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Date published: 2012/03/12
The BBC says:
People in England are being offered help to climb onto or up the housing ladder as the government's mortgage indemnity scheme launches.
Building firms and taxpayers will be co-guarantors on new homes bought by existing or first-time buyers.
The government hopes the NewBuy scheme - supported by Barclays, NatWest and Nationwide - will help people to borrow up to 95% of the value of new homes.
Critics argue the scheme is just a ruse to help the construction industry.
Under NewBuy, the builder pays 3.5% of the sale price into a special account held by the lending bank for seven years.
Taxpayers will provide additional guarantees of 5.5% but that money will be called upon only in the event of a major property crash.
The scheme is being unveiled on the same day Prime Minister David Cameron confirmed the extension of the right-to-buy discount to up to £75,000 for social housing tenants.
Under that scheme, those who have had five years in a council house could receive a 35% discount, with an extra 1% for each added year up to a maximum of £75,000.
Tenants in flats will get 50% off after five years, with 2% added yearly. The government says the cash raised from the sales will be put towards new "affordable homes for rent".
It is Economics 101 that any government subsidy of mortgages (which this guarantee effectively is) will just increase house prices, so that in the end everyone is worse off, except for developers. This mortgage guarantee does not even pretend to be anything else. House prices are damagingly high in the UK and the government needs to find ways to manage a decline, not artificially keep them high.
The council house discounts are far, far worse. The government is saying that rather than buying a flat, people might as well arrange their circumstances so as to be eligible to move into a council flat, and then, hey presto, after only five years rent they have managed to buy a flat for half price. Needless to say, this ought to irritate the hell out of anyone who has had to pay, say, 15 years of a mortgage before half owning a flat. The house discount is not much better. But Cameron has obviously decided to go for the same cynical ploy as Thatcher did all those years ago, where those who benefit from this undeserved free gift are grateful to the Tories, and everyone else (who are in effect paying for it) just shrugs their shoulders. Needless to say, with these huge discounts, there is no way that the government will be able to come even close to replacing the lost social housing, without a huge government injection of extra cash.
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