Shared ownership/equity is a scam.

brit1234

Hundreds of new homes from Help to Buy: at what cost?

The Fairclough’s new home looks like an ordinary home, the start of a new life for the couple from St Helens. The remarkable feature of the development has long since disappeared: it used to be the Knowsley Road ground of the mighty But this property is in fact an experiment vital for the entire British economy, upon which George Osborne’s hopes for recovery rest. Mark and Lindsey’s pad is the second in Britain in an experiment in which you the taxpayer are invested for the next half decade.

The Chancellor’s Help to Buy scheme announced at the Budget has already started, to help. There’s no getting away from the delight of the Faircloughs, only the second couple in Britain to complete through the scheme. “We’ve got our own home now and we’ve got big ideas,” said Mark. They got married last year, and now a home and a conservatory is plausible.”

“Knowing what the mortgages are like now you need a 10-15 percent deposit. We were renting as well as saving up for deposit: it was hard,” Lindsey told me.

Many couples like the Faircloughs have been hit by what the chancellor calls a failure in the mortgage market. Banks that made huge losses have been unwilling to lend to people with small deposits. Help to Buy gets round that by the government providing a loan to top up deposit which should increase housing market transactions from current low levels. Housebuilders also build to order, they are delivered “just in time” to demand, rather than en masse. If more people move into new homes, construction – a weak part of the economy – will start growing again. At the marketing suite in st Helens, a black dot indicates a completion or exchange. four, about one a week have been sold on the back of Help to Buy. Four sales.


The CEO of Taylor Wimpey, Peter Redfearn told me definitely hundreds, maybe thousands of extra houses would be built because of the scheme, creating knock on growth. “it enables us to pick things up to build more homes on the sites weve already got open, and also gives us more confidence about investing in future sites and the infrastructure and land to grow the business… we’re certainly talking hundreds were probably talking thousands that’s creating more jobs, and more economic activity locally”.

The mechanics of the scheme are rather intriguing. Right now the Treasury is paying between £20,000 and £120,000 in cash per home directly to housebuilders. It adds to the national debt for five years, but not the annual deficit, because the Treasury takes a 20 percent stake in the house. So it is borrowed money, but it doesn’t count as public sector borrowing instead a “financial transaction”. The banks fund 75 percent, a less risky and therefore cheaper mortgage, and the buyer pays a 5 percent deposit. It basically opens up affordable mortgages to buyers with small deposits.

Is there not a simpler solution to jump start the market? Why not let the market clear, and prices fall to reflect falling real incomes, weak economic growth? Indeed why doesn’t Taylor Wimpey just cut the prices of its homes?

“Lifes not that simple,” Redfearn tells me. He mentions the impact on local existing homes if new home prices were cut. I sdont think its very desirable for people who have already bought from us, and people in the surrounding village. everybody wants a certain stability in housing”.

Sir Mervyn King at the last Inflation Report Press Conference, expressed some concerns about Help to Buy. The Bank’s Financial Policy Committee will have the chance “to opine” over its impact on financial stability. He clearly thinks it must be temporary. these schemes have a habit of making themselves permanent. A former Bank of england economist Danny Gabay, believes it risks a 30% bump to house prices, and is “nuts” and “if we were asked to design a policy to weaken Britain’s long term growth prospects we could not have done much better than Help to Buy. The problem is too much debt, as the chancellor tells us. It’s not public sector debt bad, private sector debt good,” he says.

Intriguingly the properties are often being marketed as if they have had a 20 percent price cut, even if the price booked does not. This illuminates a side effect of Help to Buy: who will buy a non-subsidised second-hand house in an area with help to buy new builds? And what will buyers do when the 5 year loan is due? They either face an interest rate shock, a capital sum, or will have to sell the house, hoping that prices have increased more than 25 percent. The first 5 percent loss will be borne by the buyer. Buyers we spoke to were clearly of the view that they would sort this out in 2018.

This scheme is about far more than housebuilders and individual homeowners. I understand that in conversations with the IMF, the Treasury have been keen to point out H2B and the Bank of england funding for lending scheme as examples of their willingness to stimulate the economy. Yes a stimulus using borrowed money that increases public and private levels of debt in order to boost the economy. Do not confuse this with a “Plan B”, which involves extra borrowing to boost the economy in order to borrow less later. The boost is hardwired until after the next election. Help to Sell, or Help to Buy an election are the more critical nicknames for the scheme.
Help to Buy is designed to create not just more room for the Faircloughs, but for the Chancellor too. It’s not without its controversy. More on the IMF verdict tomorrow.
Follow @faisalislam on Twitter.

http://blogs.channel4.com/faisal-islam-on-economics/

Or watch video: 20th May 2013
http://www.channel4.com/news/catch-up/

Help to buy is a scam just to benefit the builders not buyers. The builders fund the Conservative party millions and get hundreds of millions back in kick backs. The scheme is designed to keep prices inflated and the buyer to overpay.

gazter

brit1234 wrote: »

Help to buy is a scam just to benefit the builders not buyers. The builders fund the Conservative party millions and get hundreds of millions back in kick backs. The scheme is designed to keep prices inflated and the buyer to overpay.

Utterly pathetic. If i wanted to read such uniformed twaddle i would be looking for it on facebook.

brit1234

gazter wrote: »

Utterly pathetic. If i wanted to read such uniformed twaddle i would be looking for it on facebook.

I think you should also stick to facebook.

Uninformed I think not:

Dozens of property firms have given a total of £3.3 million to the party over the past three year

http://www.telegraph.co.uk/earth/hands-off-our-land/8754027/Conservatives-given-millions-by-property-developers.html

The scheme will share out £3.5bn in interest-free loans to buyers who can rustle up a mortgage deposit of just 5 per cent

http://www.newstatesman.com/politics/2013/05/help-buy-mess-heres-how-osborne-can-rescue-it

The simple fact is Help to Buy is a scam to keep house prices inflated and target gullible buyers. On the channel 4 news program the builder said it could sell them cheaper but it would upset those who already bought and the rest of the village.

brit1234

Help to Buy properties advertised at 'misleading' prices

Monday 20th May 2013
Developers who are selling shared-equity homes under the Government’s Help to Buy scheme are advertising them on Rightmove at four-fifths of their real price.

They are slicing off the 20% taxpayer-funded share to make it look, for example, as though a house that is selling for £200,000 has a price tag of £160,000.

Some properties are advertised at two different prices – one at the full price for those not buying through the scheme, and the other with the 20% shaved off for those who are. For instance, Taylor Wimpey has been advertising a property at £439,500 and also separately at £351,600.

The Help to Buy scheme is currently available for first-time and other buyers of new build properties worth up to £600,000 and who have only a 5% deposit.

The scheme gives them an interest-free loan of 20% of the value of the property, meaning that the borrowers effectively have a 75% deposit to put down on a property they could not otherwise afford.

Critics say that slicing off the 20% government loan and making the property look cheaper is misleading. They say it makes the loan look as though it is a gift or a discount, when it is neither.

They point out that after five years, interest is payable on the equity loan, which ultimately has to be paid back anyway.

David Hollingworth, of London andCountry, said: “An equity loan loan is precisely what it says it is. It is a loan which has to be repaid.

“The worry is that this will encourage people to take on debts they do not understand or overstretch themselves and buy bigger properties than they can afford, which is not what the scheme was designed to do at all.”

Rightmove has acknowledged that developers are listing their properties at 20% below the actual price, but says the practice can actually assist buyers.

A spokesman said: “We are aware that some developers are making use of Rightmove to advertise an ‘indicative price’ that takes into account the equity loan offered under Help to Buy.

“We know from previous research that awareness of government schemes among home movers is low and this approach can help raise awareness.”

A spokesperson from Taylor Wimpey said: “We are trying to help customers understand the scheme and the options available.”

Not all lenders are backing Help to Buy, with building societies generally holding off, and HSBC and Santander saying they have no plans to enter the market.

Meanwhile, Help to Buy has come in for criticism from Sir Mervyn King, Governor of the Bank of England.

He said yesterday: “I’m sure there is no place in the long run for a scheme of this kind. This 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.

“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 must not let this scheme turn into a permanent scheme. When is the right time to terminate it will depend on economic conditions at the time.”

http://www.estateagenttoday.co.uk/news_features/Help-to-Buy-properties-advertised-at-misleading-prices

Idiophreak

I actually see that thing quite a lot round here - "Help to Buy" listings in the middle of my search results, even when I deselect "shared ownership" - it's really irritating, because i'm not interested in them and don't want to see properties I can't afford, or properties I can afford twice.

That said, all the twoddle about it misleading and confusing people is....err...twoddle.

I also don't really agree with their inference that 100% mortgages is necessarily something we want to go back to...

Ulfar

Idiophreak wrote: »

I actually see that thing quite a lot round here - "Help to Buy" listings in the middle of my search results, even when I deselect "shared ownership" - it's really irritating, because i'm not interested in them and don't want to see properties I can't afford, or properties I can afford twice.

That said, all the twoddle about it misleading and confusing people is....err...twoddle.

I also don't really agree with their inference that 100% mortgages is necessarily something we want to go back to...

So the advertising is misleading, you however have realised that they are a scam into getting people to overload on debt.

Not everyone is financially literate.

kingstreet

Idiophreak wrote: »

I actually see that thing quite a lot round here - "Help to Buy" listings in the middle of my search results, even when I deselect "shared ownership" - it's really irritating

That's because HTB is shared equity, not shared ownership. Unfortunately, sites like Rightmove don't have sufficiently sophisticated filtering to be able to differentiate.

However, it's worth noting you can still buy the property without HTB and the builder may be more flexible on price.

Idiophreak

Ulfar wrote: »

So the advertising is misleading, you however have realised that they are a scam into getting people to overload on debt.

Not everyone is financially literate.

But the fact that not everyone is "financially literate" doesn't automatically make it a scam.

You're right, if you're stupid enough to see the word "loan" and read it, instead, as "gift" then the whole thing's probably going to strike you as a scam...but if you're not that stupid, it's just an irritating way of listing the things.

kingstreet wrote: »

That's because HTB is shared equity, not shared ownership. Unfortunately, sites like Rightmove don't have sufficiently sophisticated filtering to be able to differentiate.

However, it's worth noting you can still buy the property without HTB and the builder may be more flexible on price.

I think Rightmove have stuffed up. I well understand the difference between shared ownership and shared equity, but for the purposes of rightmove, it shouldn't matter. People want to filter for houses that they can just buy, or houses that require a scheme...Whether it's shared ownership or shared equity it should really be excluded if you deselect that option. I'm well aware that you can buy them without HTB - because the "normal" listings are just a couple further down in the list...it's just a pain

brit1234

Mervyn King's housing warning is too little, too late

In a British economy addicted to property inflation, the government's Help to Buy scheme threatens Fannie Mae-style disaster


The French call it l'esprit de l'escalier, that brilliant thought on the way out, too late for some brilliant aperçu. Alas, that is Sir Mervyn King's parting contribution as he warns that the Help to Buy scheme risks setting off a housing bubble. In his long years at the Bank of England he presided nonchalantly over one housing boom after another, declaring it was none of the bank's business when setting low interest rates that helped prices triple in the decade before the crash. Remember Shelter's startling comparisons: a basic loaf of bread would cost £4.36 if its price had risen at the same rate as housing in the past 40 years; a chicken would cost £51.18.

The result of the bank's blind eye and successive government policies has been an economy addicted to property inflation. What's not to like when soaring house prices create apparent growth? Property values fill the gap in good pensions, pay for nursing home care of the old, let parents borrow to subsidise university fees or for a deposit to get the next generation on the ladder to the magic kingdom of ever-rising prices. It's a bit late now for Sir Mervyn to talk of taking away the punch bowl, just as perky ministers boast of green shoots, turning corners and Danny Alexander's "increasing momentum".

What growth do they spy? Not Osborne's "march of the makers" or Cameron's "Tory housing revolution" – but asset bubbles. See how share prices skyrocket, underpinned by no more than tulips. But above all, take the racing pulse of average house prices, which have shot past £250,000 – past £500,000 in insane London, where they rose by £16,000 in a month – earning £530 a day.

Can this be stopped? Economically, of course, with land value tax or capital gains tax on rises above inflation. Chill the market by warning that a house will no longer be a wealth creator, just a stable home at a stable price, secure, comforting but not a money tree. The problem is political: though home ownership is falling for the first time since 1918 and is expected to keep falling, the 64% who do own vastly outvote the rest – and they want never-ending rises to pay off frighteningly high mortgages and provide everything else a family needs. Escaping the nation's psychological and financial addiction is harder than tearing a gambler from a one-armed bandit.

What gave the governor such a sudden jolt? The government's colossal Help to Buy scheme offers £130bn of mortgage guarantee to anyone – young or old, speculator or second-home owner – who buys a house worth up to £600,000, offering 95% mortgages. The risk in previous schemes was shared 50:50 with developers, but this time the taxpayer pays it all. Former schemes were tiny but this one is mammoth, the debt kept cunningly off the public borrowing books (which the Office for National Statistics allowed; it's said the Treasury was amazed). As many as one in four mortgages may become permanently government-backed after next January, with this price-inflator already "boosting confidence" and mortgage availability in lock-step with house prices. King warns this is "too close for comfort" to US state-backed Fannie Mae mortgages, whose collapse helped trigger the financial crisis.

The National Housing Federation says previous much smaller schemes artificially supported higher prices, so buyers who were helped ended up paying more than if the market had been left to itself. King warns the scheme should not become a long-standing feature, out of fear that abolishing it would cause prices to fall – and that's too politically dangerous for any government. Buyers who were tempted in by a scheme that had kept prices artificially high would find themselves in negative equity.

Ministers see a mirage of growth in house prices. Yet wages are falling, rents, prices and unemployment are rising, energy bills are up by 8.5% a year and the pound is down by 25% since 2007. Homelessness rose by a third last year, rogue landlords multiplying. The Guardian's home borough, Camden, tells a two-nation story: 40% of children are under the poverty line, but average house prices have just hit £1m.

The only long-term answer to bubble pricing is to build, build, build. But even if Labour won the next election and delivered a million homes in five years, that's still not keeping up with annual growth in demand of 240,000. Kate Barker's celebrated 2004 housing review showed that building your way to lower prices would take many years with demand so strong. Dysfunctional developers are part of the problem. In the US when demand rises by 10%, supply leaps up by 20%, but in the UK developers barely respond: a 10% demand increase causes just 5% extra supply. British builders hoard land to keep prices high, according to the IPPR. Taylor Wimpey has called it a strategy of promoting margin over volume.

Worse, banks conspire with developers not to build for fear that it might reveal that property on their books is still over-valued from the height of the boom. Labour needs a "force to sell" policy, instead of "help to buy", obliging all land with planning permission to be built on or sold off to get construction moving, although it risks exposing more zombie debt than banks admit to carrying.
Labour is now ashamed of how little was built in its 13 years, neither in boom nor bust. But every aspect of this government's housing policy is a disaster that began with its 63% cut in capital spending. Social home building stopped while right to buy from councils got a boost. Despite lower building standards allowing not rabbit hutch but hamster cage homes, 8% fewer have been built in the last year.

YouGov finds that 35% of households are so near the edge they only have savings to cover housing costs for one month, so 8 million are just one pay check from homelessness. Why worsen the housing crisis with a bedroom tax? The fraud is that promised housing benefit savings of £465m are only realised if tenants don't move out but take the £700 a year hit to their meagre living standards. If they do move, they go into the private sector where a smaller home costs the housing benefit budget more than the social housing just vacated. A survey by Lord Bassam suggests the number affected will be closer to a million than the 660,000 announced. The fallout has hardly begun.

Here is another shocking fact about Help to Buy. The sum used to pump up prices artificially could have built 175,000 new affordable homes.

http://www.guardian.co.uk/commentisfree/2013/may/21/mervyn-king-housing-warning-fannie-mae



It seems almost every one apart from the builders and George Osborne are against this scheme. It appears to be desperate electioneering by the timing. At best it is short sighted at worse its an economic disaster.

Idiophreak

2018-2019 eh, brit.

Good news is, by your reckoning, there are so many time bombs going to go off between now and then, there won't be an economy to ruin come 2018...