Send £5 to the person at the top of the list

The housing market today looks like one giant Ponzi scheme to me with buyers still being encouraged that prices are a one way bet. If you give the average 1st time buyer an extra £5k via one of the latest crazy ‘Councils-to-help-1st-time-buyer’ schemes all they will do is give it to a developer or home owner with an over-priced house. This may be good news for estate agents and sellers but the problem isn’t that buyers can’t borrow enough money, it’s that houses are too expensive.

If young aspirational home buyers were drug users they would be in the Priory. Ireland, Portugal, Spain even parts of the UK provide harsh evidence that house prices can fall as well as rise and yet house builders and mortgage brokers want State intervention if necessary to get the market going again. Prices may be bucking the trend in Kensington but in Belfast prices last year fell by more than 20%. Someone who bought 12 months ago having put a 20% deposit down has just lost all their equity! Leverage” means that although you keep all the money when prices rise you take all the losses when they fall. For some of last years first time buyers it’s negative equity from here on!

Even the Government is vulnerable to the stories being peddled Ministers are coming under pressure from all sides to get banks to relax their lending criteria and to allow buyers to borrow more money than is sensible. The Budget two weeks ago included a £250m ‘chaser’ for a handful of buyers in an effort to help bypass the lending restrictions that banks have in place. Just when we had got back to some kind of sanity there are those who want the party to start all over again!”

As owners of some of the bigger banks the tax payer should have real concerns about lowering lending guidelines or efforts to circumvent their offers. Mortgage brokers and estate agents may be squealing with transaction volumes on the floor but the solution doesn’t have to be to give the addicts more money. I’d like a new Aston Martin but I don’t expect the tax payer to step in and help me raise the deposit. The sad if unsurprising news for Aston salesmen is that their product is just too expensive.

For house prices to continue at their current levels there must be new money coming in at the bottom but like chain letters they falter when the last sucker signs up. Showing my age, I am able to recall the days of believing that I was going to make money by adding my name to the list and sending £5 to the name at the top are now long gone. But I do worry that those younger and more impressionable will fall for the patter. House prices can fall as well as rise and as every mortgage advert reminds us it’s “your home that is at risk if you don’t keep up repayments”.