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Young? Can’t afford a house? You’re getting shafted by the government

Two-year mortgage holiday? Life's a beach when you're a home owner

Two-year mortgage holiday? Life's a beach when you're a home owner

(Image by: magnus)

What has the UK government got against young people? Why is it obsessed with pulling up the drawbridge to anyone who’d like to buy a home but who can’t afford (or won’t pay) credit bubble prices?

I will declare my interest: I rent, having decided several years ago that housing was too expensive. I believed I was making a sensible decision, weighing up the risks of losing my 25% deposit in a frothy market.

I could afford to buy, but I decided to keep saving and wait for house prices to come back to sane levels.

Well, I had it all wrong. Apparently, the correct thing to do was:

  • Lie about my income on a self-assessment mortgage application
  • Buy a house I could only afford if interest rates stayed low for 30 years
  • Furnish my new house on credit cards
  • Wait for the taxpayer to bail me out
  • Go bankrupt without any stigma if things turned pear-shaped

And people wonder why nobody saves anymore.

Gordon Brown is forever blowing housing bubbles

I have watched (and posted) with incredulity as the government has scurried to keep inflated what was clearly a house price bubble.

Its latest wheeze to prop up house prices is a two-year mortgage holiday for homeowners unable to repay their mortgages. (The interest is rolled up and paid back later – presuming the owners can then pay. Otherwise you and I as taxpayers will have to cough up for the lot).

Not just anyone will qualify, of course: Only those with less than £16,000 in savings will get their mortgages paid. If you were sensible and put cash aside as a cushion, you will be penalised by the government.

Now don’t get me wrong: I’m sure there will be sensible people who risk losing their homes in the coming recession. That’s unfortunate, but deliberately targeting aid at the most exposed segment of the population isn’t in the best interests of the country. Those who can’t afford their house any more should simply sell. If it must ‘do something’, the state should offer extra rental support.

Yes, renting isn’t as nice as owning, but that’s already the case for those who rent. And they’re not getting any extra cash!

The government support (also known as ‘the oil onto the fire fund’) aims to maintain valuations reached with cheap money during the credit boom, set by people who spent on plastic, didn’t bother saving, paid too much for houses, and ignored the fact they were wildly over-valued.

It has nothing to do with helping sensible “hard-working families”. Many of those families couldn’t afford houses, so they didn’t buy. Sensible people spend what they can afford, and have savings for tough times.

This support is really about stopping repossessions from bringing house prices down further, and taking the Labour government with it.

Young, renting, unwanted

As far back as 2005 it was clear house prices had left first time buyers behind

As far back as 2005, house prices had clearly left new buyers in the cold

(Source: BBC house price guide)

Young people can’t complain though. When they struggled to buy as property prices went up exponentially (far outpacing salary growth), the government offered them two years of mortgage payments, too.

Except of course it didn’t.

Already over-priced to anyone who wanted to see it, the housing market was instead talked up further by ministers. They bragged about stability and low interest rates while presiding over the biggest boom in history – right up until buying a house was as safe as putting your life savings on red at Vegas.

The government apparently considers that status quo perfectly reasonable – it recently urged lenders to return to the lending levels of 2007. (You know, the reckless lending that has given us a near economic meltdown.)

Young people might want to ask their local MPs why:

  • If you aspire to own but can’t afford it, you get no help
  • If you already own but can’t afford it, you get taxpayer support

The answer is that like some Herman Munster of a pied piper, Gordon Brown told everyone boom-and-bust was over. Those foolish people who believed him are now HIS people. He will stand or fall on what happens to them, not to the ‘hard-working families’ he never stops banging on about.

Through hubris, a politician who set out to help the poor and preached prudence is now in hock to the reckless gamblers at the margins. And the rest of us have to pay for it.

Why do we no longer want affordable housing?

It was only 18 months ago that newspapers were reporting how first-time buyers were locked out of the market. “Something must be done!”, politicians boomed.

The response was usually one of:

  1. “There’s a shortage of housing in the UK, we need to build more houses!” [Builders]
  2. “It’s market forces at work, young people should give up on owning a home if they can’t afford it!” [Older home owners]
  3. “So what! House prices are make everyone better off. Go and moan about pesticides!” [Landlords]

All three retorts were utter nonsense:

  1. There was no housing shortage – it’s a myth. If there was a housing shortage in the UK, rents would have risen as fast, too. That didn’t happen. All those new build flats that have now fallen 40-75% in 18 months are proof that the bubble was essentially manufactured out of speculation and cheap money.
  2. Those who said “Give up if you can’t afford it” bought back when housing was very cheap. I know moderately paid engineers and teachers in their 50s and 60s who bought in desirable areas on a multiple of two to three times their earnings in their twenties (and with tax relief, too). The same house would cost 20-40 times the earnings of their young equivalents today!
  3. Rising house prices do not make most of us, even homeowners, better off. If you want to buy onto the ladder, cheaper is clearly better. Even if you’re already ‘in’, you’d be better off if the next house along the chain was also cheaper. The only time we benefit is if we sell out of the market completely. For most people that happens when they die, so only their heirs gain. And that inheritance is invariably put back into property. So much for social mobility.

It could all be so different

Now the house price boom has burst, just as bubbles always do, the Government should be celebrating. Young people might aspire to own again. Everyone else could be glad the money wasted on mortgages and agents fees might go into more productive start-up technology businesses or better health care.

But no. Falling prices are a great evil that must be stopped. Despite no steps being taken to stop the boom.

Besides garnering votes, the real reason for supporting prices is that until a floor is put under valuations, banks will continue to struggle. Even if you accept this argument, government support should be targeted at prudent savers. That’s the kind of behaviour you’d want the state to encourage, not overstretching.

There are several ways the government could more fairly support the market:

  1. First-time buyers could be exempted from stamp duty
  2. The government could provide new first-time buyers with a special discounted mortgage rate
  3. It could purchase vacant new build properties, increasing social housing in the short term (instead of paying for families to live in hotels) and sell out again in 5-10 years
  4. Any ‘mortgage holiday’ relief for current homeowners should also see the state take an immediate 5% stake in the property in return for the risks. Homeowners could buy back the stake at market rates as and when the credit market thaws.

Sadly though, for our politicians ‘moral hazard’ might as well mean the danger of being caught with your pants down.

If you’re currently renting and you aspire to own your own home someday, you’d better hope they’re as ineffectual as they are economically illiterate.

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{ 6 comments… add one }
  • 1 Martin McHugh November 29, 2009, 7:43 pm

    Great stuff. I think you do not go far enough. The government is full of property speculators (as is the media).
    My solution:
    Minimum room sizes. Maximum property ownership of 3 props (any more heavily taxed). Ban on property conversions. Outlaw banks collecting properties in land banks. Publicise property ownership to reduce mysterious empty houses. Stop buy to let mortgages to control demand side.
    Pressure group needed

  • 2 Monevator January 10, 2010, 2:44 am

    Well, I wouldn’t go quite so far personally Martin, but just getting rid of the tax breaks on buy-to-let would be a start and help first-time buyers compete with landlords who can current write their rental income off against their mortgage payments (which normal home buyers can’t!)

  • 3 fiannce advice February 9, 2010, 12:23 pm

    In the financial world, everybody is getting the facts and figures wrong and they paid for it with the financial crisis that happened mainly during 2009. House prices have been sharply going up as the wages now are not matching the housing prospects. Even cheap house prices are still expensive and banks are taking less chances on handing out mortgages so a relapse doesn’t happen again so if you want a house make sure you can afford the repayments and put as big down payment as you can to get as best interest rate as possible.

  • 4 Mark January 11, 2012, 2:07 pm

    fiannce advice, Surely what you have just stated is the actual problem in the first place. I am currently trying to sell my 1 bedroom flat and a first time buyer would need a wopping £30,000 deposit (20%) as a min to buy. How many first time buyers do you know with £30K in the bank. . I also then have the problem of I need to buy something bigger, due to new baby. How will I get a mortgage for a bigger place and how will i find a £50,000 deposit. It’s just never going to happen. I am now considering renting my flat out and renting myself a bigger place as I just can’t move up the ladder. Thing is I get no help at all because I am not a first time buyer, I’m considered to earn to much money for any benifts of any kind, we can’t afford child care, so my wife can’t work. I have been told that if I want a small 2 bed house in my area I need to save up £40,000 and the repayments would be £1000 a month. I reckon I could save £200 a month at the moment. So after 16.6 years saving I will have the deposit, then oh hang on house prices would have doubled again by then. . . . so the circle continues. . . . i guess we should just accept that there is no housing market any more. It’s just a play ground for the rich and we should all just be happy and pay them loads of rent so they can get richer. So the class divide widens once again. See you all on the way down .. . . . . . . .

  • 5 Ben January 11, 2012, 4:41 pm

    @Mark

    It probably won’t continue as there isn’t any money to drive it (outside of central london)

    Eventually house price to earnings ratio will revert to the mean, hopefully even undershoot it and we can all buy mansions

  • 6 chris March 26, 2015, 12:16 pm

    @mark

    I have to agree with what you say. I can not afford to rent or buy i did rent with my girlfriend for many years but we split up and i left the flat with nothing. I could not be bothered to argue over Tvs, bed, pc, dog, ect so left it all to her. I moved back with my mother who is sick she lives in a 3 bed home but want to move out to a one bed. She says i have a couple months to get out but still want half my pay check while i live there I have finaly got my head sorted out and have started to look for somewhere to live even for a shared home i would have to pay over 600pcm and that would leave me with not much to live on after paying tracel to work for the month i would probably not be eat for the last week or so of each month. I would not be able to save anything and would work to survive with nothing to show at the end of it. I even though abut buying a cheap car and living in that but i doubt that i could do that as i dont have a driving licence. I dont see anything getting better any time soon cant get a council place dont have any kids (thank god) so can fall back on that to get a council place like many single mother who are playing the system. I do have friend that have partners they have 2 or 3 kids but claim they are single so the mother can get a council place have most of there rent ect paid collect all the child benifits they can while the partner works and stays at the home anyway in some ways this pisses me off but in other way i can not blame them for doing what they are as otherwise they would be struggling like me but with the added addition of 2 or 3 kids. I feel the avarage person is just a pawn in the richmans world. I dont have a answer all i know is ill be sofa surfing or living in a carpark somewhere soon at 34 years old i feel like a failure but have worked all my life and dont think i should feel this way this is the hand ive been delt and ill have to deal with it I was carful and didnt have kids i could not afford and thought i was doing the right thing while a lot of my mates did have kids young but they seem to be doing a lot better than me.

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