Review: The Help to Buy Scam
A Scheme to Exploit Young People and Prop up a Vulnerable Market
By Alex Gail (£9.98, Digitulip)
Alex Gail certainly isn’t sitting on the fence. In this short but stridently argued little volume, he debunks Help to Buy as no more than a Tory con-trick. Far from a panacea to solve The Great British Housing Crisis, Gail believes the scheme is little more than a cynical ruse to keep the situation as dire as it is by pumping liquidity into the system and keeping house prices high, thus keeping its core electorate happy (i.e. wealthy, older home-owners).
By exploiting our rose-tinted national ‘dream’ of owning one’s own property, at any cost, he argues that the government is conning young professionals into signing up for a lifetime of debt and no future security. He debunks the propaganda and mystique that shrouds the various Help to Buy schemes and wants his readers to ‘say no’ and embrace their status as Generation Rent.
We all know that Generation Y is the number one casualty of the current housing crisis. Since the crash and until recently, lenders were reluctant to offer mortgages without a deposit of at least 10 or 20%. Faced with burdensome rent and student debt, the idea of a £15k (or more like £45k in London) deposit is a bad joke for most 25-35 year olds and most have long ago resigned to the reality of renting probably forever.
As is reported daily ad nauseum, the central cause of the crisis is undoubtedly a critical shortage of new housing, the supply of which has failed miserably to keep up with Britain’s swelling population. Only 37,000 more houses were built in 2015 than in 2010. It is hard to argue with one of Gail’s central arguments – that Help to Buy only serves to worsen this situation, by increasing demand, pumping more money into the system and keeping prices higher than ever (£8,250 higher, according to the charity Shelter).
The central problem, of course, is that young people need help with the deposit, and Help to Buy, as Gail points out, is useless in this regard. As widely reported, many young workers have been caught out by the Help to Buy ISA, believing that the government bonus could be put towards a deposit, when in fact, the money is only transferred upon completion of the sale. Many have ended up having to take out expensive loans or the Bank of Mum and Dad to cover the cost of the deposit. Official government information is mired in confusion – for Gail this is simply evidence that is all a scam to catch out unsuspecting young buyers, for whom the promise of a £3000 bonus will be too much to resist, and succumb to the siren call of home ownership. Gail argues that the Equity Loan, meanwhile, is conning people into believing that they have more equity stake in the property than they in fact do. However, it’s hard to believe that any people taking on this loan will be under any illusions as to its true nature – a debt with interest (1.75% after five years and rising after).
Gail argues convincingly for the case that it is the sellers, rather than buyers, that are the real winners in Help to Buy. In the case of new-builds, which Equity loans apply to only, private building companies are basically free to charge what they like, meaning that if they charge a mark-up of 25%, this wipes out the 20% equity loan advantage that help to buy has given the buyer. This is backed up by an ONS report that the price of new-builds increased at double that of pre-owned houses in November 2015. Sellers of pre-owned houses, meanwhile, need not drop their prices based on the market but will always be able to command the starting price, with couples able to pony up extra dough courtesy of the government.
For those who have been allowed into the sacred British home-owning club, for Alex Gail, this is simply a poisoned chalice. He predicts that tricks such as Help to Buy are only an ‘extend and pretend’ strategy- that a future economic slowdown and subsequent reversal in house prices is inevitable. Citing the scary shadow of such woeful economies Japan in the nineties, or Spain, the US and Ireland since 2008, Gail warns his readers to stay out of a market in which they are bound to be plunged into sustained negative equity and marooned in their dream homes forever. This is where the weakness of his argument is most evident; comparing our idiosyncratic economy and housing market to others doesn’t bear too much scrutiny (Japan, for instance, rarely has homes that last more than 38 years).
Gail evangelises renting as the free, mobile, flexible option and urges us to stand up to the home ownership fantasy. Gail doesn’t understand the rose-tinted romance surrounding the ‘dream’ of owning a home, but in his hostile and unflinching attack on the notion, he risks alienating a large number of his readers to whom it will always appeal.
It seems unreasonable to ask a whole generation to turn down the prospect of owning their own property on the proviso of a predicted future downturn. House prices in this country have never stagnated for long – even after the 2008 crash they picked up pretty quickly – and that’s because Britain has had a chronic housing shortage for decades. Successive governments (of all hues) haven’t been able to solve it, housebuilders haven’t been able to solve it, economists haven’t been able to solve it.
With such uncertainty in everything else – the prospect of a decent pension, for instance – a home for many young professionals will still remain one of the more solid investments they can make because of a basic principle; if demand outstrips supply, that supply will always have value.
The debt that Help to Buy invariably will saddle young owners with is undeniable. But a report by the Institute of Fiscal Studies revealed that renters born in the early 1980s are spending 30% of their income on average on rent, compared to 15% for homeowners, compared to homeowners and renters in the 60s who would both pay 20% on housing costs. Whilst this is all dependent on interest rates remaining relatively low, with the economy seemingly in indefinite recovery, it is hard to imagine the Bank of England allowing rates to shoot back up to 1980s levels for the time being.
The alternative option, renting, is far from a bed of roses, as any young professional paying over half their pay packet a month on poorly maintained accommodation will tell you. Rent costs rise at exorbitant levels each year, pricing city dwellers further and further out of the capital, particularly in London. Generation Y’s main cross to bear seems to be huge outgoings simply to live anywhere, and many would rather own four walls and contribute money towards a long-term investment that, at some point one day, will end. This is naturally more appealing than the prospect of squandering rent money into the black hole of a neglectful and well-off buy-to-let landlord’s pocket. It may amount to ‘thirty years of debt slavery’ – at the end of it, you will have a home to pass onto your children, as opposed to a further twenty years of renting with nothing to show for it.
What Gail makes less of is another aspect to the scandal, which is the bad value for money that people are getting for their new homes. Where people actually want to live, which is in well-built, pre-owned homes in well-connected areas, will not be covered by either the help to buy ISA (limited to homes valued at below £450,000 in London and £250,000 elsewhere, ruling out 46% of England by March 2017), or the Equity Loan, which applies only to new-builds. The only option for most will be to buy one of these poorly-designed shoeboxes, which are the smallest being constructed in Europe.
It is also hard to ignore the fact that Gail has very little work to his name. While the strength of the book’s arguments should be enough to compensate for an almost non-existent presence online and no information about Gail on the book’s sleeves, when giving such definitive advice to young people about the most important financial decision of their lives, it helps to know what qualifies the author to make these statements. Also, it doesn’t help that the book is a mere 41 pages long but costs £9.98 (whereas my sister’s book, Spare Change, is 144 pages long and currently £4.95 on Amazon).
Raising legitimate and factual concerns with Help to Buy is the book’s strength. It is a deeply flawed and inadequate solution to the housing crisis, although important reasons for this are not explored fully enough. However, much of Gail’s problem with the scheme is that it promotes home ownership, and this is where the author’s personal idealism comes in. It is important to separate one’s own political queasiness with private ownership from the facts of a continuing housing shortage (which shows no sign of abating any time soon), rising rents and the lack of any credible alternatives for improving one’s personal prosperity (aka woeful pension provision). Should a young person want to buy, so long as they avoid new-builds, commit to paying down their mortgage and buy in an area where demand is consistently strong, there are many compelling reasons to do so outside of Help to Buy.
The proof will be in the pudding. Maybe we should return to this subject in twenty years and see if Gail’s fears are justified…