‘Help to Buy – equity loan assistance to home buyers from the Homes and Communities Agency (HCA).
Help to Buy – equity loans makes new build homes available to all home buyers (not just first time buyers) who wish buy a new home, but may be constrained in doing so – for example as a result of deposit requirements – but who could otherwise be expected to sustain a mortgage. Up to a maximum of 20% of the purchase price is available to the buyer through an equity loan funded by the Government through the HCA.
Help to Buy – equity loans is available in England from house builders registered to offer the scheme. Help to Buy will run from April 1st 2013 until March 31st 2016 (or earlier if all of the funding is taken up).’
In practice, the help to buy scheme is a loan for people who cannot afford a deposit on a house, the scheme is also unwritten by the government, so now both first-time buyers and banks are finding it easier to both buy homes and sell mortgages, as buyers are given the cash they need and the mortgages given out by the banks are effectively underwritten by the state = no risk.
What this is doing, is not helping the economic recovery, but causing a time bomb, a catastrophic time bomb. Currently we are in a low interest rate environment, mortgages are cheap, however, wages are still low. In fact, the average real wage in the UK has fallen back to levels not seen since 2003, but people are being loaned money by the government, not banks, to purchase property that in normal circumstances they would not be able to afford.
This ‘steriod injection’ has driven house prices up to an average price of £233,061 ($365,000) across the UK in May. In comparison, at the peak of the property boom in 2007, the average house price stood at £211,453.
So, while the economy is still far away from its pre 2008 peak and wages are 10 years behind in real terms, home prices are rising faster than any other asset, boosted by cheap credit and a government drive to try and get the economy moving again.
Haven’t we been here before, cheap credit fuelling rising house prices? Doesn’t anyone remember what happened last time?