The Prime Minister and his deputy, Nick Clegg, will unveil proposals to help first-time buyers of new homes by carrying part of the risk of their mortgages.
This has been done before. In the US.
The people who did it, Fannie Mae and Freddie Mac, went gloriously bust in doing it too. And the FHA, which is still doing it, is going to go gloriously bust at some point in the future.
Agreed, the two sets of schemes were slightly different. The FMs really insured interest rate risk thus allowing the 30 fixed rate mortgage. The FHS guarantees a mortgage when there\’s only a 3.5% deposit….and there are other schemes which mean you can get that as a grant in certain parts of the country too.
But this sort of intervention into the market is dumb, dumb, dumb.
Even if it works it won\’t really work. For if you subsidise one generation of first time buyers then they\’ll stick there in the market like constipation in the gut. Who will move to get off the subsidy? You\’ll just end up with entry level housing being occupied by those who will not give up said subsidy, dried turds blocking the free flowing of the market.
The answer to the British housing market is to make housing cheaper through reducing the cost of the most expensive part of it, the scarcity value of planning permission. Which is already being addressed by the changes to said planning system.
But then this is the problem with politics isn\’t it? Sorting out the system properly is going to take a few years: which doesn\’t give the politicians the ability to grandstand and wave our money about as the solution.
It does have to be said that Murphy is right on one point: we do need courageous politicians. However, ones courageous enough to say that this problem isn\’t best solved more more rule, more subsidy, more of your money being spent on other people. Rather, those courageous enough to say that actually, this problem has been caused by the current rules therefore we\’re relaxing the current rules to solve the problem.