The plan is for the govt to guarantee mortgages for people who can only raise a 5% deposit. There is already something similar in place for first time buyers. Seriously? They think what the housing market needs is more demand?
Are they deluded economic morons? Do they have an agenda to keep house prices up? Something else?
Are we talking UK Tories or Canuck Tories?
The thing about the housing market is that it has been tampered with for decades to such an extent that almost every householder, or aspiring householder, has an interest in that tampering continuing.
Reality is that house prices will always rise to a level that is just within(or just slightly beyond) financial reach, limit the access to money and it stands still - this is not hard to understand.
So, over the years, we have seen income multipliers move from 2.5 through to 2.5 + spousal income, through to 3.5, onward to include overtime and bonuses, to 5x total household income, and now we are seeing 35 year mortgages.
The actual result is that the purchaser still only ends up with the same house, but for much more money - a small minority do actually get a leg up if they can leverage the money before the price goes up, but this is becoming rarer.
In fact new houses are getting smaller, built from every cheaper materials, with smaller rooms, less garden and few - if any - solid interior walls.
So the builders are squeezing ever more money out of less and less, and the lenders collude by lending for longer terms and higher prices.
Meantime existing householders are like those folk who think everything they buy should cost nothing, and everything they sell is made of gold.
And yet the political party that claims to understand free markets intends to interfere again, by putting more financial petrol onto the housing price fire - what on earth could possibly go wrong?
Well, all those householders are belonging to an increasingly aging demographic, and some point they will have to sell for whatever they can get, and once the price snowball starts rolling downhill they will lose out again, the house will be worth less than they paid for it.
I think it’s UK Tories.
Just another example of people who rent subsidizing those who buy.
I’m not familiar with the UK situation but remember what happened in the US with the financial crisis. That was initiated by the MBS boondoggle. True, the obvious cause there was subprime loans but look a little deeper.
Those loans were largely adjustable rate mortgages and what happened was when rates started to go up and the rates on ARMs reset/recast, people couldn’t afford the payments and defaulted.
That wasn’t so much of a problem as long as home prices were appreciating, but when rates go up, prices tend to decline due to the increased difficulty in borrowing. Also, due the attendant decrease in price, people with ARM’s couldn’t refinance their way out of the problem so default was inevitable.
Finally, in a declining market, having a flood REO’s (real estate owned - the term for bank-own properties acquired by foreclosure) means that recouping the principal on all those bad mortgages was going to be an uphill battle at best.
So in a perverse way, it’s possible that stimulating demand is an attempt to head off just this type of problem - or not. It could on the other hand just be typical short sighted political bullshit.
I think casdave has explained things nicely. Homeowners form a plurality of the voting population and are completely captured by existing incentives and enticements.
Making the financial system dangerously reliant on a continued housing bubble is an incidental result of the political parties’ continued largesse to their core constituency.
Yes. Higher (general) house prices are good for people who live in houses which are pretty much as big/good as they’ll ever need, and whose next housing move is likely to be a downsizing one. Or for people who own rental property.
Sitting politicians, being mostly middle-class folks between 30 and 60, fall into that demographic.
People who edit newspapers are also in that demographic. That is why you tend to hear a lot about how bad it is when housing prices “collapse” or “don’t hold their value”. Whereas in reality, it’s actually bad for about half the population, and good for the other half.
Thanks for the replies folks, I thought this might just sink without a trace. I should’ve linked to a (UK) news item to clarify. Now I think the question should really be… “Do the Tories really think people won’t notice this transparent weasling to house owning Express readers?” I guess they just don’t care. They don’t seem to be bothered that this policy was variously described as mad and dangerous by people who know what they’re talking about.
FWIW I own my house outright, so I’m on the “winning” side of this stupidity. If I decide to sell up and live in an RV than I’m quids in.
I live in Milton Keynes* where there is still new building going on and I can testify to this. There’s really no shortage of land but new estates are crowded, have titchy gardens and not enough parking. Out of time, back in the pit later.
- yeah, yeah.
I disagree. The likes of the Daily Express, despise them as much as we like, do not go on about house prices because the editor or the owners are worried about their own mortgages. They do so because their readers are worried about them. I think that it is a mistake to think that newspapers lead opinion much. I think they mostly reflect opinion rather than make it.
Anyway, what the Tories are doing here is standard election timing - acting relatively generous in the period leading up to an election, and relatively stingy in the period afterwards. Governments of all parties have always done this. It is the rational thing to do. It is a consequence of the short-termism built into our system, but that short-termism is a necessary compromise, because the alternative is governments with very long terms, which gets too close to dictatorship. What we have in our system is a least-bad trade-off between long-term policy and democratic legitimacy.