Any home as long as it's borked

13 Mar 2012 - Nic Ho Chee

Our current ConLib government appears to have been smoking ju-ju grass again after creating a fund which will indemnify a 95% mortgage as long as the house is a new build from one of a range of accredited agents including the likely lads otherwise known as Persimmon. After spending a few moments with the matter, a number of minor flaws leapt out and cudgelled some unsuspecting innocent bystanders…

• A motivation was given that the banks aren't lending to first time buyers as they don't have the required deposits or aren't seen as good potential customers. If the banks are restricting credit perhaps they know something the government doesn't relating to the ability for a given set of people to repay said credit. Not that we haven't seen direct parallels to this before, c.f. Fannie Mae in the U.S.
• This is for new builds, once you have bought the property it is no longer a new build, and there will be no government help for someone to then purchase said property from you, making the secondary sale market less buoyant than perhaps most people would like.
• This will cause an increase in housing newstarts up to 500K, but doesn't make it any easier for people to purchase already built flats/houses. The increase in housing stock will actually reduce the price of already existing entry level properties. This will effect house prices further down the chain as people will not be able to afford to move up if their jumping off price point is reduced. This may help keep builders alive, but it looks likely that it will break the housing market as a whole.
• They want to make it easier to purchase houses from companies like Persimmon ! Its like throwing people to the wolves!

Over the last few months I’ve been attempting to fathom whether it was worth purchasing a house (lots of unknowns there, but at least I could work out the sums involved and look at the risk/reward ratio.) I’ve attached the spreadsheet (XLS) (EDIT: I’ve taken the spreadsheet out, as it is quite old now… will write a new tool when I get the chance…) I created to look at a 20 year example mortgage with example savings, interest rates for savings and mortgage, compounded inflation etc and try out some scenarios and see what came out. I’ve added the spreadsheet here if people need something similar. It doesn’t take into account the lost opportunity cost of the deposit, but should give you a feel for the cost of a mortgage over the time period. It was looking like saving and renting was going to end up a better bet, even with such low savings rates as I’d expect mortgage rates to increase over the next few years… however, after seeing the government’s new mortgage policy sitting and waiting may be my best policy.