Rishi Sunak has a new wheeze for making homes affordable again. On Monday, the government launched a new guaranteed mortgage scheme. Anyone borrowing up to £600,000 will be able to get a 95% loan, with the state backing a slice of that to allow banks and building societies to increase the amount they lend without having to worry about defaults.
In fairness, it’s not a completely crazy idea. Raising the deposit for the first property is often the hardest task for anyone getting on the property ladder, especially if they don’t have any help from their parents. If they only have to save 5%, then with £15,000 they can purchase a £300,000 home. Once that is completed, it will get a lot easier to buy the next one. With interest rates so low, and unemployment under control, it is unlikely to end up costing the government much: a guarantee only matters if people start to default, and there is not much sign of that happening. But there’s a problem.
Pouring petrol on a housing boom
Prices are already very frothy. According to Rightmove, the average asking price for a home in the UK has risen to an all-time high of £327,000. It has risen by 2.1%, or £6,700, in the last month alone. Just as significantly, the number of homes on the market has dropped to a two-year low, while a quarter of properties are selling within one week of coming onto the market. In other words, the market is pumped up, boosted by a resilient economy, breaks on stamp duty, low interest rates and lots of cheap fixed-rate mortgage deals. It is not the time to be throwing subsidised money at the market. It is just going to create a bubble.
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Perhaps more importantly, the entire property market is in a state of rapid flux. The Covid-19 crisis has accelerated changes to the way we use space by a decade or more. In January, the percentage of shopping done online hit 36%, double what it had been a year earlier. That may fall back a little as lockdown is eased, but retailing is not likely to return in anything like the same form.
The government is already relaxing planning restrictions so that many former high streets can be turned into a mixture of leisure and residential space, with the result that a lot more apartments are going to become available as old shops get converted. It may not be long before the retail parks go the same way. We may not like the idea of living in a B&Q shed right now, but a generation ago we would have said the same thing about a warehouse along the Thames: apartments in what were once industrial buildings now change hands at £1m a time.
Lots of skyscrapers are suddenly going to be half-empty, too – Canary Wharf is already looking to switch one planned office block into apartments instead, and is working out how to turn a place where people just work into somewhere they live and have fun too. Other landlords and property companies will be reaching the same conclusion.
There is nothing wrong with that. For years, the UK has not built enough new homes, and the ones we have built are not as big as they should be (and if everyone is working from home two or three days a week they will need more space). We may finally be about to see a vast new amount of residential space coming onto the market as shops and offices get converted, and that will change the market completely, and in ways that no one can predict right now.
A bewildering merry-go-round
The government needs to let these trends work themselves out. Chancellors have been coming up with schemes for housing for 30 years. Stamp duty has gone up, then down again. Help-to-buy wheezes have been and gone. Landlords have been helped with tax breaks, then whacked over the head. Mortgages have been subsidised, punished, controlled, and then liberalised all over again. It has been a bewildering merry-go-round, none of which appears to have done much good. Right now, the market is already booming, and the way we use the land and buildings available to us is changing very quickly. The government should try something genuinely radical – leaving the market alone, and seeing if it can improve all by itself.
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