12 Mar 2012, 9:01am
personal finance rant:
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  • Don’t fight the tape, Dave, the NewBuy Mortgage Guarantee will cause untold pain

    The trouble sometimes with Government, is that it often gets itself into areas it shouldn’t touch. Such as meddling with the market, offering to guarantee home loans of half a million pounds to buy new houses. What on earth could go wrong?

    So let’s take a step back and see what’s going on here. A putative homebuyer is looking to buy a house that they can’t afford. So Dave waves his magic wand to make lenders accept the risk by guaranteeing the money with taxpayers’ money. Now I would then suggest to the homebuyer they look for good value for money. With houses, like with many other durables, the best value is in the second-hand market. But no. Conflating the desire to help people buy stuff they can’t afford with some dirigiste industrial policy to support housebuilders, Dave makes them buy unnecessarily expensive houses – ie new-build.

    Face the facts, Dave. You can’t make enough on the average income in the UK to buy a house in a lifetime. A middle class man on the average wage used to be able to buy a house on his own, my Dad did it on a blue collar wage. Then it took two people to do it when Thatcher sold off the council houses, meaning people who were too poor to buy a house themselves were robbed of the opportunity to have social housing, though a lucky bunch of 1980s tenants got their houses at knock-down prices to buy their votes.

    I managed to buy a house on a single white-collar wage, but I lived somewhat below my means to do it. Nowadays if I were starting over I wouldn’t be able to afford even the interest on my current house on what my starting wage was in real terms.

    And now another Tory government is going to dive into this frenetic marketplace with its hob-nailed boots and dance all over the face of the price mechanism in a capitalist society. Dave, the reason your middle class voters can’t buy a house these days is because we don’t make anything of significant value in Britain any more, and our standard of living is going to fall accordingly. You’re going to provide mortgage guarantees for houses priced at up to £500,000!!! I couldn’t even dream of buying a house for that much now, at the peak of my earning power and with a fully paid up house to defray some of the capital! What right do you have to buy your votes with the dreams of some daft young couple that is going to put themselves in hock for far more than they can afford in the long run?

    Imagine a couple both with good jobs earning the average household post-tax income of £25,000 ish. Even if they paid no interest it would take them 20 years of their entire household income to pay that off. That’s assuming in those 20 years they eat nothing, have no kids, never go on holiday. It’s barmy. It is just so wrong, on so many fronts.

    Dave, the price of houses is telling your middle class voters they cant afford a house. There is an old stock market adage from the 1930’s, ‘don’t fight the tape’. It means listen what the price signal is telling you. And for God’s sake, don’t fight that signal, because it will crush you.

    Oh and to those putative homeowners – don’t do it to yourselves. Buying new-build is expensive, you’ll get more house for your money buying second-hand. I didn’t have enough money for the deposit on my house in the late 1980s. So I borrowed an interest-free from my MBNA credit card, and used a low-start mortgage to focus repayments to the credit card in the first year. It worked for me, I got my mortgage cheaper because I had a lower LTV and didn’t pay a bean for the loan. In those days you didn’t have the sneaky 3% handling charge on 0% cash advances. There are other ways of raising the deposit than having the government railroad you into buying an overpriced new-build house when you can least afford it.

     

     
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