Is there an exit strategy?

grizzly1911

Or shall we just kick the can a bit further?

House price 'bubble' warning from Building Societies

There are fears the Help to Buy scheme could create a house price bubble


Building Societies are warning of the danger of a house price bubble, unless the government takes action.
The Building Societies Association (BSA) said the government needs to have an exit strategy from its Help to Buy scheme.
Without that it said there was a danger of "a seriously distorted housing market, and the very real risk of a future price bubble".


http://www.bbc.co.uk/news/business-22949429

MacMickster

When the lenders themselves are warning that this scheme will distort the housing market then they need to be taken seriously.

Not only do high house prices damage the UK economy, but if lenders believe that there is a bubble, destined to burst when this scheme comes to an end, then they are likely to want ever higher deposits from borrowers in order to protect themselves.

The UK government should be managing a controlled deflation of the housing market, not inflating it further.

HAMISH_MCTAVISH

What they said was.....

The Building Societies Association (BSA) said the government needs to have an exit strategy from its Help to Buy scheme.

Without that it said there was a danger of "a seriously distorted housing market, and the very real risk of a future price bubble".

I think we can all agree that government support should not have to be permanent.

The very reason it is needed at the moment is that lending markets are still completely dysfunctional.

If and when functionality returns, support can and should be withdrawn.

The risk of a price bubble is over the very long term, if normal lending returns but government support remains in place as well.

This is clearly not the case at the moment however, so not a problem today.

It is due to end in 2017.

And so it should, provided far more normal lending can be supported without it.

The BSA said taxpayer support should not become a permanent feature of the housing market.

The outgoing governor of the Bank of England, Sir Mervyn King, has already warned that Help to Buy must not be an indefinite scheme.

It is really up to all these people "warning" about it, like building societies and the BOE, as to when it ends.

If they prove they can get lending moving again without any "props", then the "props" can be taken away.

Until then, the govt is doing it's job to restore functionality to dysfunctional markets.

shortchanged_2

The problem is Hamish that the housing market is where it is at today because of abnormal lending. So in order to either get a functioning housing market of sorts from this point you either need to go back to abnormal lending or have all these support schemes in place.

If house prices returned to a more realistic level then normal lending can return and these schemes can be abandoned.

CLAPTON

We need to build more houses in places where they are needed and not support house prices in Hull.

Totally reckless policy and I hope to see the people responsible in jail.

HAMISH_MCTAVISH

shortchanged wrote: »

The problem is Hamish that the housing market is where it is at today because of abnormal lending. So in order to either get a functioning housing market of sorts from this point you either need to go back to abnormal lending or have all these support schemes in place.

If house prices returned to a more realistic level then normal lending can return and these schemes can be abandoned.

House prices are where they are today because of a decade of underbuilding, creating a structural supply shortage of a million houses, while population and new household formation grew to record levels.

We removed 65% of lending from the market, prevented over a million people from buying over the last 6 years, forcing them to pay more in rent than they would for a mortgage, yet prices are just 9.5% down from peak and rising.

And in the meantime, building has fallen to the lowest level in a century, and rents have soared to record highs instead.

You can't fix a housing shortage with mortgage rationing.

That should be abundantly clear to even the most blinkered bear by now.

Generali

HAMISH_MCTAVISH wrote: »

House prices are where they are today because of a decade of underbuilding, creating a structural supply shortage of a million houses, while population and new household formation grew to record levels.

I think you misunderestimate the problem.

Too few houses have been built in the UK since the 60s and since the disastrous failure that is the Green Belt in and around London.

shortchanged_2

The problem is though Hamish is that we are in uncharted territory economically.

We have never had interest rates so low for so long. So we don't really know what the outcome will be when interest rates start to rise from this point.

Lenders are rightly being cautious because mortgages can look very attractive at their current level but are people really looking at the longer term picture when that mortgage eventually goes up quite significantly.

HAMISH_MCTAVISH

Generali wrote: »

I think you misunderestimate the problem.

Too few houses have been built in the UK since the 60s and since the disastrous failure that is the Green Belt in and around London.

Indeed.

A decade is probably quite the underestimation.

But the current shortage is a million or so houses, and it's worsening at the rate of 150,000 houses a year.

HAMISH_MCTAVISH

shortchanged wrote: »

Lenders are rightly being cautious because mortgages can look very attractive at their current level but are people really looking at the longer term picture when that mortgage eventually goes up quite significantly.

Rubbish.

Lenders are rationing funds because they have no choice.

They have to shrink the pool of applicants to meet the much smaller pool of available funding.

Demand for mortgages, from people who demonstrably are paying more in rent than they would on a mortgage even if average mortgage rates rose to 5.5%, far exceeds available supply of mortgages.

So banks use high deposits and ultra-strict criteria to ration those funds.

Carl31

what will probably happen is the government will sell the debt to a third party, recover the tax payer investment, leaving borrowers at the mercy of a profiteering company, meaning they get into a real mess later
Did something similar happen with student loans? I don't know entirely, but I know colleagues who took out loans in good faith are now in a position where they only pay back interest each month due to rate rises (not sure who manages these), without any capital repayments, meaning a potential life time of debt