30 September 2013

Will they ever learn?

Doomed to repeat the folly?  One would have thought that they might have learned the lesson from last time.  The Independent reports:
Fears have been raised over the Prime Minister’s decision to hurry forward the second phase of the controversial Help to Buy scheme with warnings that it would backfire and prevent people getting on the property ladder whilst threatening to create a new housing bubble.
...Under the plan banks and building societies will be encouraged to lend up to £130bn to potential buyers seeking 95 per cent loans.
Some £12bn of taxpayers’ money has been earmarked to insure deposits of up to 15 per cent on properties worth £600,000.
Does it really make sense to encourage people to borrow 95% of the cost of house purchase, putting down only a 5% deposit?  When interest rates rise, many such people will find themselves in serious trouble.  While the government will be committed to (partly) bailing them out, the effects on individual families may be long-lasting.

And, in the absence of a significant increase in housing supply, the net effect may simply be a further increase in house prices.


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