Budget 2013

[Neil_F]

Interestingly,it would seem that the first policy to unravel from this year's budget is precisely the second part of the Government's "help to buy" housing scheme.
Looks attractive to would-be second home owners and possibly also to buy-to-let landords.

Except the Guardian link says that buy-to-let mortgages don't qualify. On that basis someone would have to buy a second home without any associatd income stream. The only thing I can think of is buying it for their children, but more likely they would give them the money for the deposit. I don't think this is a big issue. Just because something isn't forbidden it doesn't mean it is going to happen.

What will it do to the inflation rate I wonder?
If the inflation rate rises in the next few years (a reasonable bet) that could lead to a downward spiral on house prices,particularly on anyone buying a property on a 95% mortgage.

This would only be the case if interest rates rose to try to limit inflation. Higher interest rates would reduce demand by making it harder to get a mortgage, thus prices fall in theory. However, the UK supply dynamics of housing would mean a very signficant interest rate rise for any material price crash.

Your point though is valid. The concept of governments underwriting mortgages is lunacy. This is what Freddie Mac and Fannie Mae did in the US and it was a total disaster.

When something is underwritten the lender will take higher risks. That is why the sub-prime mortgage crisis happened. The US government underwrote the risk so lenders could provide mortgages to people who couldn't really afford them. It didn't much matter if they defaulted because the lender could get their money back from the government.

Everyone was happy with this: lenders made money, people could buy a house when they had always been denied a mortgage before and the government thought those people would vote for them. Everyone wins - except a dose of higher inflation (mainly driven by oil prices) in 2007 meant interest rates rose. A lot of the sub-prime mortgages were variable so those people who could barely afford their mortgages now couldn't. In the US it is easy to default, you just give the keys back, so Freddie Mac and Fannie Mae suffered huge rates of default. The flood of houses back on the market depressed prices and the two lenders were insolvent and the government, or rather the taxpayer, were on the hook for the losses.

For some reason the government think it is a good idea to give this model another go. At least the amount has been limited, but I wouldn't expect that to hold for very long if it is popular.

This approach shows the limit of economic policy in this country. Every quarter we obsess over GDP. The government therefore obsesses over the aspects of GDP which are negative (mainly construction). The government therefore thinks of ways to improve that single GDP component without consideration of the wider consequences. In this case the stagnant housing market and the planning system hold back construction. Therefore change the planning system and hand out mortgages and all is well. Construction growth picks up, GDP growth improves and everyone is happy until.... probably the same thing happens again.

 

[superblue24]

Interestingly,it would seem that the first policy to unravel from this year's budget is precisely the second part of the Government's "help to buy" housing scheme.
Looks attractive to would-be second home owners and possibly also to buy-to-let landords.
What will it do to the inflation rate I wonder?
If the inflation rate rises in the next few years (a reasonable bet) that could lead to a downward spiral on house prices,particularly on anyone buying a property on a 95% mortgage.

"Speaking on Radio 4's Today programme, George Osborne said he did not want the scheme to help people buy second homes, but refused to say they would be banned from doing so."

http://www.guardian.co.uk/money/2013/mar/21/help-to-buy-scheme-exploited-second-homeowners

I think you're being particularly ignorant of this issue.

Whilst I agree that "second home owners" may indeed benefit from the scheme, you fail to consider the many valid families out there (like my wife and I) who see this scheme as an excellent way of moving into a "family home". There are risks associated with any scheme and there are always people who jump on the bandwagon and look for "loopholes". But you're missing the BIG point about the many young families in Britain (of whom this scheme is tailored for) who are still living in 2 bedroom maisonettes with one or more children and want better for themselves.

You're speculating that inflation rates might go up and that house prices will tumble, but your predictions hardly carry much weight as you want the scheme to fail being Tory driven, not to mention this comes from you, Mr #BarnaBlueGetsItWrongAgain......

 

[Tangled up in Blue]

I think you're being particularly ignorant.

There you go with the unecessary (and uncalled for) abuse again.

Whilst I agree that "second home owners" may indeed benefit from the scheme, you fail to consider the many valid families out there (like my wife and I) who see this scheme as an excellent way of moving into a "family home". There are risks associated with any scheme and there are always people who jump on the bandwagon and look for "loopholes". But you're missing the BIG point about the many young families in Britain (of whom this scheme is tailored for) who are still living in 2 bedroom maisonettes with one or more children and want better for themselves.

On the contrary, as a builder's son, I hope the scheme does help young families get on the housing ladder.
I'm not at all sure however what a "valid" family is.Are some families "invalid" then?

You're speculating that inflation rates might go up and that house prices will tumble, but your predictions hardly carry much weight as you want the scheme to fail being Tory driven, not to mention this comes from you, Mr #BarnaBlueGetsItWrongAgain......

Not just me.Quite a few other political and economic commentators have drawn attention to this.You would do well to consider Neil. F's cautionary comments on the American housing bubble.
As I suggested above, I don't want the scheme to fail at all.In fact, I genuinely hope it succeeds.It's just that I have my doubts.

 

[Tangled up in Blue]

Except the Guardian link says that buy-to-let mortgages don't qualify. On that basis someone would have to buy a second home without any associatd income stream. The only thing I can think of is buying it for their children, but more likely they would give them the money for the deposit. I don't think this is a big issue. Just because something isn't forbidden it doesn't mean it is going to happen.

Yes,I saw that.How exactly would the Government be able to stop someone buying a house under this scheme and turning the property into a buy-to-let at some future point eg after the house had been sold on to another buyer, handed over to siblings etc?

 

[superblue24]

Not just me.Quite a few other political and economic commentators have drawn attention to this.You would do well to consider Neil. F's cautionary comments on the American housing bubble.
As I suggested above, I don't want the scheme to fail at all.In fact, I genuinely hope it succeeds.It's just that I have my doubts.

How is calling you "ignorant" an insult? It's stating a mere fact that you've decided to (as usual) focus in on the negative parts of a government scheme and failed to appreciate that young families are going to benefit by not having to squeeze three children into a 2 bedroom home by virtue of not having the financial backing required to upsize.

When I said valid family, I meant a family with a valid need for the scheme. I think you know that.

It's rather small minded and petty of Labour to play this game. Are they suggesting that all of their own proposals are ones where only those in need benefit, and no-one else does? Please. It's another load of huff and puff from the Labour party bringing up the same old tiresome arguments to paradoxical issues. Had Labour stayed in power, I very much doubt we'd be in any better shape than what we are now.

 

[superblue24]

Yes,I saw that.How exactly would the Government be able to stop someone buying a house under this scheme and turning the property into a buy-to-let at some future point eg after the house had been sold on to another buyer, handed over to siblings etc?

The Buy to let mortgages are underwritten by the independent mortgage lenders. The stipulations on the mortgage terms clearly state that letting the property out would be in breach of the contract and the mortgage would be withdrawn.

How would the initial buyer benefit by selling it on to a friend or sibling to let? The second sale would still require a mortgage agreement in place, and someone would need to apply for it which would surely leave the buyer back to square one with a regular mortgage and therefore not benefited.

 

[londonblue]

Much of this flows the Basel III Accord, which sets global levels of capital to hold. Strictly it is voluntary but most countries have signed up to it, which is why credit is a problem that is not exclusive to the UK.

I wouldn't say that the government is telling the banks not to lend. I would liken it to insisting they do lend but tying them to a fence and running off with half the money.

In which case they're lying to us. They know all of this, and yet still make noises, and have meetings with the banks "telling" them to lend more.

As I said, at some point in the future the banks will reach their capital levels and start lending again. At that point that **** Osborne will turn round and claim victory.

 

[londonblue]

I don't think this is a big issue. Just because something isn't forbidden it doesn't mean it is going to happen.

Naiive in the extreme. If something isn't forbidden it will almost certainly happen at some point.

 

[Neil_F]

Naiive in the extreme. If something isn't forbidden it will almost certainly happen at some point.

And the act of forbidding something and then designing a system of enforcement is not cost free and even then not assured of success.

The point is it makes little financial sense to use the scheme to acquire a second property that can't be let. Even if there are cases I doubt the government care because it will still contribute to one of the two primary targets: stimulating the housing market.

I don't understand the obsession with heavily targeted measures. It creates unnecessary complexity, a cost of enforcement and distorts incentives at the thresholds. It is largely pointless in my view to add complexity to address what will probably be less than 1% of the cases, and there won't even be a marginal cost to the Exchequer.

 

[steveo]

Had Labour stayed in power, I very much doubt we'd be in any better shape than what we are now.

But when Labour were in power wasn't it all explained away as part of the world wide recession? Surely no fault of theirs?

 

[Cricko]

The financial "industry" is ****ed in the world now and will end up dragging everybody into the mire. We can no longer sustain a world built on just monetary terms...The Banks and leading billionaire owners of the conglomerates are leading us down a merry road of doom.

Russia is now starting to rock the boat. http://www.eutimes.net/2013/03/russian-leader-warns-get-all-money-out-of-western-banks-now/ and is just the the tip of the iceberg.

For far to long the leaders of companies/banks have strived year after year for fatter profits, some have fallen by the wayside, others have stood by reaping in government loans and done sweet FA to actually help the businessman/people of this country, whilst trying to secure their long term future and personal gains.

There will never be a recovery world wide or UK wide until this situation is redressed and countries start to look within rather that look out to find a solution...We pay something like 50 million a day into the Euro which is a complete waste of money now..Germany want to rule Europe without having a war and it about time the British people and others said enough is enough.

The whole system needs radical change, otherwise mark my words you will only see an ever spiralling down slide all over the world.

I have no real political persuasion atm,just a firm belief that we are lead by morons with no idea what they are doing other than looking after number 1.

 

[callan]

For me until the banks serve the economy, rather than the other way round, no budget will get us out of this mess.

 

[Tangled up in Blue]

But when Labour were in power wasn't it all explained away as part of the world wide recession? Surely no fault of theirs?

In the same way the coalition is currently blaming the last three years of flatlining growth on external problems in the Eurozone you mean? :unsure::winking:

 

[Tangled up in Blue]

The Buy to let mortgages are underwritten by the independent mortgage lenders. The stipulations on the mortgage terms clearly state that letting the property out would be in breach of the contract and the mortgage would be withdrawn.

I'm (clearly I think) not talking about the original 95% mortgage.I'm talking about a later re-sale or passing on the property to siblings.

We bought our own house in Spain from the original owner,only six months after he first bought it, (clearly for speculative purposes),when it was supposed to be protected from immediate re-sale by law.
I remember going down to the bank with him and handing over a cheque, with which he paid off his mortgage in front of us.


http://translate.google.es/translat...a=X&ei=OXtLUfr1LMuKhQe4poHgDQ&ved=0CEEQ7gEwAQ

 

[Tangled up in Blue]

How is calling you "ignorant" an insult?

I'm guessing that you haven't ever studied much (or indeed any) psychology.If you had, you'd know that people who verbally abuse others are often guilty of the very same things they accuse others of.Think about it.:smiles:

It's stating a mere fact that you've decided to (as usual) focus in on the negative parts of a government scheme and failed to appreciate that young families are going to benefit by not having to squeeze three children into a 2 bedroom home by virtue of not having the financial backing required to upsize.

On the contrary I've already made it clear that I hope this particular Government programme succeeds.Of course I fully understand the desire of young families to own their own homes.

When I said valid family, I meant a family with a valid need for the scheme. I think you know that.

It certainly wasn't clear to me.In any case,it's a rather inelegant tautology.

It's rather small minded and petty of Labour to play this game. Are they suggesting that all of their own proposals are ones where only those in need benefit, and no-one else does? Please. It's another load of huff and puff from the Labour party bringing up the same old tiresome arguments to paradoxical issues. Had Labour stayed in power, I very much doubt we'd be in any better shape than what we are now.

Labour have outlined their own plans for the immediate building of 50,000 new homes.

This government has the worst housebuilding record of any administration going all the way back to 1923.
For the last three years this Government has been responsible for just over 100,000 new starts (not builds) each year.
Macmillan must be turning over in his grave.

 

[Yorkshire Blue]

Yes,I saw that.How exactly would the Government be able to stop someone buying a house under this scheme and turning the property into a buy-to-let at some future point eg after the house had been sold on to another buyer, handed over to siblings etc?

Seriously, WTF?

 

[Benfleet A1]

Labour have outlined their own plans for the immediate building of 50,000 new homes.

This government has the worst housebuilding record of any administration going all the way back to 1923.
For the last three years this Government has been responsible for just over 100,000 new starts (not builds) each year.
Macmillan must be turning over in his grave.

Have a potential Labour government identified land for this immediate building programme?

 

[Berrichonne shrimper]

I'm (clearly I think) not talking about the original 95% mortgage.I'm talking about a later re-sale or passing on the property to siblings.

We bought our own house in Spain from the original owner,only six months after he first bought it, (clearly for speculative purposes),when it was supposed to be protected from immediate re-sale by law.
I remember going down to the bank with him and handing over a cheque, with which he paid off his mortgage in front of us.


http://translate.google.es/translat...a=X&ei=OXtLUfr1LMuKhQe4poHgDQ&ved=0CEEQ7gEwAQ

So you took part and helped in a crime,tusk tusk,setting a bad example yet again.

 

[Tangled up in Blue]

So you took part and helped in a crime,tusk tusk,setting a bad example yet again.

If a crime was commited,it was commited by the seller not the buyer (and I was given legal advice to that effect).Incidentally, (though it doesn't mention it in the Wiki article I quoted) the type of *posh social housing that we bought, was originally legally deemed not for re-sale for twenty years after purchase.That certainly hasn't stopped several of our neighbours re-selling long before that, at a handsome profit.







































*A friend from San Sebastian once described our townhouse as a "posh terraced house."

 

[Tangled up in Blue]

Seriously, WTF?

I suggest you read this. http://www.guardian.co.uk/money/2013/mar/20/help-to-buy-scheme-how-it-works

You might also be interested in this comment:"The Social Market Foundation has warned the scheme will keep "the housing bubble inflated" and says older wealthy homeowners are the only winners".