Cover of MoneyWeek issue 400

Going it alone

5 September 2008 / Issue 400

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  • Will the green revolution survive the recession?
  • The Russian geek gunning for Google

Excerpt

The worst is yet to come

Should you buy a house this year or not? The answer was in the small print of Gordon Brown’s nonsense plans to support the housing market announced this week. One of the measures to be implemented is a scheme called Homebuy Direct, whereby first-time buyers with a joint income of under £60,000 will be able to borrow interest-free cash for five years from housebuilders and their new best friend, the Government, to help them to buy a house.

The key number here is the £60,000. That figure is two and a half times the UK median wage. So what the Government is doing is explicitly recognising that even a couple both earning considerably more than the UK average are currently unable to get a conventional loan of the magnitude they need to buy a house.

What this state of affairs then seems to tell Gordon Brown is that the Government should help these relatively high earners out. But it tells us something completely different. It tells us that house prices are still far, far too high – otherwise two average salaries could surely bag the average house – and that they must come down much, much further before things start to approach equilibrium again. That might be bad news for all those silly homeowners who have spent the last decade blahing on about how their houses are their pensions, to say nothing of those who invited the misery of negative equity into their lives by taking out 100%-plus mortgages; and it is most definitely bad news for tax revenues and for the economy. But that’s the way it is.

• Read the full editor’s letter here: The worst is yet to come