The objections to George Osborne’s latest wheeze to assist the housing market are hardly worth discussing. They are almost too obvious. And they have been rehearsed at length in relation to similar, smaller scale initiatives that have already been tried.
The new “Help to Buy” scheme, announced in today’s Budget, aims to provide equity loans of up to 20% of the value of new properties worth less than £600,000. Households have to come up with a 5% deposit to participate. The Chancellor is proposing that the scheme be backed up with government guarantees sufficient to support £130 billion of mortgages. The guarantee scheme will start in 2014 for a period of three years.
Just about the only perspective from which this initiative makes sense is carrying through on an absolute determination not to add directly to the public sector deficit, but not minding too much if the guarantees get lost amongst everything else in the public debt.
So it probably makes perfect sense to the Treasury.
Otherwise, the scheme has almost nothing to commend it. The economic illiteracy it displays is remarkable. The fact that, coming from the current occupant of No 11, this is no great surprise is perhaps equally remarkable. [Read more...]