• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Go to Positive Money Europe

Positive Money

Making money and banking work for society

  • About us
    • Our vision
    • Who we are
    • History & highlights
    • Contact us
    • There are currently no vacancies available
    • In the media
    • Funding & Annual Reports
  • What we do
    • Educate & empower
    • Research and Policy
    • Campaign & local groups
    • Influence decision makers
    • In the media
    • International Movement
    • Events
  • Resources
    • Videos
    • Publications
    • Local group resources
    • Lobby your MP
    • Organise an Event
    • Policy resources
    • Shop
  • Press
  • Blog
  • Donate
  • Positive Money Europe

The economic madness of Help to Buy

by Positive Money

The UK has a serious household debt problem. In 2012 it stood at almost 150% of disposable income, one of the highest levels amongst advanced nations. Added to this inflation stuck well above median wages and low levels of savings and you start to understand why the Bank of England is anxious about even the perception that interest rates might rise – writes Josh Ryan Collins, Senior Researcher at New Economics Foundation in his latest article.

Here is an extract:

Instead of encouraging further household deleveraging, the government will do quite the opposite: it is embarking on a massive subsidisation of the market for household debt. Help to Buy II will subsidize up to 15% of the mortgage of any household buying any type of home (worth up to £600,000) so long as they can get together a 5% deposit. So, if you’re lucky enough to have £30,000 lying around, the government will guarantee with tax-payers money a further £90,000 to buy your dream home/increase household indebtedness by £570,000.

Help to Buy I had its critics, but because it was limited to first-time buyers and subsidised only new build homes a defence could be made that it had natural limits and would stimulate the construction sector. There is no such saving grace for the second installment. Its launch has been bought forward from January by Osborne, a decision no doubt related to rising property prices across South East England and criticism from the IMF, Mervyn King, the Treasury Select Committee, Vince Cable, Barclays Bank andthe Council of Mortgage Lenders, among others.

 

Of all the problems with the UK housing market – a virtually unregulated private rented sector, a chronic lack of new homes, land-hoarding by developers, a regressive taxation system that encourages speculation and arcane planning rules – they have chosen the one area least in need of subsidy. All of the above problems help explain the 300% increase in house prices in the UK between 1997 and 2010, but it would never have happened without the creation of £417bn of new mortgage credit by the banking system.

It is quite possible of course that George Osborne doesn’t understand that banks create the majority of new money in the economy as debt. Or that new money, instead of inflating house prices, could go to small businesses, home building or energy and transport infrastructure.

Read the whole article here.

Economic Analysis, Theory, Housing

Positive Money

Primary Sidebar

Get our latest campaign updates

Recent Posts

  • Quantitative easing “turbocharges” inequality: our evidence to the House of Lords
  • Surprise for Sunak: 60,000 demand climate action on frontpage of his local paper
  • QE or not to QE? Soaring inequality shows it’s time for a new macroeconomic approach
  • Update from Chair of the Board on Interim Leadership
  • Why GameStop reveals the flaws of big finance

Footer

Follow us on social media

  • Facebook
  • Instagram
  • Twitter
  • YouTube

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.


Privacy Policy, Terms & Conditions


Positive Money is a company limited by guarantee registered in England and Wales. Registered number 07253015.
Registered office: 307 Davina House, 137-149 Goswell Road, London EC1V 7ET.


Positive Money Europe