Blimey. I’m quite used to my policy ideas being roundly abused by one set of people or another – in fact it’s not a bad test of an idea’s salience: if no-one at all is outraged it’s probably a non-starter.
But I’m not sure I can remember a policy that has attracted quite such a thorough a kicking as George Osborne’s Help to Buy mortgage guarantee scheme.
We’ve always argued that profligate lending to struggling households desperate to get on the housing ladder was a bad idea. Irresponsible lending means borrowers stretch themselves to make the payments; house prices are artificially inflated, making the affordability crisis worse; banks pump more cash into inflating the bubble than into productive enterprises; interest rate policy is distorted by the need to keep mortgage holders afloat; and ultimately the entire economy is vulnerable to financial shocks and economic crisis.
This is not a prediction; it’s the history of the last fifteen years. And that’s why Shelter spent seven years campaigning for more responsible lending, which the Mortgage Market Review should finally institutionalise when it comes into force next year.
So you wouldn’t be surprised that we were less than impressed by Help to Buy. Nor that the IMF and the mortgage industry itself are pretty nervous about the risk of it becoming a government-backed sub-prime mortgage sector. And as a former boss of mine liked to ask, would you buy meat that was labelled ‘sub-prime’, even if it was George Osborne selling it?
I don’t imagine our opposition, King’s ‘dead sheep savaging’, or even the IMF’s warnings, cause much anxiety among those behind the Help to Buy idea. But when The Sun, the Taxpayers Alliance and Migration Watch all line up to have a go, alarm bells must be going off.
I’d like to offer some support for this beleaguered idea. Within reason: as our video shows, pumping excess credit into inflated house prices is clearly unwise – but there might just be a beneficial side effect. Migration Watch don’t like Help to Buy because it might help foreigners to buy British homes.
Similarly Ministers insist that Help to Buy will not help second homeowners or buy to let landlords to outbid first time buyers – but have struggled to say how they’ll stop this from happening, causing Labour to dub it the ‘spare home subsidy’. To save the political skin of this flagship policy, the government will need to fix both problems.
Personally vetting every applicant is notoriously difficult, as is adding clauses to the sale documents that would restrict who can buy these homes. Restrictive covenants in leases are currently possible, but hard to enforce. And leaseholders’ enfranchisement rights make it even harder. These allow leaseholders to buy the freehold on their home – removing any restrictions included in the lease.
Without such workable restrictions there is a good chance that lots of public subsidy will go to the wrong people – those who are already well off, but fancy expanding their property portfolio with some generous government support.
Even if the vetting process does work, there’s still the problem of the initial subsidy leaking out into the market: when that first buyer comes to sell their subsidised home, those best placed to buy it will be those with large amounts of equity already, not the next struggling first time buyer, who will need another slug of tax payer funded largesse. It would be far better if the subsidy could stay attached to the home, making it cheaper for the next generation of buyers.
So before the scheme launches next year, my hope is that government will introduce a new legal mechanism keep these subsidised homes in the right hands – presumably by beefing up the law on restrictive covenants, so that enforceable restrictions can travel forward with the deeds for the home, and overcoming the problem of leaseholder enfranchisement.
This has long been a bug bear of the small but vibrant movement for alternative housing tenure models – such as Mutual Homeownership Trusts, Community Land Trusts, or Cohousing. Such models tend to rely in keeping assets out of the market to prevent subsidy leaking out and prices rising to unaffordable levels. The enfranchisement rules mean that leaseholders can almost always buy the freehold, capturing the community interest for themselves and destroying the long term affordability.
So far the call for legal changes to solve this problem has been ignored by government. It would be a nice irony if George’s Sub-Prime Medicine turned out to be the thing that removed a major barrier to genuinely innovative approaches to solving the affordability crisis.