Help to Buy Scheme Should Really Be Named Help For Bankers Scheme - Discuss

[radderfire]

Hi Guys

Below are some thoughts from me that I made on another thread. The gist of it is that the so-called "Help to Buy" scheme is a misnomer, it should actually be called the "Help for Bankers" scheme, as it keeps technically bankrupt money lenders operational. Feel free to discuss the points made below.

The property market is way overpriced in the UK, as most people find it tough to afford a house now. The banks were bailed out with public funds in 2007 instead of letting the property market correct. What this means is that public funds were basically given straight to bankers, and is in fact the biggest type of social security payment ever, to keep the bankers going.

So, now we have an "artificial" price for houses, as in reality most people find it difficult to afford them. Hence the Help to Buy scheme, which is actually just to keep the banks going, as they are all overcommitted to the property market and without the massive government assistance they have had, would all have major problems. Hence mortgages are more expensive at their current "artificial" price than they should be.

The property market should have corrected in 2007 when a number of big banks went technically bankrupt and the government was forced to step in. The banks should not have been allowed to get so large, as smaller banks could be allowed to go bankrupt (as they should have) in a real market economy.

What we have now is not a market economy, but a big wealth transfer from the poor to the bankers, especially concentrated on the property market. The original problems were not addressed and there will be further major economic problems soon.

 

[scorza]

It was a quick fix aimed at getting economic growth in time for the general election - give people free money and we shouldn't be surprised that results in economic growth. The problems will come in 5 years time when people start having to pay interest on this money - it's quite cheap at first but IIRC it goes up at the rate of inflation + 1% every year afterwards. If we don't get significant wage inflation in that time period then there will be issues. The great trick of course is that if the government borrows money then lends it out to other entities, it doesn't count towards our budget deficit.

The alternative would have been to invest in Britain's creaking infrastructure - it would have had greater results over the course of the long term, but of course the government wanted to push the austerity narrative.

 

[Skeeter]

There are multiple parts to the Help to By scheme. You seem to be focusing on a single aspect of it. The Equity Loan doesn't rise at inflation +1% either, scorza.

 

[Rroff]

House prices have certainly got a bit crazy - was considering yesterday what my parents and my grandparents could afford at my age in comparison to what someone could buy today in an otherwise similar financial situation - its kind of shocking.

 

[drakioned]

Solution is simple.

Become a banker

 

[scorza]

There are multiple parts to the Help to By scheme. You seem to be focusing on a single aspect of it. The Equity Loan doesn't rise at inflation +1% either, scorza.

Fair enough - I am guilty of assuming Help To Buy was just the equity loan.

Not sure what you mean by the equity loan not rising by inflation + 1%. From https://www.helptobuy.gov.uk/wp-content/uploads/Help-to-Buy-Buyers-Guide-260116.pdf

After the first five years you will pay an additional fee as interest of 1.75%, rising annually by the increase (if any) in the Retail Price Index (RPI) plus 1%

Don't get me wrong, it's a great scheme to be on for the borrower. You just know that some people are going to get caught out after 5 years - I expect to read few hard luck stories about Help To Buy in the Daily Mail in four+ years time.

 

[Mucky_Pup]

I'll be using the help to buy equity scheme next year, and looking briefly at the figures, I'll pay back the bank/building society a lot less by taking money from them at 75% LTV were I to use the scheme, than I would at 90% LTV if I didn't use the scheme.

 

[Skeeter]

Fair enough - I am guilty of assuming Help To Buy was just the equity loan.

Not sure what you mean by the equity loan not rising by inflation + 1%. From https://www.helptobuy.gov.uk/wp-content/uploads/Help-to-Buy-Buyers-Guide-260116.pdf



Don't get me wrong, it's a great scheme to be on for the borrower. You just know that some people are going to get caught out after 5 years - I expect to read few hard luck stories about Help To Buy in the Daily Mail in four+ years time.

That doesn't mean that if inflation is 2% then your rate jumps from 1.75% to 4.75% after 5 years, it means it increases the 1.75% rate by 3% so the rate would rise to 1.8025%. When I was looking at using the Equity Loan I worked out it would be about 15 years before the Loan % would be higher than having a Mortgage for the amount.

The thing to watch out for with the Equity Loan is that you owe the Government 20% of the value of the house, not the amount of money you initially borrowed. The Equity Loan scheme means the Government are earning 20% of the capital growth of most new builds in the country. It also has little to do with sustaining lenders, and it more about keeping Developers building houses. They have just launched a 40% Equity Loan scheme in London!

 

[Mucky_Pup]

You can split that fee over monthly payments as I was lead to believe as well, to make it slighty more manageable. My plan is to hopefully have at least 10% of the equity loan paid back on the brink of the 5 years, then only pay the fee for the other 10% until I have the other 10% saved up, or absorb it in a remortgage if possible.

 

[a1ex2001]

Ignoring the OP's rant against the hated bankers a lot of what is said is pretty true, the housing market in this country is badly broken and the prices stupidly high but the main reason for this is simple lack of supply even living in the north in nice areas there is nothing for sale and when stuff does come up it sells in a week with sealed bids.

The government doesn't even consider the housing market outside London yet they still can't fix that one, the big problem in London is property is no longer about somewhere to live it is just another investment and our ridiculously lax rules on foreign ownership and the like just make the problem worse. New flats in London shouldn't be being sold off plan to investors in HK for crazy money it is simply insane.

 

[Skeeter]

...the main reason for this is simple lack of supply...

The Equity Loan scheme within Help to Buy is specifically aimed at increasing supply. Without it there would be far fewer new build developments out there.

You can split that fee over monthly payments as I was lead to believe as well, to make it slighty more manageable. My plan is to hopefully have at least 10% of the equity loan paid back on the brink of the 5 years, then only pay the fee for the other 10% until I have the other 10% saved up, or absorb it in a remortgage if possible.

This is the way to play the game. Staircase out 10% before the 5 years are up, and then remortgage to get rid of the rest as soon as you pass the point where you can get a mortgage rate that is lower than the rate your paying on the loan. Use the fact your getting a lower rate at 75% LTV over 95% LTV to throw over payments at it too in order to accelerate the speed you can drop the loan.

 

[No1newts]

It is good for house owners (my own house has went up by 20k in 2 years for no reason, we certainly haven't done any work on it) but for future generations they are ******. Wage stagnation, or at least minor growth, and huge prices increasing way above inflation the problem will only get worse.

There needs to be some type of reset but whilst knocking prices down would help new buyers you are potentially shafting a huge % of the population who are home owners who would descend into massive negative equity and be crippled.

 

[peterwalkley]

Help to buy wasn't there to help greedy bankers - it was there to keep house prices up so that us middle classes who own property didn't have to go through the trauma of negative equity again during the financial crisis like happened in the 1980's recession. The current generation of people in power remember that all too well.

As already said, planning system in this country is hopelessly broken.

Interesting factoid I read in the economist a while back. We could sacrifice a 1 mile radius of greenbelt around the M25 and create enough land to fulfil the entire country's housing needs - and in the part of the country where most of the jobs and need is. Huge amounts of it isn't exactly pretty scenery, so we're not losing anything anyway.

 

[Mercenary Keyboard Warrior]

@ OP I'm not so sure I get your all in one views on the subject.

If the banks had of gone bust, and we ignore the other massive issues that would have caused, the banks themselves going bust wouldn't have directly impacted the house prices. The mortgages would have been sold to another financial institute, as going concerns.

What we did see was approximately a 20% reduction in house prices due to the instability, but this quickly recovered and is now again far above the levels we saw back then. I can't see how you think that even if prices had of crashed hard at that point that they would not be where they are now again. Whats the logic.

Fundamentally house prices if you ignore any particular government intervention are about supply and demand. There has been an abject failure by most governments for 30-40+ years to ensure enough housing is built.
When there is a shortage of supply then its pretty much going to be an auction where the person who can (or is willing to) pay highest "wins" the property.

Then add in the developers, they are businesses who are looking to maximise profits. But they are also semi unique, in that they tend to employ few staff, they employ a lot of subcontractors. So if prices fall they stop building (as they did almost 10 years ago), lay off all the subbies and just wait it out. One thing that is definately limited is land for building on, so you would be frankly daft to use that limited resource when prices are low and prevent your self maximising profit at a later stage.

Lets briefly go back to the failing bank situation, there are many interested/impacted people, but its far from just mortgage holders. So lets look at some of the people who as examples would be impacted:
1) person who had just had their wages paid in. Immediate impact as they may not have any money to pay bills/mortgages/eat etc. Yes its covered by the compensation scheme but thats covered by the government anyway, however it doesnt pay the same day.
2) companies. Their total liquid assets could be wiped out, no such compensation so would probably have to not pay staff/suppliers etc Could easily force some companies that relied on funds to go out of business
3) Other banks, at the end of the day they lend/borrow to each other, so both of the above groups would have been impacted outside the bank directly affected.
4) but the biggest issue would remain (and this was the primary reason for the bailout), our economy relies on confidence in the banking market and financial institutions. Without this its hard to see any form of electronic (ie modern banking system) and we would be rather lent to going back to hard currency only

Pre the modernisation of banking you would go to a building society for a mortgage, at times funds were limited so you may have found without a profession you wouldnt have been a target customer and hence not approved. Supply was limited at this time, not of housing but demand due to the inability of many to borrow.

 

[radderfire]

Ignoring the OP's rant against the hated bankers a lot of what is said is pretty true, the housing market in this country is badly broken and the prices stupidly high but the main reason for this is simple lack of supply even living in the north in nice areas there is nothing for sale and when stuff does come up it sells in a week with sealed bids.

A lot of the reason is it's hard to buy a house is Buy to Let landlords, who have been given mortgages by the banks to expand and speculate in the property market. The physical number of houses in the UK is not the problem, it's the fact that the finance community has been allowed great control over housing and especially has been allowed to promote/enable Buy to Let landlords, again artificially boosting property prices. If it was left to real market conditions and natural economics, this wheeze would have been scuppered years ago, but instead the Government has used taxation to give money to their friends in the finance community to keep them going. This is why the UK is experiencing greater inequality, because those in power seem to have no qualms about taxing the poor and giving the cash to the wealthy to continue in their rentier ways. The people of Britain need to wake up to this fact and start complaining about it.

 

[radderfire]

If the banks had of gone bust, and we ignore the other massive issues that would have caused, the banks themselves going bust wouldn't have directly impacted the house prices. The mortgages would have been sold to another financial institute, as going concerns.

When the Government bailout was done, the wrong people were bailed out. That is, the Government bailed out their friends in the banking sector, when it would have been better to give the money to UK industry or the UK consumer. The bankers have just used the money to cancel out their major debt problems from their unrealistic lending practices, and will now just continue on, until they create the next crisis, which is coming. The bankers used the money to delete a few numbers on their spreadsheets, and can now continue on in their favoured parasitic activities of syphoning money off from the UK citizen.

 

[Amp34]

It is good for house owners (my own house has went up by 20k in 2 years for no reason, we certainly haven't done any work on it) but for future generations they are ******. Wage stagnation, or at least minor growth, and huge prices increasing way above inflation the problem will only get worse.

There needs to be some type of reset but whilst knocking prices down would help new buyers you are potentially shafting a huge % of the population who are home owners who would descend into massive negative equity and be crippled.

Not really, unless you plan on never moving, or alternatively leaving the country or only downsizing.

It's great for pensioners and those in the later years of their lives as they can release the increased equity in their house and spend it. It's also great for investments, but for the average person looking to start a family or move it is at best neutral and worse negative.

That house you are looking at to move up to to start your family will have also increased by 20%. So as much as your house has gone from £100k to £120k the larger house has gone from £200k to £240k, meaning you're £20k more out of pocket than if house prices hadn't increased... Obviously if you're already in the £240k house and want to move down into that £120k bungalow then score!

 

[Skeeter]

You've done a pretty big U Turn on your stance there radderfire? I totally agree that Buy to Let has been a significant contributor to the current housing market mess in the UK, but Buy to Let Landlords are not eligible for any of the Help to Buy schemes?

 

[Rroff]

The government doesn't even consider the housing market outside London yet they still can't fix that one, the big problem in London is property is no longer about somewhere to live it is just another investment and our ridiculously lax rules on foreign ownership and the like just make the problem worse. New flats in London shouldn't be being sold off plan to investors in HK for crazy money it is simply insane.

They built ~25 new homes behind where I live - most of them are being rented out at ~£1100/m - I was slightly tickled by the fact that they sold as fully furnished and are being rented out as unfurnished. I really hope the whole market crashes badly....... so I can cash in with the money I've been putting away until I really need to buy a house.

 

[KillBoY_UK]

Imo without better supply help to buy is just jack up prices more. currently have no hope owning a place within commuting distance of Oxford with a lower mid 20k range salary.

Would be do able if I had a partner earning the same more but I've been horrible single for 6 years lol