NewBuy raises the same old questions
THE RENAISSANCE housing development in Lewisham got a welcome shot of free publicity this week as David Cameron chose the southeast London construction site as the venue for the launch of the government’s latest scheme to help first-time buyers.
Backed by government money to the tune of £1 billion, the NewBuy programme will help as many as 100,000 people purchase newly-built houses or apartments worth up to £500,000 with deposits of as little as 5 per cent of the value of the property.
Aimed primarily at first-time buyers, the scheme is also open to other purchasers, but excludes buy-to-let and second-home owners.
Launching NewBuy on Monday, the prime minister proffered his somewhat simplistic analysis of the problem with the housing market: “We have lenders who are not lending, so builders cannot build, so the buyers cannot buy, and it needs the government to step in and unblock the market.”
Here’s an equally simplistic analysis of the situation – house prices are too high.
But leaving aside whether it is the government’s job to boost the housing market, what will the NewBuy scheme actually achieve?
Critics say it will be of far more benefit to the housebuilding industry than house buyers, and that there is a risk it will keep prices of new homes artificially high, skewing the entire market.
There is also a suspicion that it has been rushed through in time for next week’s budget to enable the chancellor to trumpet the initiative as he delivers his grim message of more austerity.
Not surprisingly, Britain’s housebuilders are delighted with the scheme, which the government says could create 50,000 new jobs across the industry. Barratt Developments, the builder behind the Renaissance project in Lewisham, says 20,000 potential buyers desperate to get a foot on the housing ladder have already registered their interest in NewBuy.
The big mortgage lenders are happy too – any why wouldn’t they be when they will be protected against potential losses by the government? Under the scheme the housebuilder will provide a deposit of 3.5 per cent of the value of the property, and the government will guarantee another 5.5 per cent of losses should the buyer default.
There’s no free money for the homebuyer; the scheme simply enables them to get a higher loan-to-value (LTV) ratio than would otherwise have been possible.
In the days before the financial crisis, mortgages with a LTV ratio of 95-100 per cent were widespread – or even, in the case of Northern Rock, 125 per cent. Many buyers were left overstretched and hugely exposed to any upward move in interest rates, downward move in house prices or changes in their own financial circumstances.
Although the 95 per cent mortgage has been creeping back into the market, such loans are not generally available on new homes, partly because of concerns about how new homes are valued. Most lenders still demand a deposit of around 20 per cent, a new-found prudence that has been widely welcomed.
Is it really the government’s job to encourage people to take on 95 per cent mortgages? Interest rates are low now but when they do eventually move, it will be only one way – up. Have the hard lessons of the financial crisis been so easily forgotten?
iPads, ‘Twilight’ in as inflation marker
GOVERNMENT STATISTICIANS have provided their latest snapshot of the changing way in which we live with their annual rejig of the basket of products and services used to calculate Britain’s inflation rate.
In comes teenage fiction, including the Twilight vampire romance novels, and out go casserole dishes, colour film and step ladders. Books were, of course, included in the basket before, but this is the first time teenage fiction has been given its own category.
The Office for National Statistics’ virtual basket contains around 180,000 items, covering some 700 representative consumer goods and services. The items are weighted for the index and prices collected each month.
While new items such as iPads are included because we are spending more of our money on them, others join the list to make life easier for the army of people who collect the data. For example, candy-coated chocolate has been dropped as data on it has become more difficult to collect in recent years, and is now replaced by branded chocolate sweets.
Cans of stout have also been included this time, again not because of any surge in popularity but to broaden the existing range of beers in the basket.
Fiona Walsh writes for the Guardiannewspaper in London