you're reading...
Grant Shapps, politics. housing. right to buy, social housing

UK Government launches sub-prime mortgage scheme

   How will using taxpayer’s money to subsidise inflated house prices make home ownership more affordable?  The UK housing minister, Grant Shapps has announced a “get Britain building” programme (inspired I fear by similar moves in Scotland)  in which the state will lend most of the deposit on first time home buyers’ mortgages.  They say this is to help first time buyers, whose average age,  according to the BBC, is now 43 years.  It won’t – this is just a sop to the construction industry which is tanking again because of the euro-debt crisis. The money will go straight to the builders of the over-priced doll’s houses that are too small for family life.

    There’s a very good reason why building societies and banks are asking for deposits:  because house prices are falling.   Houses are still far too expensive in Britain, compared with continental Europe or America, and subsidising the sale of them will only keep prices unaffordable a bit longer.  What first time buyers need are houses that they can afford, not yet more debt.  Those lured into this scheme are likely to find, in future years, that they have taken on negative equity.   Anyone who seriously believes that house prices are going to rise during a double dip recession needs to be saved from themselves.  

 The government  also intends to increase the discount on the sale of council houses  so that people will be able to pick them up for half of what they are worth.  This is an unwarranted extension of the policy that has virtually destroyed social housing in Britain.  Selling council houses for a fifty percent discount to the market rate is immoral and should be illegal.  It is the taxpayer who paid for the construction of these houses and it is unforgivable to hand the capital gain to private home owners, many of whom will sell to buy-to-let landlords.  These houses will then be let at rents that can’t be afforded by most working people, let alone the unemployed or low paid.  The inflated private rents will be paid by the government, the taxpayer, through housing benefit.  This amounts to a systematic asset stripping of public assets.  

   But the worst thing about both these policies is that it is all about trying to solve a debt crisis by yet more debt.  You would have thought after the last three torrid years that we had learned something about the dynamics of the debt economy, but apparently not.  All we need now is for the newly privatised Northern Rock (or rather the profitable bit, since the £50bn in dud NR mortgages has been retained on the state’s books) to start offering 95% mortgages and the cycle will be complete.   If the government wants to help young people it should be taxing the profits and bonuses of UK banks who owe their existence to the tax-payer.   It should restore the cheapest and most effective means of building affordable homes, which is council housing.  And it should tax the speculators who sit on building land and make unjustifiable profits out of the housing shortage.  Ultimately, the UK housing crisis cannot be addressed without some form of site value taxation.  

From the Sunday Herald 20/11/11

 Anyway you cut it, the unemployment figures look as bad at the end of the week as they did earlier. One in four young people workless in Scotland. A million in the UK. A dearth of ideas about what to do about it, except blame migrants coming here and taking our jobs. According to reports, young people are being press-ganged into working for nothing in Tescos and Poundland for 2 months unpaid “work experience”.
When a society abandons its young people it loses its moral integrity. The contract between the generations breaks down. We saw some of the consequences on English city streets last summer. We see a more constructive response in the tents being erected by the Occupy movement in city centres. What we don’t see are the hundreds of thousands who end up resorting to drugs and alcohol. In the 1980s, when last we had youth unemployment at this level, Scotland was ravaged by a drug addiction binge from which the nation has yet to recover.
So, how did we get here? How could a society that was enjoying, if that’s the right word, the most profligate consumer boom in history suddenly, within a few years, end up in the middle of an economic depression with millions facing poverty? The short answer, of course, is debt – public debt and private debt. We spent and spent on goods we mostly didn’t need, from flat screen televisions to overpriced cafe lattes. Monster cars that block the roads. Piles of cheap disposable clothing that make instant landfill. The state hired legions of extravagantly paid bureaucrats.
But mostly we spent the money on houses. Yes, if you look at where the biggest debts lie, they are in real estate, and when you look at the roots of the current financial crisis, it is all to do with housing. The banking crisis really began the day that Nothern Rock started offering those 125% mortgages – the ultimate lending madness. The American property bubble collapsed first in the third quarter of 2006, when house prices started to fall. That undermined the value of those sub-prime mortgage bonds the banks had been trading which triggered a global credit crunch. . The Bank of England still holds 100s of billions of toxic mortgage—related paper. Countries like Spain, that at the height of the boom were building800,000 houses a year, are now drowning under debt as whole estates lie empty, which is why they have a sovereign debt crisis.
So, the eurozone turmoil may look like a crisis political leadership, or fiscal incontinence, but what lies beneath is the banking crisis caused by the collapse of the great noughties property bubble – a bubble that everyone, including the governor of the Bank of England, denied the existence of, until it popped. The sovereign debt crisis is a kind of pass the parcel – everyone trying to get out from under their huge pile. It’s important to remember this as Britain blames Germany for forcing the pace on the eurozone; Germany attacks Britain for protecting the City of London; France blames Berlusconi; everyone blames the Greeks..
And here’s the funny thing about debt: it isn’t tangible. You can see a house – it is a physical object – but you can’t see the debt that relates to it. Moreover, if all the debts and all the assets were to come together in some great financial reckoning in the sky, the books would eventually balance, and there would still be all the physical assets. The factories and ships, the Amazon warehouses filled with stuff. The laboratories and universities. That’s a gross over-simplification, of course, but important to remember this because what happens in a debt-driven depression is a wanton destruction of these productive assets.
This is happening right now across Britain, as factories close because they are denied credit from the banks or because they have no buyers for their goods. The machines rust, and the skills of the workers deteriorate as they become unemployed. Young people don’t get jobs, don’t learn skills, and after a while become unemployable. This means lost production in future as well as human misery today. Britain had lost much of its manufacturing industry during the bubble years, now the remains are rotting.
John Maynard Keynes analysed all this in the 30’s. It requires some political agency to stop the rot.  Or perhaps accelerate it. One way of looking at the Second World War is that it massively accelerated the destruction of assets. It’s no accident that the economies of the West boomed in the 1950s. All the debts built up during the Great Depression were erased during the war when the governments seized the banking sector. Post-war reconstruction – kick started in Europe by America’s Marshall Aid programme – restored full employment. High taxes on the rich created the original consumer society as ordinary people were able to afford cars and washing machines.

So are we going to have another war? Of course not. Angela Merkell, the German Chancellor, says this is “Europe’s toughest hour since the Second World War, but she’s not about to invade Poland. The muttering about “German domination” in the British press doesn’t mean that David Cameron is going to launch a rearmament programme. War is fortunately not an option any more – at least in Europe – mainly because the EU economies are so closely interlinked. The EU will have to do the reckoning.
The debt that is causing all the trouble isn’t actually that large by historic standards. Also, the productive forces are so much greater today than ever before. Not just computers and the internet, not just robot factories , but renewable energy, efficient agriculture, pharmaceuticals, medical advances, nano-technology and life sciences. We are far smarter and immensely more productive than in the 1930s, which means that we can do more with less. Email means we don’t need a labour-intensive postal service for example.
We just need to get the debt reckoning done, erase all the phoney wealth in house prices, reduce wealth inequalities, and a future beckons in which everyone can have a decent standard of living without having to work long hours or destroy the planet. We just need the political will to seize it. Perhaps, in those ragged tents in town centres, we may be seeing the beginnings of a movement that ultimately will.   History tells us that revolutions arise when there large numbers of unemployed young men and women.

About @iainmacwhirter

I'm a columnist for the Herald. Author of "Road to Referendum" and "Disunited Kingdom". Was a BBC TV and radio presenter for 25 years - "Westminster Live" and "Holyrood Live" mainly. Spent time as columnist for The Observer, Guardian, New Statesman. Former Rector of Edinburgh University. Live in Edinburgh and spend a lot of time in the French Pyrenees. Will that do?


5 thoughts on “UK Government launches sub-prime mortgage scheme

  1. I do not think what the UK Government is proposing for England is quite the same as the Scottish Government's shared equity schemes which are outlined here:http://www.scotland.gov.uk/Topics/Built-Environment/Housing/BuyingSelling/liftThe shared equity schemes seem to give the buyer greater flexibility not only in how much it will cost but also in not restricting their mobility in search of jobs because they have the millstone of a hefty mortgage round their necks. So they get some of the benefits of home ownership and avoid some of the drawbacks. The Scottish Government in partnership with Local Councils has been funding the building of council houses and at the same time taken steps to stop the sale of these houses thus ensuring their availability for successive tenants.The proposals in England are a different kettle of fish. Given the state of the jobs market tying yourself down to one locale and thus limiting the area where you can look for a job by taking on a large mortgage is madness.Too much of the UK's wealth is tied up in bricks and mortar. Perhaps this is the time to wean ourselves off that drug and as a first step regulating the rental market more tightly so that it is a more attractive option as it is in other countries.

    Posted by CWH | November 21, 2011, 5:38 pm
  2. Iain I'm disappointed that you begin with a reference to the "UK" housing Minister, Grant Shapps – when we have our own Scottish Government Housing Minster on what is a devolved matter ;-)I know that UK Prime Minster Cameron this morning did the usual metro-London myopia thing when he referred to his determination to get "Britain" building again… with his new strategy for "England" (his words in quotes); but I have higher expectations of you Iain.CWH, are you being a little too generous on the Scottish Government? Scottish Government may well putting some more money the way of local authorities – but meantime there has been the evidence-lite policy of denuding the funding of social rented housing being provided through the highly successful housing association model (just why do that???). And of course there has been the inexcusable obfuscation around promising X thousand extra social rented homes before the election; and then right after the election 'explaining' it was actually 'affordable' housing that they meant (i.e. mostly minimal, but compliant, quality, cheap housing for sale).As for the English strategy – Yet again, yet another ‘initiative’ that amounts to throwing grants to low to moderate income first-time buyers, when home-ownership is the last place they should be. We know of the research evidence steadily accumulating over decades that home-ownership unsustainable for many of these households. Given this week’s English mortgage support ‘initiative’, it is almost astonishing to recall that very recently the Audit Commission in England severely criticised the last mortgage rescue scheme as an utter waste of literally millions upon millions of pounds of taxpayers’ moneyEngland or Scotland, whatever – I have referred before to my paper in Renegade Economist where I cite the evidence on the ‘great home ownership delusion’:http://www.renegadeeconomist.com/news/the-dirty-big-secret-of-the-home-ownership-delusion.html

    Posted by Edward Harkins | November 21, 2011, 10:05 pm
  3. "All we need now is for the newly privatised Northern Rock (or rather the profitable bit, since the £50bn in dud NR mortgages has been retained on the state's books)"The "dud" bit you speak of is the only bit to have made a profit last year. The "dud" bit made a profit of over £200m whilst the "good" bit lost over £200m.

    Posted by Anonymous | November 22, 2011, 8:24 am
  4. What Iain MacW is right about in this piece, and what he has said very often in the past, is that inflated house prices created a lot of the misery ahead of the crash. This had happened in the 80s yet no one worried when the UK, all of it, including Scotland, went the same route again leaving to the same sort of crash a couple of decades down the road. Despite this so called "Finance Experts" write, almost on a daily basis, of this magical "recovery" in the housing markets that they want to see. They actually want prices to go back to the same level as before! That situation had led to the invention of self-cert mortgages whereby people who couldn't prove they could afford a property simply lied about their annual income. Or lenders brought in new processes whereby borrowers could get six and seven times their annual income. It was insane! We don't need a "recovery" in house prices: we need realistic prices.

    Posted by Jo G | November 23, 2011, 2:42 pm
  5. 'There is no such thing as Society',Thatcher and her acolytes, past and present (Joseph,Major, Blair, Brown and now Cameron),between them, have all but put paid to the mutual sector of the UK economy; the beginnings of which can be traced back to the mid victorian era when cooperative societies in banking, insurance, credit, food, housing and health began to take root within working communities the length and breadth of the UK.In the interim these embryonic societies have grown alongside,industrial expansion.Following the end of hostilities at the end of WW2 the Westminster government under, PM Attlee, leader of the first post-war westminster government, implemented the recommendations of the Beveridge report.Written in 1942 at the behest of the wartime Prime Minister Winston Churchill it would form the basis of the post-war welfare state.Mutualism had finally been incorporated into the architecture of the nation state.Subsequent Westminster governments, of whatever persuasion, chose to maintain this social contract with the British people. That is until M Thatcher became the first woman Prime Minister in 1979.Before she left office, what a previus incumbent of No10, Harold MacMillan, referred to as the 'Family Silver' or part of the 'common weal' had been all but sold off. eg British Rail, British Steel etc.During the same period the Trustees Savings Bank(TSB) and the main providers of finance for aspiring home owners, namely, the mutualy owned Building Societies were converted into private banks.And with them went a business model that had stood the test of time over a period of 150 years. Now our friends south of the border are being told their health service is up for re-configuration.Even though the Organisation for Economic Co-operation and Development(OECD)has said that the proposed NHS reforms in England 'threatens [its] world-beating Health system' (Guardian Thursday 24th November 2011).However, given the ideology of the present Westminster government one suspects the outcome has been predetermined. George Monbiot, in his Guardian article dated 22/11/2011, suggests that, in this skewed society that has emerged, what we have ended up with is:'socialism for the rich,…. Those at the bottom are subject to the rigours of the market. Those at the top are ….pampered, protected and subsidised'Mrs Thatcher may have been a little premature back in 1979.Who would argue with her now.We live in a society which is based on the pursuit of ever increasing efficiency and private gain.I am all for a return to a property owning democracy and I hope that when Holyrood is granted borrowing powers (why it hasn't got them already needs to be explained) it will breathe life into the Building Societies and the mutual banking sector.

    Posted by Ian Innes | November 25, 2011, 1:33 pm

Twitter Updates

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 57,082 other followers

Follow Iain Macwhirter on WordPress.com



%d bloggers like this: