The UK government decides to try to pump up house prices one more time

via notayesmanseconomics

If you were around Princes Street this morning you may have seen a young research student skip their way from Bank tube station to the Bank of England with a beaming smile on their face. Being able to stand in front of Governor Andrew Bailey with news like this is this sort of thing that gets your contract renewed on improved terms.

FT Exclusive: Andy Burnham will launch a new version of the controversial Help to Buy scheme through which hundreds of thousands of first-time buyers got on to the housing ladder under the previous Conservative government.⁠

You may have noted that even the Financial Times calls this “controversial”. Plus that criticism of the UK political structure of it being a uniparty had a good day as the new government of hope and adventure could in reality only copy a plan that has already been reheated several times by previous governments.

But at the Bank of England there will be none of this and as the Governor appears there may be chanting in the manner seen when Noel Coward descends the prison stairs in the film The Italian Job. After all it looks like a case of if I scratch you back you can scratch mine after his moves to reduce long-dated UK government  bond yields that I analysed on the 18th of this month.

UK Chancellor John Healey will be delighted by today’s Bank of England move on QT and the invite for beer and samdwiches has no doubt been sent. Previous Chancellors will not be pleased and Liz Truss is likely to be furious I would think….

Why? Well I explained further.

Why? Well the UK thirty-year yield fell by 0.1% to 5.74% relieving some of the pressure on him. This has led to accusations of political manipulation to which Governor Andrew Bailey responded to on ITV.

So there’s no question of in any sense of favouring a particular Government.

According to Jim Hacker in Yes Minister and Otto von Bismarck you should never believe anything until it is officially denied.

So the Governor of the Bank of England has played Andy Burnham and John Healey like a piano. He has offered an olive branch on government debt costs which also suits the Bank of England and in return got another to do this for house prices.

Pump it up when you don’t really need it.
Pump it up until you can feel it. (Elvis Costello)

Once the applause dies down all at the Bank of England can look forwards to the arrival of the tea trolley as Governor Bailey orders that only the best cakes be provided today in celebration of the news.

The Detail of the Scheme

The Financial Times report continued with something that is close to a lie.

The government announced on Saturday that the UK prime minister will deliver the equity loan scheme to help first-time buyers, confirming an earlier FT report.⁠

What I mean by that is whilst some will be helped to buy a home the pattern of previous moves is that future first-time buyers will have to pay higher house prices so will be worse off. This hits straight onto one of the main themes of my work which is that this is inflation which the establishment have spent decades trying to spin as a Wealth Effect.

In terms of the details it looks as though in the rush to announce this at the Labour conference they have yet to nail them down.

With the “Your First Home” scheme, which was first announced on Saturday, there would be an initial interest-free period for the equity loan – more details on how it would work are expected in next month’s Budget. (BBC)

Regular readers who have followed my “To Infinity! And Beyond!” theme may like to mull on the reality that as these things tend to expand how an “initial interest-free period” may morph into the expected terminus of the house being given to them.

Those who recall the post credit crunch days when politicians promised that the same mistakes will never be made again will be wondering how that goes with 97.5% mortgages?

The “Your First Home” scheme would be open to first-time buyers in England with a deposit of 2.5%. It would provide them with a loan worth 20% of their new build property’s value to help pay for the purchase. (BBC)

As to who will be paying for the 20% loan they try to hide it with this.

Funding for the scheme is expected to come from reprioritising existing budgets, but housing developers will pay towards the running costs. (BBC)

But the reality is that if you are a UK taxpayer then here is looking at you. Yet again the taxpayer will be on the hook for a house price pumping operation.

House Builders

The situation here has become pretty clear this morning. I will let you decide if this looks like the response to “housing developers will pay towards the running costs.” or not?

Shares in UK housebuilders surged on Monday after the government announced it was launching a new version of the Help to Buy scheme, handing a boost to an industry suffering badly from a protracted slowdown in the housing market……..Taylor Wimpey rose 23 per cent in early London trading, while Persimmon gained 15 per cent and Berkeley Group was up 7 per cent. (Financial Times)

In fact we are back to the Uniparty theme as a Labour government does exactly what I criticised the previous Conservative one for. Or as Bob Seger put it.

And you’re still the same
I caught up with you yesterday
(Still the same, still the same)
Moving game to game
No one standing in your way
Turning on the charm
Long enough to get you by
(Still the same, still the same)
You’re still the same
You still aim high.

Council Homes

There was also an announcement on this front according to the BBC.

It would, Labour said, make it simpler for councils to bring some of the more than 300,000 empty dwellings into use for essential housing.

The plans were unveiled by Housing Secretary Angela Rayner ahead of the party’s conference in Liverpool.

The problem with this is the track record of Angela Rayner and you do not have to take my word for it as here she is.

There is only a “slim chance” the government will meet its target of building 1.5 million homes in England by the next election, Housing Secretary Angela Rayner has told the BBC.

“Headwinds” including the Iran war and rising construction costs are making it harder to meet the key Labour manifesto pledge, Rayner told the BBC’s Sunday with Laura Kuenssberg.

Remember this was under Chancellor Rachel Reeves supposed to be the main engine of economic growth. Plus the costs excuse rather fades when you realise that this government has raised house builders costs via regulation.

Still it has gone better than Angela Rayner’s other policy plan.

Plans for a major shake-up of local government are on hold, after the government launched a review in light of new legal advice.

Proposals to merge smaller councils to form larger authorities in Essex, Hampshire, Norfolk and Suffolk have been withdrawn.

Meanwhile, plans for 14 other areas will also be reviewed and paused.

I am not sure it could look more incompetent.

Comment

So the main winners here are the house builders and the banks as the latter will be able to make very risky loans of only 2.5% equity that the UK taxpayer will top up to 22.5% equity. So the UK taxpayer is being forced into a large risk and if we look at the present situation so are the First-Time Buyers involved.

Average fixed mortgage rates crept closer to 6% this week as lender repricing continued, according to the latest Moneyfacts Rate Watch.

The typical two-year fix is now 5.92%, its highest level in over two years and up from 5.84% last week. Meanwhile the average five-year fixed rate now costs 5.94%, compared to last week’s 5.88%. (Mortgage Strategy)

I recall back in the Covid era where these rates were consistently below 2%. So there is going to be downwards pressure on house prices from mortgage rates. In fact my leading indicator the five-year yield has nearly touched 5% again this morning so the heat remains on.

As for a government which has already been marked by many U-Turns this may be the largest as it switches from claims about housing supply to pumping up housing denand.