home building for the infrastructure / capital spending / jobs angle?

    There’s obviously a political dimension to that, but as I say you could always sell them off into private hands when the market is more robust again in years to come. This risks just imbalancing things further, as you guys say.

    Perhaps the Government is very confident Mr Carney is going to let inflation rip to deal with the consequences. 🙁

  • 5 Greg March 20, 2013, 6:27 pm

    Having just ranted to colleagues, what about something like this?

    Wouldn’t having some sort of sovereign property fund that we give say £20bn (not £2bn or other half arsed measures, though perhaps staggered over a number of years) with a mandate to build a load of sensibly priced houses and then rent them out, with almost no ability to sell.

    It could later be floated as a REIT, keeping a 51% government stake and people/pension funds who want to invest in property could buy shares in that. Seeing as it won’t be able to sell properties, it might give some stability and the massive boost to construction right now would be welcome? Perhaps if people knew there were going to be £2bn of new houses each year for a decade they would think twice about assuming house prices and rents would go up?

    I’m sure there a flaws in the above idea but surely something similar would make sense? Any thoughts? I will simply laugh at anyone who thinks that property is a free market.

  • 6 Grumpy Old Paul March 20, 2013, 7:56 pm

    Greg,
    Absolutely agree. Especially with the ‘no right to buy’ clause. If this were to be done it would eventually also reduce the cost to taxpayers of housing benefit both directly and indirectly by reducing market rents.

    Additionally, such a fund could also be used to purchase existing properties at auctions for knock-down prices for refurbishment and letting.

    How it’s financed doesn’t particularly matter – the BOE could print some money for this purpose so far as I’m concerned! And it could also be partially financed by removing interest tax relief from buy-to-let properties.

  • 7 BeatTheSeasons March 20, 2013, 8:47 pm

    In the leaflet it says that option 2 – mortgage guarantee – would apply where “I only have a small deposit but I can afford repayments on a 80%-95% mortgage”.

    I’m struggling to imagine what kind of person has only been able to save 5% for a deposit but will have no problem paying off the other 95% of the money they borrow.

    Is the government hoping that their guarantees will effectively de-risk the bank’s 95% loan to value mortgages, leading to lower rates on high LTV products, and therefore improved affordability?

  • 8 Karyn S March 20, 2013, 9:33 pm

    Sounds interesting. I would rather own the home all to myself; that way, nobody can tell me what to do with it.

  • 9 Romford Dave March 20, 2013, 9:44 pm

    I bought my first house with a 5% deposit three and a bit decades ago. It was pretty much the norm then for first time buyers as I recall.

    Granted prices were much cheaper then, but then wages weren’t up to much either. Loans were around the 3 x annual income multiple and interest rates were into double digits.

    Those were the days…. (sigh)

  • 10 The Investor March 20, 2013, 9:55 pm

    @Greg — Like that idea. It addresses an obvious problem — insufficient housing — and it would not act quickly enough to cause prices to plummet, but the extra supply could at least modestly curb prices from taking off again too. It also gives pension funds somewhere to put their money into something with a bit more potential that government bonds on a negative real yield. As long as the actual building was outsourced to the construction sector, I’d support it.

    The only caveat I might make is that there could be some sort of 15-yearly wind-up clause, where every 15 years shareholders (including some government share of the vote) can vote on whether the fund should be wound down (over say 2-5 years) or continued for another 15 years. That way you could begin to liquidate this one after 15 years, and you could perhaps have 2-3 tranches started over a couple of decades, with much of the government’s involvement at the beneficial building stage, rather than it becoming a big burdensome landlord.

  • 11 dearieme March 20, 2013, 10:33 pm

    I’m wondering whether to get in quick to buy an existing house before this flood of money arrives to inflate their prices. I have until Jan ’14 I see.

  • 12 Neverland March 20, 2013, 11:29 pm

    Rearranging the deckchairs on the Titanic

    To see who the scheme is aimed at follow the money – all the housebuilders up 5-10% today. The rest of the money for existing homes will just be used to shore up bank balance sheets and to fund retirements/inheritances

    Not the use of my taxes I would have personally chosen, but thats the way the Tories try to distract attention from another worsening in the UK government’s already grim forecasts only four months ago

    The real news is this:

    http://blogs.spectator.co.uk/fraser-nelson/2013/03/budget-2013-some-scary-graphs/

    The odds on a lost decade in Britian just got a little worse today

  • 13 ermine March 21, 2013, 12:22 am

    > So what do you think about Help to Buy? Is it a sensible way to tackle Britain’s arguably iniquitous housing issues?

    There’s nothing that iniquitous about housing in the UK. It’s damned expensive, particularly if you want to live in the overcrowded South (because that’s where all the jobs are).

    No, it isn’t a sensible way to tackle Britain’s housing issues. Once we had a respectable way to rent, called council housing. Thatcher destroyed that to buy votes, and we have been trying to recover from that for years. Most people in Britain will never be able to buy their own houses, because a house is a huge, illiquid financial investment that doesn’t fit with most people’s lifestyles, particularly in a ‘dynamic’ economy with poor job security where people may need to move to chase work. They’re just not rich enough.

    If the government wants to get into the housing market, it needs to build houses to rent to people, that can never be sold to buy votes. These tenants aslo need not to be allowed to pass their houses on to their progeny. If you are so precious as to not want to rent, then you hafta stump up. Why are my taxes going to buy other people’s houses for chrissake? Nobody lobbed into the pot to buy mine 😉

    The way to buy a house is clear, You do without iPods, foreign holidays, city breaks and all the rest of it until you’ve paid off the interest and the capital. Then your house is yours. Unfortunately, you tend to be in the last third of life by that time. It’s a tough message, but seems to have held over the generations 😉 You can’t have it all. You chooose what to have, but all isn’t an option…

  • 14 MrMonkeyMoustache March 21, 2013, 10:13 am

    @ermine.

    Normally I agree with most of your comments, including your blog posts (more of which would be very welcome). However, an individual cannot change the entire economy enough to make it a choice between the iPods or a house. Houses are simply too expensive for that. With a typical house price of say 150k and a wage of say 25k (take home 20k), even a fairly frugal person would have a hard time paying it off , as it would consume 60% of their take home for 20 years to do so (assuming 5% interest).

    As such I would welcome the alternatives proposed here (kudos to Greg) rather than the scheme given to us yesterday, which helps banks and builders, not house buyers. The realisation is finally dawning on me that things won’t change. We inflationary policies and they’re here to stay for the foreseeable future. It’s time for me to diversify from cash.

    I would expect you to respond to my example with “don’t buy, you can’t afford it” and I would agree. Unfortunately until a sufficient chunk of the population also think that way, the problem will persist and houses will remain unaffordable. This does nothing to change our expensive housing supply and with so much of one’s income going on housing, is it any wonder that our service economy is struggling to find its feet?

  • 15 Grumpy Old Paul March 21, 2013, 10:25 am

    Ermine,
    I did a quick count and identified no less than 10 points in your post with which I agree. I’d add: Why are my taxes being used to –

    a) Help people get mortgages who are unlikely to be able to maintain their mortgage repayments.

    b) Subsidise private landlords via tax relief on their interest repayments.

    c) Subsidise private landlords via housing benefit.

    Why are state subsidies being used to support the private rental market? Policies in this area are ideologically-driven tosh.

    In the current era of very low interest rates and declining real incomes, it is both risky and irresponsible to encourage first-time buyers whose ability to purchase is marginal. If you want to help first time buyers, a far better incentive would be to introduce a property deposit savings account which could be tax-exempt and with perhaps a bonus payable when a property is purchased.

  • 16 Andy March 21, 2013, 12:20 pm

    Agree wholeheartedly that continuing to prop up the housing market is not the correct approach; however, this, together with likelihood that the BoE mandate is going to be changed to focus on growth rather than targeting inflation, it’s looking increasingly likely that the UK’s way out of this is going to be inflationary. In such a climate it probably makes sense to take on debt, albeit you’re taking a punt on what the future is going to look like re your mortgage rates, assuming more banks don’t roll out the full term fixed rates.

    What I was also hoping (though certainly not expecting) from the Budget – given its supposed help for home buyers – is a fundamental change to the ridiculous SDLT system – perhaps by increasing the price at which the 3% rate kicks in (after all, this hasn’t changed since 1997 I don’t believe, and house prices have moved ever so slightly upward since then), or, at the very least, introducing tapering so that the 3% rate only applies to sums about £250k rather than the entire amount. Fat chance of that I appreciated, but the issue remains that in London if you’re buying a starter home of let’s say 300k, you’re looking at 15k for deposit under this new scheme, plus another 9k for SDLT. Plus legal, surveyors’ and registration fees and you’re still looking at close to £30,000; it’s still not going to be easy for most folk.

  • 17 The Investor March 21, 2013, 1:37 pm

    It gets worse. A rampant Ed Balls has just put Osborne on the spot in the Budget Debate to ask whether the Help to Buy guarantee scheme will be applicable to second home owners and buy-to-let investors. And Osborne has refused to say it does not.

    Ominous. We are a nation who aspires to own our homes, we live on a small island, and we don’t want to see it concreted over, in the main. Surely the absolute priority is housebuilding for would-be home owners, not subsidizing the better-off taking more property out of circulation. Far better than the wealthy invest surplus income in the markets and backing businesses, and good for them if that profitably succeeds, too. That’s what the nation needs, not more property Ponzi schemes.

  • 18 BeatTheSeasons March 21, 2013, 2:06 pm

    This thread is starting to sound like fantasy economics from the housepricecrash brigade!

    Perhaps I’m biased because I bought my house in 2006, but I think it makes sense for the government to try and prevent a house price crash (in nominal terms) and the negative consequences that would follow.

    Surely building more houses to address the supply shortage is more important than trying to control who owns them.

    If there were no buy-to-let investors then there would be no good quality rental accommodation for young professionals to occupy on a short-term basis.

    And I don’t see how investing my money in property is any worse for the economy than if I added it to my index trackers and helped push up the FTSE P/E ratios instead.

    Help to Buy sounds to me like a gold-plated opportunity for non-home-owners. When I was a first-time buyer in 2006 prices were higher than they are now in real terms, I only had a 10% deposit and I had to pay 6% interest!

  • 19 Greg March 21, 2013, 2:42 pm

    No it isn’t, and stop straw-manning.

    It makes sense for the government to ease house prices down. It does not make sense to have a crash as this would cause various issues.

    It certainly does not make sense to enable people who can’t afford it to load up on debt and pretend rates aren’t going to rise. This just keeps things inflated longer. What about the people who are currently on interest only mortgages and won’t be able to get the same deal when they expire? Will that next time-bomb happen at the same time as the government starts escalating its charges?

    Property doesn’t produce anything. If the national housing stock was worth half as much then the other money would go somewhere else. Banks would either be smaller or lend their money out to other enterprises. Plus, if housing wasn’t so expensive people wouldn’t _need_ to save as much. (It doesn’t matter if that saving is owning a house or owing stuff that enables one to pay rent.)

    We’re not advocating banning renting. If there were no BTLs but instead, well run, long-term thinking (possibly semi-nationalised) companies letting out, then many of the issues facing renters would not be there.

  • 20 The Investor March 21, 2013, 3:17 pm

    @BeatTheSeasons — I don’t want to clog up the thread and would rather let everyone have a turn, but to be clear as I think I’ve said in my comment and the article, I’m not arguing for a house price crash, however beneficial that would be to me from a house buying perspective (though not a share owning one: I own several housebuilders having seen (and written about) this coming over a year ago, as well as shares in UK banks).

    What I do think would be sensible though is stagnant prices, managed down in real terms.

    The big house builders are doing fine on current prices — trust me, I’ve doubled my money on some. They don’t need a boom.

    Prices to earnings ratios are still stretched in the South East, and although they have moderated in the rest of the country they’re still above average.

    Affordability is good, but that’s because interest rates have been pinned at 300 year old lows, and because the government has since gone further to bring mortgage rates down even lower through Funding For Lending.

    What will happen when rates normalise in this environment? Haven’t we learned anything from the past five years of the risks of living on borrowed time and inflating bubbles?

    I am all for more houses being built and rented out, as I’ve said above. I am also for the government doing capital spending, as said here and last Saturday. But doing it by the second derivative of increasing money supply has lots of extra risks, and the only real non-idealogical benefit is it is cheap today.

    But maybe not tomorrow.

  • 21 Neverland March 21, 2013, 3:49 pm

    @Beattheseasons

    I object to my taxes being used to subsidise high earners buying houses

    This is a simple bribe to buy a voter demographic two years before an election

    Witness another Tory housing policy idiocy: “pay to stay” market rents for higher earning council house tenants vs. discount on council house right to buy purchases increased from £75k to £100k maximum

    The current government is truly witless running from one Daily Mail headline to the next

  • 22 Monk March 21, 2013, 5:44 pm

    I’ve found by minimising what I pay in tax, I no longer get stressed by what the taxpayer is funding.

    SIPP/ISA/NS&I/VCT sprinkled liberally with Au, a heady cocktail of drugs outperforming that of Valium for its calming, carefree, destressifying approach in combating the effects of the bloke who lives next door to the bloke in number 10.

    Although I can’t help thinking of Charles Deville Wells for some reason…

    Maybe number 11 thinks the Martingale system will work for number 10?

  • 23 Simon March 21, 2013, 5:55 pm

    Interesting. While I don’t agree with the principle of eternally propping up house prices while helping people to get further into debt that they cannot afford, you have to wonder.

    What if you happened to be buying a property anyway? If you could use the facility to bump up your deposit say from 15% to 25% and thereby get a cheaper mortgage, wouldn’t it be madness not to take advantage?

  • 24 Alex March 21, 2013, 5:55 pm

    Why is the government reinforcing – and underpinning – our stupid obsession with house prices and home-buying? As if we need more property porn in the media, too. Ridiculous.

  • 25 benfitzg March 21, 2013, 6:23 pm

    Simon – that is the prisoner’s dilemma they know they are creating. Labour boxed future governments into keeping house prices high as otherwise the banks fail. This policy in turn forces young people to pile into the market as the government is distorting the market so you have to be on the inside also.

    It’s about as helpful for the economy as everyone buying shares in the state steel company. Distortion, misallocation and ultimately opportunity loss.

  • 26 OldPro March 21, 2013, 7:12 pm

    Of course one needs to buy / do what is best for oneself… could be worse to get left behind if another bubble is building… One man (woman) can’t control the National Stage!

    But I don’t think it’s all website “hysteria” to suggest it’s an overt political gesture… there was a former Bank Of England economist on BBC News 24 just five minutes ago opining that he fears the aim is to increase house prices — because he feels UK House Prices are 20% overvalued already!

    He advocates more houses to be built, and static or lower prices.

  • 27 K March 21, 2013, 9:25 pm

    I’m a foreigner , I live here , work, pay taxes for 10 years – I don’t have the nationality though. Would I be eligible or this scheme is for citizens only?

  • 28 TonyN March 21, 2013, 11:15 pm

    More house building is surely the answer, and I don’t see why it should be so hard.

    As suggested above, “printing” some money just for this, and getting that money directly into the economy through the creation of a sovereign fund, perhaps to fund future pension liabilities or close pension fund gaps in public pensions must surely be better than giving it (effectively) to the banks who then don’t have to compete for our savings, so drop interest rates even further than t heir already below inflation levels.

    I’d go further, and take a hatchet to the planning and zoning rules, and allow/force councils to buy small lots of brown field or even farm land on the edge of every village and town, pay the owners twice the going rate for the arable land, then allow the councils to sell on to developers at a reasonable mark up, changing the use to residential. The developers would then get cheaper land, which they then build on to order from the sovereign fund. 10 houses per village, 100 per town, 1000 per city, job done in a few years.

    Maybe a bit pie in the sky, but bold and far reaching?

    Tony

  • 29 SemiPassive March 21, 2013, 11:56 pm

    They are trying to build more houses, if village dwelling baby boomer nimbys let them:
    http://www.telegraph.co.uk/earth/hands-off-our-land/9947318/Planning-ministers-war-on-the-countryside.html

    Look on the bright side, for all the talk of lost decades and zombie households, people have now had 5 years of rock bottom interest rates to help them deleverage, and with another 5 years of 2.5-3% mortgage rates to come this will prove a golden opportunity to help pay off mortgage debt early.
    Bickering over what house prices should be will not change reality.
    I wouldn’t mind a crash as it would be easier to upsize, but policy is clear for all to see.

  • 30 The Investor March 22, 2013, 2:01 am

    @SemiPassive — It’s been a golden era if you’ve got a mortgage. It’s been another kick in the shins if you’ve not, let alone if you were saving, and triply let alone if you were prudently waiting for prices and earnings to go back into balance because you saw there was an unsustainable credit boom going on.

    The last five years have taken moral hazard around the back of the block and kicked it to within an inch of its life IMHO.

    But I suppose those who didn’t invest would say as a shareholder I’d been bailed out by the BOE and the Fed. I don’t agree, but I hear it said everyday. We all see things from our own perspectives, inevitably.

  • 31 Monk March 22, 2013, 9:59 am

    Didn’t Mervyn King say the very thing you don’t agree with TI?

    Albeit couched in slightly different words and aimed more at pensioners, but the sentiment was there.

    Not that those three little words ‘I don’t agree’ detracts from the truth in the rest of what you’ve written in post 30 🙂

  • 32 Neverland March 22, 2013, 10:11 am

    So here is the way wealthy couples will make money out of help to buy

    Lower earning partner buys new build flat/house for £600k

    Funded by about £500k cash and £120k interest free government loan

    Some time shortly after completion, partner “suddenly decides” not to live in flat

    Said property is let out at 5% yield on £600k – £30k a year

    Annual return = £30,000/£500,000 = 6% year (with tax deductible “expenses”)

    Flat is sold after 5 years, for simplicity at cost

    Add leverage from buy to let mortgage some time after completion for extra risk/returns

    Pasty tax all over again…

  • 33 The Investor March 22, 2013, 10:37 am

    @Monk — Well, I’d argue the Fed/BOE has bailed out *the economy*.

    The stock market is a discounting machine, and when unprecedented easing took global depression off the table, equities lifted off the bottom (which, spectacular though the returns of the past five years have been, is in the main all we’ve seen IMHO).

    I think Central Bank easing *was* aimed as much at “Main Street” as at Wall Street/The City. Clearly in some respects it’s aiming to stop banks going bust, but that’s because that’s where the weak link in our system has been placed and where the buck stops. But I have less than zero doubt that less aggressive action would have resulted in far higher unemployment and potentially an even worse financial crisis in the short to medium term (long term harder to tell) and it would have caused more hardship for more people. (It might have reduced inequality a bit, since those at the bottom have so much less to lose in assets. That’s just maths though.)

    So that’s where I’d make the distinction. When Central Banks eventually raise rates, I equally won’t say they’ve done it to “punish investors in the stock market” or to “sink returns” either, though it might have that affect.

    I think the wealth affect from rising financial asset prices (versus firmer property prices, which I think are a goal, in the US too) has been much overblown as a policy goal, especially in the US. I believe it’s a small part of the equation. 🙂

  • 34 The Investor March 22, 2013, 10:40 am

    @Neverland — Indeed, a nightmare to police and prevent. Either they know it and are trying to inflate away debt (…) or there is a lack of street smarts and real-world experience in the Government (…)

  • 35 Neverland March 22, 2013, 11:16 am

    @Investor

    It gets better, the wealthy can use the free government money to buy houses for their kids also

    Trebles all round at the Conservative Club…

  • 36 Monk March 22, 2013, 11:24 am

    You’re making more of a case for Osborne’s policy than I suspect you want to Neverland, his £120k interest free loan generates :-

    £24k stamp duty on original aquisition
    £2k economic activity for legals/searches/etc
    £5.5k x 5 years income tax assuming base rate taxpayer & 10% expenses
    £6k economic activity for estate agency fees on disposal
    £1k economic activity for legal fees on disposal

    That probably equates to something like £60k pouring into the treasury coffers, without even accounting for the tax revenues generated from Mr Removals, Mr Decorator and Mr Furnishings and the like, along with the return of his original stake.

    Then there’s the £27k stamp duty heading his way from the next purchaser five years down the line, along with the cash from the Mr Men crowd…..

    Such a heady mix of high returns has driven every CofE since home ownership replaced making things for a living.

  • 37 Andrew March 22, 2013, 2:40 pm

    @Neverland
    Generally I agree with what you’ve written but lets not compare this to the “Pasty Tax”. There never really was such a thing (it was invented by Greggs and the media). Economically, equalising tax on pasties with that on say fish and chips is more like removing a longstanding pasty subsidy. Whilst removing any government subsidy makes people angry because they grow to consider it a right, it’s hard to see that subsidising pasties in the current environment is an economic priority.

    On housing though a lot of sensible things that I agree with have been said above but the big elephant in the room here is tax. If I work hard and earn £30k then the government taxes most of that at about 40% when you include employers/employees NICs. If I buy a house and someone decides to extend the northern line say and it goes up in value by 20% then I (indirectly) get taxed 3-5% on that gain through stamp duty. That’s crazy, I don’t know anyone whether left wing or right wing who thinks work should be taxed ten times more than unearned windfall gains but that’s what we do with housing.

    On the suggestion of large government backed real estate funds/landlords. I think the machinery for these basically already exists. They’re called housing associations! Some are terrible but many are actually really good and have capacity to grow much bigger.

  • 38 Grumpy Old Paul March 22, 2013, 4:51 pm

    Agreed. But as I said in my comment on ‘Pre-budget blues’:

    “So far as bold measures to kick-start the economy, introduce greater fairness in taxation and tackle the benefits culture are concerned, the only way I see this happening is as a result of a major economic/social/constitutional crisis leading to a government of national unity. The reason being is that, at present, any party in power is petrified of alienating potential voters and thus shuns any measures which disadvantage any significant section of the electorate, especially if that section has a great propensity to vote.”

    So forget about any significant changes to the tax regime concerning housing, to the overly generous inheritance tax allowances, to untargeted benefits for pensioners, to higher annual increases for state pensions than those in work or to exemption from NI for pensioners etc.

    Not to mention tax relief on ISAs and NSI certificates which a) benefits primarily the better-off and b) discourages people from spending when there is a lack of demand in the economy.

    I’m over 60 but believe that there needs to be a transfer of wealth from the old to the young who, for the most part, have a bleak outlook compared to that which their parents and grandparents enjoyed in their youth.

  • 39 BeatTheSeasons March 22, 2013, 5:58 pm

    In an article which has just been published on the London & Country Mortgages website it states that, with the ‘Equity Loan’ option 1 (for new build only), the following applies:

    “The initial loan is repaid, plus a proportion of any growth in the property value.”

    I hadn’t realised the government were going to take a cut of the capital growth, but it’s stated here:
    http://blog.lcplc.co.uk/2013/03/budget-2013-new-help-to-buy-scheme-%E2%80%93-how-it-works/

    Even more reason why they’ll do anything keep prices inflated!

  • 40 The Investor March 22, 2013, 6:54 pm

    @BeatTheSeasons — Yes, that’s why it’s presented as fiscally neutral. (Because the government is buying an asset with its Help to Buy money).

  • 41 L March 22, 2013, 6:57 pm

    Leaving aside all the fantastic points made by posters above (as I can’t add anything better to them!)…

    What happens when these first time buyers do eventually find their home. Put their offer in and hope that they can finally make their first steps in owning their own home and not paying the mortgage of their (well-off) landlord.

    That was the position my partner and I were in last week. We put an offer for an ex-local authority council home that was almost 10 times the value of my earnings (I earn well above the average UK salary, just to put it in depressing context). I was informed that we had the highest offer but that subsequently a cash buyer investor beat it by a “significant” amount.

    So what good is it that FTB can cobble together a deposit if they will be gazumped by BTLers and landlord investors. And the result is that it’s another “affordable” home off of the market… Despair.

  • 42 ermine March 22, 2013, 11:30 pm

    > that was almost 10 times the value of my earnings

    Holy crap, I hope you had a deposit that was 6x your earnings. Otherwise that cash buyer did you a big favour. You have a working life of 30-40 years to earn all of the money you will ever get, unless you marry it, inherit it of make it on the horses, and 10-20 of those years you will be working to pay the taxman. What on earth were you going to live on?

  • 43 Funny Money March 24, 2013, 6:18 pm

    UK Government propping up the British economy.

    Which is essential buying and selling over priced houses to one another with money we can’t afford to pay back.

    This it what happens when there is no effective way to short a market.

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