Home Residential Property Justin Urquhart Stewart: Don’t worry about a housing bubble – it’s “Help to Buy” you should fear

Justin Urquhart Stewart: Don’t worry about a housing bubble – it’s “Help to Buy” you should fear

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7th Oct 13 7:34 am

The founder of Seven Investment Management says we shouldn’t rush to push RBS to the market

The latest “Help to Buy‟ plans, much vaunted by our esteemed politicians at their party conference last week, seems to have been not quite as popular with some of the banks as had originally been implied. Both the “state-owned‟ banks of RBS and Lloyds fell into line, but then again I expect they didn’t have much choice. The rest though have not exactly deafened us with their enthusiasm.

This is hardly surprising considering that they don’t wish to be held accountable for encouraging first time buyers into high loan to value mortgages at low rates which are only going to move one way – up.

Now whilst I am in favour of home ownership, I am extremely concerned at the approach of offering government guarantees for higher-risk mortgages on seemingly any kind of home. The question of the “housing bubble‟ isn’t really such an issue to me. Yes there probably are some bubbles, especially in London and the South East, but unless this Aero of bubbles all go off at once, this is not going to be such an issue.

No – my concern is for those striving desperately to get on the property ladder almost at any cost and at low rates. One thing we do know (in a world full of don’t-knows) is that rates at some stage will go up, although of course we know not when.

Thus for those who are just able to pay the interest on their mortgage now, what happens when those rates go up? Are we not actually helping people into house ownership, or rather are we just booking them into a future cash crisis? On top of all of that add the fact that our dear leaders have just provided an unlimited guarantee to cover it, which we will have to pay for.

In effect what they have done is to bring forward the scheme from January and this can only make things worse. You may recall that the Chancellor had tasked the Bank of England’s Financial Policy Committee to watch out for potential housing bubbles, but by bringing it forward the Committee will have had no chance to carry out any such evaluation to see if the proposed scheme could be making things worse.

This smacks of some amateur politicking to please a baying crowd at a party conference. Yet again something comes out of a policy think tank without really thinking through the effects of what they are proposing on the broader management of the economy.

Oh dear – they don’t ever seem to learn. Petty party media games are not to be confused with good management of an economy.

Beware the law of unintended consequences.

ustin Urquhart Stewart is the founder of Seven Investment Management and a regular media commentator. Originally trained as a lawyer, he has observed the retail market industry for 30 years whilst in corporate banking and stockbroking.

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