From The Daily Mail:
NewBuy aims to help buyers onto the housing ladder by allowing them to buy a new home with just a 5 per cent deposit because the housebuilder and Government back the loan.
But it is already on the rocks after housebuilders backing the scheme say buyers are being priced out, as they can’t afford their mortgages. NatWest offered the best initial rate when the scheme was launched on March 12. This was 4.29 per cent for a two-year fixed-rate and 4.99 per cent for a five-year fixed-rate. However, its new two-year deal is 4.79 per cent and the five-year deal 5.49 per cent. This means a buyer of a £150,000 home who missed out on the lower rate on the five-year deal would end up paying £44 a month more, or £2,640 extra over the five-year mortgage...
Mike Farley, chief executive of housebuilder Persimmon, says: "There’s nothing wrong with the concept of NewBuy(1), but to make it work we need a lower rate or people will be priced out. The rates are around 6 per cent and are so high people won’t be able to afford the repayments.(2) I could understand the rates being so high if the lender was taking on all the risk, but that is not the case.(3)"
He said the homebuilder has managed to sell only 70 properties through the scheme so far.(4) Persimmon and other builders signed up to the scheme are to meet this week to discuss their next steps.(5)
*sigh*
1) There is everything wrong with it. The clue is the fact that the name of the scheme is two words joined together with each word capitalised, a traditional NewLabour gimmick.
2) First time buyers could easily afford to pay 6% interest or 10% or 15% or anything else, because that's only one part of the equation - the more important part is the actual loan amount. If Persimmon dropped the price of their homes by half (i.e. waived most of the land value element), then buying one of their homes with a 10% interest mortgage would be a pretty good deal. But as a true believer in Home-Owner-Ism, he sees the selling price as a fixed quantity and works backwards from that in deciding what the interest rate 'should' be.
3) He thinks that he can charge as much as he likes for his crappy houses, and banks respond in kind by suckering people in with low interest rates and then turning them into mortgage prisoners. At least with a normal protection racket you can shut up shop and move elsewhere, eh?
4) This is what we've come to expect from all the similar schemes dreamed up by previous government:
The [HomeBuy Direct] scheme was announced on September 2, 2009 - but it took until March this year for it to open for business. But so far demand has fallen some way short of the early hopes. The government wanted to help 18,000 families - so far, it has helped just 215.
5) No doubt their next steps will be to persuade the government to set up a taxpayer-backed scheme to subsidise mortgage prisoners who want to trade up to a bigger mortgage, maybe they can call the scheme NextSteps or something?
*/sigh*
Not a greenhouse
16 minutes ago
17 comments:
is this another of your spoofs?
I feel sick already
G, no, With spoofs, I don't put my own commentary or footnotes after the excerpt.
I know! If you want a house, you don't pay for it upfront or arrange a mortgage, but the Department of Fairy Money gives you £150k (depending on status) and you only pay it back once you are earning £21k.
Then, you pay back, I dunno, some percentage, say 10% of everything you earn over £21k for the next 30 years and if you haven't paid it back by then, we cancel the debt. Only we won't call this a tax. We'll call it 'income contingent loans'.
That way, everyone will have a house and if they earn lots of money, they pay lots of money for it, and if they don't earn anything they still get a house, only everybody else pays.
And, of course, all houses are the same and only go up in value, so you should take the biggest house you can get your paws on.
I might be getting it all mixed up, but Mince Cable seems to think this is the way to go with major purchases such as education, so I don't see why it shouldn't work for houses. He's much clevererer than me, so he must be right.
I am at a loss understanding your logic here. The builder cannot do otherwise than sell at cost plus profit or he will soon go out of business. The only discretion the builder has is in the amount of profit he wants. In bad times like now that will be very thin. The exception of course is if the builder cannot sell fast enough to cover the time cost and is forced to sell below cost just to unburden himself.
Antisthenes, I used to think builders' profits were usually thin, but I saw the light the first time I sat down with one to discuss shared equity mortgages. The builder concerned couldn't believe how the scheme worked and the amount of money he'd make out of it; first, he'd bought the land for buttons. Then, he'd got planning permission and made his money; a plot he'd paid a couple of thousand for was now worth umpteen tens of thousands.
Then because it's "affordable housing" he can justify cramming more crappy little rabbit hutches on the land "to keep the price down". Plus do things like building "back-to-back" semidetached, beloved of greenies because they're supposed to be more energy efficient, and even build back-to-backs in a group of 4 to reduce his building costs further and squash even more on the land.
Then, the coup de grace. He has to build these houses in a mix with "ordinary high cost houses" to keep the Stalinists at the Council happy. So he jacks up the price of his posh houses and the price of the peasants' units also increases. I bet you'd be surprised to find that the increase on the peasants' units is roughly the same as the amount that the builder is so selflessly foregoing for 10 years - about 15%.
The builder makes money hand over fist. Figure he can build a shared equity semi-detached rabbit hutch for say £70000 for both units, using one plot that cost him £2000 but with planning became £80000 and then sell the houses for £150,000 each.
The bank's happy because it charges premium rates of interest for this high-risk lending (and it IS high risk, in terms of default ratios). The builder's happy because he'd just made a packet. The poor stupid milchcow punters are happy because he and she "have just taken their first step on the housing ladder" and ten years (when they have to raise the remaining 15%) seems a long, long way away.
The milchcows are now immediate mortgage prisoners because it they move, the 15% balance is taken from the sale proceeds so straight away they're in negative equity, or have no equity to take forward.
The builder, meantime, has just ordered himself another Range Rover (in the missus's name, natch) due to the largesse of the banks, government and taxpayer.
If they were serious about making housing affordable, all they have to do is reduce the price of planning land by dramatically increasing the consents given. Or there's this thing called LVT(cont. p94).
Sorry to dribble on, but there's another point here which I intended to make in my ravings above, but forgot. If the milchcows "can't afford the mortgage" now, what in feck's name are they going to do when rates rise, which they will mostv assuredly do sometime in the next 10 years?
Oh yes, stupid of me.
We'll all have another whip-round for them to bail them out. The builder's still a gloating, chortling millionaire; he should care.
WOAR, splendid idea! I'm sure it'll work just fine.
Anti, see what FT says.
FT, thanks for the illustrated example. Which is why builders aren't so keen to build on brown field (aka 'garden grabbing'), because there's less or no planning gain. It's getting planning permission that makes you the money, not doing actual the building work.
MW. The builder who bought the land cheap obviously bought it without planning permission so was taking a gamble. Unless of course it was a stitch up with councillors and planning officers (probably, corruption being so much part of life these days).
The housing market is the epitome of a non free one therefore being distorted to no ones benefit other than the politicians and the eco nuts(as are so many markets these days, gilts/bonds for example a bubble ripe for bursting). As like all markets the housing market if truly free benefits everyone. Part of the solution you put forward is LVT, which I admit not to totally understand, but my gut instinct is that it would help considerably but not on it's own. LVT needs a much better planning structure and as you say it must allow the release of more land. LVT does appear to have many more benefits than just in the housing market it if I understand it correctly it could also revolutionise the tax system.
To me this all academic because the UK having gone so far down the social democracy path any sensible economic, political and social models are not going to be implemented. There will be no recovery for Europe let alone the UK until those models are more influenced by free market capitalism and libertarian policies than the current socialist ones. And that is as likely as the next government being formed by UKIP. Indeed UKIP is increasing it's voter share but so are the left and as the crises deepen a shift leftwards is increasing as the people are looking to them to solve the current problems despite them being the cause.
The builder who bought the land cheap obviously bought it without planning permission so was taking a gamble.
You're clearly an inteeligent man but perhaps you lack a certain deviousness (shame more people aren't like you).
Do you seriously think these things happen without pre-discussion, or that a builder who's being seen to help the council solve the "housing problem", doesn't have a lot more clout when it comes to planning permissions that a small landowner or farmer?
Do you really believe the builder isn't prepared to sit on the land for years if needs be, while he trades favours and scratches backs?
There's no need for overt, short term corruption. There's a means by which these things "just happen".
Anti: "my gut instinct is that LVT would help considerably but not on it's own. LVT needs a much better planning structure and as you say it must allow the release of more land."
Aha, that's the clever bit. Imagine that we had LVT but retained the more or less complete ban on any greenfield development, what would happen? There'd be more efficient use of existing buildings for a start, people would downsize upsize rightsize, a lot of currently vacant or derelict buildings would be tarted up or replaced and put on the market, somebody's second home used twice a year would become somebody else's main home all year round etc.
The chances are, we'd find that we wouldn't need to use any greenbelt land at all for decades (which is another bonus of LVT).
FT: "Do you really believe the builder isn't prepared to sit on the land for years if needs be"
See also: a lot of developments were 'mothballed' in 2008 or 2009 to restrict supply coming on the market to try and drive the price back up again. Motor manufacturers don't indulge in this sort of behaviour, except for the tip-top super marques.
FT - You try explaining all that to a young couple wanting to buy their first home...it goes dwon like a lead balloon, mostly.
Lola, I have. I've built a spreadsheet wiv graffs and everyfink innit to illustrate property prices -10% to +10% over 10 years (because of course if property goes up 10% the builder gets to receive 15% of the inflated price which means bigger mortgage at unknown interest rates etc etc - you'll know exactly where I'm coming from on that).
I also make myself unpopular by pointing out that one of the risks of taking on a mortgage, and especially one of these dogs, is that if the house is no longer suitable (maybe starting a family, or if they become one of the 60% or so of young couples who shack up and don't last 10 years before they split up) they're completely screwed. And I explain why that's so. But there's always someone just down the street who won't point out the risks and'll just pocket the fee.
FT - last sentence. Yep.
FT: "or if they become one of the 60% or so of young couples who shack up and don't last 10 years before they split up)"
That's a bloody excellent point, I must remember that. I'm one of the sixty per cent, by the way :-(
" a lot of developments were 'mothballed' in 2008 or 2009 to restrict supply coming on the market to try and drive the price back up again. "
AFAICS, if that were the case, they were wasting their time. If land prices could skyrocket in the 70's in the midst of a building boom when building land was plentiful, then restricting supply is hardly likely to have the same effect. I suspect they were mothballed to wait until people had more money to spend.
"If they were serious about making housing affordable, all they have to do is reduce the price of planning land by dramatically increasing the consents given."
Sorry, FT, the 70's prove that just doesn't work.
"The builder makes money hand over fist."
Oh no he doesn't. The man who makes the money is the speculator, aka the "developer". He does f*** all really. The builder, who actually builds the damn things, is roped down into a fixed price contract to the developer and is lucky to make more than an average profit.
B, I said they were mothballed to TRY and keep prices up. That was their clear and stated aim. Whether they will achieve it is another question.
And yes, observation tells us that once a house price boom is nicely underway, no amount of new build will slow it down (Ireland, Spain), although it does appear that the bust kicks in a lot more sharply afterwards.
Re hand over fist, of course, in real life it is the person who happens to own the land at the time planning is granted who makes the big and easy money - actually building the building is a slow hard slog with uncertain profit margins. I've never said otherwise, and my construction clients agree.
However, we note that in practice, it is often (or usually) the same person who gets the planning and takes the risk of paying for the building to be built, so FormerTory wasn't completely wrong, he means the builder wearing his "landowner when planning is granted" hat who makes the money hand over fist.
I still think that having the state claw back all or nearly all of the capital gain when planning permission is granted is the best short-term way out of this problem. I know it's said that it would slow down house building, but history says otherwise - look at the huge expansion of our major cities in the C19th, when land cost the same, whether it was for farming or for building on.
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