Mortgages: Concern rises over Help to Buy


iStock_000004085541_ExtraSmallJust a few days after Vince Cable, the Government’s Business Secretary, warned the Help to Buy scheme could lead to a housing bubble, a pressure group has raised further concerns.

The scheme was announced by George Osborne in his spring budget, with the first part being launched immediately and the second starting in early 2014.

However, whilst Help to Buy, along with the Funding for Lending scheme, certainly seems to have a positive impact on the housing market, it has come under criticism from various sources. Many experts are worried a new ‘bubble’ will be created, perversely making it harder for some people to get onto the housing ladder.

Open letter to George Osborne

The latest group to add their voice to the growing concern over Help to Buy, is Save our Savers, a leading pressure group.

In an open letter to Chancellor George Osborne, Save our Savers say:

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Linda Wood, Investment Sense mortgage adviser in Nottingham

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“You must reconsider your Help To Buy scheme as a matter of urgency. It comes at a time when, according to the Financial Conduct Authority (FCA), over a million people with interest-only mortgages do not have enough savings to pay off their loans, while Age UK reports that a quarter of people in their 50s and above fear they will be forced to leave their homes because they cannot keep up payments. Help to Buy will pour oil on an already-burning fire, posing extraordinary dangers both for the UK housing market and the wider economy.

As with America’s disastrous sub-prime mortgage crisis, the consequences of helping people who could otherwise not afford a house to become homeowners could be grave.

By increasing housing demand more quickly than supply, Help to Buy will push up prices. Existing homeowners may feel wealthier but rising house prices suck wealth from the wider economy. The new scheme exploits the desperation of those seeking to get onto the housing ladder yet will pull that ladder away from many. Owning a home will become an unrealistic aim for today’s younger generation and beyond.

We risk returning to some of the madness of the pre-crisis mortgage market, with 125% mortgages and self-certified liar loans. Already, one building society is offering initial 0% mortgages. At least the pre-crisis mortgage bubble took place in a time of a booming economy; you have introduced Help to Buy in the midst of what is probably the worst recession the UK has ever seen, with the slowest ever recovery.

Your mortgage guarantee programme is intended to support £130bn of lending, a figure even bigger than the Government’s annual deficit. Effectively, you are risking taxpayers’ money on property speculation. All bubbles eventually burst and, with the return of more normal interest rates, house prices could fall. As well as possible losses to the taxpayer, new homeowners risk being trapped in negative equity, adding to the problems caused by interest-only mortgages and payment problems for those in their 50s and above.

Help to Buy is madness, a desperate short-term political expedient that will have long-term detrimental consequences. Just as the finance industry gets its act together, restricting lending to those who can afford to repay borrowing, you introduce a scheme that encourages lending that would not happen without Help to Buy.

This is despite the fact that, in March 2009, you said that “Britain needs to change from an economy built on debt to an economy built on savings”. Increasing debt, you said, “not only flies in the fact of economic sense but it’s also unfair to future generations.

Despite the promises you then made to savers, you continue to subsidise and encourage borrowing, while presiding over a situation where it has become impossible to preserve the real value of savings.

You have deliberately started inflating another housing bubble. We have very recent evidence of just how this could turn out.”
Save our Savers is a pressure group set up to defend savers, whilst promoting the benefits of saving to the wider economy.

You can learn more about the group in our recent interview with Simon Rose of Save our Saver, click here to read the full interview.