Property: Should the government be helping renters not buyers?

24th November 2011

Writing on the Guardian, polemicist Simon Jenkins rails against the policy that will see first time buyers of new builds receive help with the mortgages with the Government indemnifying them so that can receive loan to values up to 95 per cent from a group of lenders.

Jenkins dates the problem back to Margaret Thatcher though it hasn't changed subsequently. "Today's constant reference to the plight of young people "struggling to get on the housing ladder" reflects the reckless politics of the sub-prime crisis. It humiliated renting, inflated house prices, impoverished young people and ruined thousands in a frenzy of the "homeownership" bubble. Home owning peaked at 70% of Britons, against between 40% and 55% in Germany, France and the Netherlands. It leached savings from the economy and made British workers starkly immobile, compared with Germans or Japanese."

On trade newspaper Money Marketing, adviser and commentator Chris Gilchrist wonders whether our love affair with property is over.

He suggests you should be wary about house price indices in particular. "House price indices are phoney because they take no account of maintenance costs, and when buyers are choosy you have to spend a lot to get your house in good enough nick to sell. The endowment effect, familiarity, confirmation and mental accounting are all too obvious in the positive view of property by committed owners. Today, people increasingly do the maths. Is it cheaper to rent than buy? To the cost of mortgage interest, add maintenance and buildings insurance costs in order to compare with rents. And in my view, add a risk premium."

But it is not only commentators that have been critical but some policymakers as well. Money Marketing has been making some of the running on the story this week. It reports on Bank of England MPC member David Miles suggesting that the tax system favours buyers, but that this is not necessarily a good thing.

The paper reports that  "Miles does not think "it is not at all clear" that lower rates of home ownership are a "big loss to society" and suggests that policymakers look at ways of addressing a tax system that currently favours homeowners over renters.

"He said that while homeowners pay no tax on the benefits derived from having a place to live, landlords pay tax on rental income while capital gains tax is not levied on owner-occupied first homes but is on capital gains made on rented property."

Ian Cowie writing on his Telegraph blog was likewise scathing about the policy saying that the best thing for first time buyers to do would be to wait for prices to fall.

But even those who would be in favour of policies to kick start the mortgage market are not completely sure that this is the way to do it.

On the BBC's Today programme, mortgage broker John Charcol's mortgage expert Ray Boulger questioned whether it was correct to risk taxpayers' money guaranteeing mortgages.  


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