Friday, October 11, 2013

Help to Sell

Like George Osborne, I’m no economist. But I do know that a transaction has two sides: for every buyer there is a seller. And if I decided to sell my flat, I would want lots of ready, willing and able potential buyers to choose from, because higher demand increases the price.

The government’s ‘Help to Buy’ scheme, offering taxpayer-backed guarantees on 95% mortgages for people who are struggling to raise a deposit, will give me what I want. It will put people who might like my flat into serious contention to buy it. I will have more would-be buyers and so I’ll be able to get a higher price. I can pick the one who makes the best offer, and disappoint the rest.

The focus of the policy is on buyers. They are the ones who receive the help directly and they’re the ones who will feel that they’ve personally benefited from it. But the help they’re getting to reach higher will also help me to start from higher. So the people who really benefit are those of us already on the property ladder.

This isn’t really Help to Buy. It’s Help to Sell. And while it might be good for me, I’m not so sure it’ll be good for the economy.

As Osborne has said: “Hopefully we will get a little housing boom and everyone will be happy as property values go up.” Well, at least he has learnt from Gordon Brown’s mistake and isn’t promising to end boom and bust.

1 comment:

Blissex said...

This is an old post, but can't resist adding that this is still a view that is not cynical enough.

Sure "Help-To-Buy" is really "Help-To-Sell", designed to drive up house prices.

But it is also designed to drive up sales of mortgages, which perhaps is even more important to Osborne.

Because higher house prices mean higher collateral values for mortgages, and that is not just higher mortgages on new buys, but also allows more borrowing via remortgaging on houses that are not on the market.

If Help-To-Buy helps drive up the price of a house on a "close" from £200,000 to £300,000 then the valuation of all other 10-20 houses in the same "close" go up too, and their owners can borrow more thanks to their higher collateral value.

And the UK economy, and in particular City bank profits and bonuses area are driven by debt expansion via remortgaging:
«Under Thatcher, this exploded to over £250bn across her premiership – a staggering 104% of GDP growth. ... But Blair did his homework and let loose – as did Thatcher – a wave of cheap credit, financial deregulation, house price inflation and an equity withdrawal-led consumption boom. Withdrawals under Blair’s leadership totalled around £365bn, that’s a full 103% of GDP growth over the same period,»