There is one certainty for every Budget day: that the chancellor will dream up some novel scheme to prop up the housing market. Rishi Sunak’s idea of providing state guarantees for 95 per cent mortgages taken out by first time buyers isn’t, however, that new. It is really just a reheated version of one branch of the Help to Buy scheme run by George Osborne between 2013 and 2016.
This is the story of the property market over the past quarter century: in the long property boom of the late 1990s and early 2000s banks got themselves into huge trouble by advancing high loan-to-value mortgages. They did so in two ways: directly through loans to their customers – such as Northern Rock’s reckless 120 per cent mortgages – and indirectly through investing in junk securities which wrapped together sub-prime mortgage lending in America. The slump in the property market took the banks down with it as they lost the security for their loans. When the dust cleared, mortgage-lenders didn’t want to lend anything more than 80 per cent mortgages, if that, and the government didn’t want them to take on this risk either. But when first-time buyers found themselves unable to buy homes – not at the still-inflated prices, at any rate – the government stepped in and told the lenders: if you won’t take on the risk of a 95 per cent loan, then we will take it on instead.
In other words, in any future crash it won’t be the banks who find themselves on the hook – it will be the good old taxpayer instead. It is hard not to notice the objectionable aspect to all this. What is in it for us taxpayers? What is our reward? None – save, that is, for taxpayers who also happen to be property owners and investors and who therefore might have the value of their investments protected from a future crash.