Leading analyst says chancellor’s flagship scheme artificially inflates prices and drives the young into ‘indentured servitude’
George Osborne’s scheme to boost the housing market through state mortgage subsidies has been dubbed one of the most stupid economic ideas of the past 30 years by a leading City commentator.
Albert Edwards, who heads the global strategy team at Société Générale said the chancellor’s flagship Help to Buy programme was artificially inflating property prices and driving young people deeper into “indentured servitude”.
The chancellor said in the budget that the government would provide lenders with a guarantee of up to 20% of a mortgage in an attempt to provide potential buyers with a big enough deposit to purchase a home. If a borrower defaults on a loan, the taxpayer will be liable for a share of the losses.
Edwards said the scheme was artificially propping up the market and preventing prices correcting to affordable levels. First-time buyers need cheaper homes, not greater availably of debt to inflate house prices even further, Edwards said. “This is madness.”
He added that house prices were still overvalued despite Britain being at the epicentre of the global credit crisis and remaining in the “icy grip of private sector deleveraging”. In other countries, such as the US, house prices were now cheap.
“Young people today haven’t got a chance of buying a house at a reasonable price, even with rock bottom interest rates. The Nationwide Building Society data shows that the average first-time buyer in London is paying over 50% of their take home pay in mortgage payments – and that is when interest rates are close to zero.”
In a research note, Edwards said it made him “genuinely really angry” that burdening young people already struggling to pay off student loans with more debt was seen as the problem to excessively expensive housing.
“Why are houses too expensive in the UK? Too much debt. So what is George Osborne’s solution for first-time buyers unable to afford housing? Why, arrange for a government-guaranteed scheme to burden our young people with even more debt! Why don’t we call this policy by the name it really is, namely the indentured servitude of our young people.
“I believe it truly is a moronic policy that stands head and shoulders above most of the stupid economic policies I have seen implemented during my 30 years in this business. It ranks above some of Alan Greenspan’s very worst blunders.”
A number of experts have warned that Help to Buy will drive up house prices, pushing younger people out of the market. Sir Mervyn King, the outgoing governor of the Bank of England, has insisted the plan must remain temporary. He has expressed concern that the scheme “is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis, and we need to get back to that healthy mortgage market.
“We do not want what the United States have, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position.
“So, we mustn’t let this scheme turn into a permanent scheme … when is the right time to terminate it will depend on economic conditions at the time.”
The International Monetary Fund has also warned that the plan would fail to improve access to housing.
There are no comments yet. Why not be the first to speak your mind.