Help to Buy irrelevant to London bubble

Houses in London

So in case anyone thinks that the bubble in the London housing market has been caused by the government's second Help to Buy scheme, today's stats show that is an absurd notion.

The important questions about Help to Buy are different ones:

  • has it been helpful in providing affordable mortgages to first-time buyers?
  • has it been useful in reviving the housing market outside London?
  • is it in fact a waste of effort and money, because the housing market was in the process of rebounding anyway?
  • is it appropriate for the taxpayer to subsidise mortgages?

The killer stat, when it comes to London, is that just 0.6% of all housing transactions funded by mortgages involved a Help to Buy government guarantee. The proportion would be even lower, if the large number of cash purchases in London were included.

And in the most red-hot part of London's housing market, Brent - where prices have been rising at annual rate of about a third - there has been just one Help to Buy mortgage.

In the land of the super-rich, Kensington and Chelsea, there have been two Help to Buy mortgages.

London prices, rising at an annual rate of 17%, are being driven by cash purchases being made by foreign investors, by a local economy that is reviving much faster than anywhere else in the UK, by buy-to-let purchases and by old-fashioned speculative fever and fervour.

Huw van Steenis of Morgan Stanley estimates that buy-to-let mortgages in London had more than 10 times the impact of Help to Buy in the first three months of the year.

In London, Help to Buy is a near irrelevance.

Help to Buy sign

So if the London bubble poses the greatest current threat to financial and economic stability, as the governor of the Bank of England recently opined, abolishing it or modifying it would make damn all difference.

Which poses something of a problem for the Bank's Financial Policy Committee (FPC), since at the top of its agenda for next month's meeting is what to do about that localised overheating.

It would be slightly odd, given the data, if the FPC put pressure on the government to scale back or abolish Help to Buy.

Apart from anything else, Help to Buy is being used at the bottom end of the market, not the frothier top end: at the end of March the price of houses bought or remortgaged through the scheme was just 60% of the average UK house price.

Or to put it another way, Help to Buy appears to be helping first-time buyers - who represent 80% of all Help to Buy deals - and those on lower incomes.

More interesting is not whether Help to Buy is some lethal danger to the sustainable revival of the UK economy - it is whether there was any need for it.

There the answer is nuanced.

Some 95% of housing completions funded by Help to Buy were outside London, including 14% in the South East, 14% in the North West and 9% in Yorkshire and Humber.

What is striking is that in the more depressed regions of the North East, Northern Ireland and and Wales there were relatively few Help to Buy mortgages deals: collectively those areas represent just 10% of all such subsidised transactions.

So here is one important uncertainty: is Help to Buy stimulating demand or responding to demand?

If you look at the regional pattern of take-up, Help to Buy seems to be used after local people start to feel more confident, rather than causing them to feel more confident.

And, for the avoidance of doubt, the revival in the UK housing market was under way for the best part of a year before Help to Buy was launched.

All of which broadly means that Help to Buy should probably not be seen through the prism of financial stability or economic policy, but as social policy.

What matters about Help to Buy is whether, in a UK suffering from a chronic shortage of residential accommodation that causes housing to be pricey, it is appropriate for the government to provide subsidised mortgages to those on lower incomes.

Which is more about politics than economics, about whether that's the best and fairest use of public money.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 50.

    its really simple, do as i have done, work hard for a long time after educating yourself properly, then you can buy what you want.
    i own in London, im from the north, mum worked in morrisons and i went to the local comp.

    if you cant afford to buy in london, work harder, move north, or shut up.
    if you have failed in life, its your fault

  • rate this

    Comment number 57.

    Don`t knock it. Without the housing market there would be on recovery whatsoever.

    Exports are at record lows.

    Manufacturing has picked up a little but there is no significant increase in employment and the sector as a whole remains at a record low in terms of gdp percentages.

    Consumers are still up to their necks in debt.

    Housing - better than nothing

  • rate this

    Comment number 203.

    #201 Another sad example of when in doubt blame private landlords. Those who fail to study history are condemned to repeat it.

    We have over the last 100 years demonised private landlords and imposed punitive tax or rent controls several times. The net result has always been a total disaster

  • rate this

    Comment number 176.

    London prices rise because of increasing population & wealth. Yes, there ARE luxury flats going to foreign non-residents; but it was similar with Arab & American money in other decades.
    What matters more is that our area is full of professionals buying houses and fixing them up as modern family homes. And they keep coming - from everywhere: Bristol, Paris, Shanghai, Melbourne…bless'em all I say.

  • rate this

    Comment number 189.

    Why can foreigners come to London, buy & thrive but Brits struggle so?

    Booze & birth control.

    So many Brits drink themselves stupid & wonder why they can’t get on in life. And every girl who thinks getting pregnant to get a council flat is a great idea at 19 is beached at 40, wondering why her life is crap.

    Never, ever blame yourself.

    All together now: “ We blame the Tories! Vote UKIP!”


Comments 5 of 257



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