Monday, Dec 15, 2008
Taxpayers money at work
Metro: A 100% mortgage from the taxman
The 100 per cent mortgage is on the way back as taxpayers' money is used to tempt first-time buyers to move into empty new homes.
The loans will be backed with £400million pledged by ministers to a scheme to help the less-well-off get on to the property ladder.
It could mean up to 18,000 new homes sitting empty after the housing bubble burst are finally occupied.
But critics said that the government risked driving thousands of young home-buyers into negative equity. Lib Dem spokeswoman Sarah Teather said ''First-time buyers are being bribed into a falling market, putting them at serious risk of negative equity."
Posted by little professor @ 10:53 PM (897 views) Add Comment
15 Comments
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1. paul said...
By the time the government is trying to encourage you to do something, you know it's already a bad idea.
2. Rick62 said...
And we, the taxpayer are going to pay for this maad scheme as any properties sold at a loss the negative equity will be written off by the government!
3. drewster said...
I hope very few buyers will be tempted by this offer. Surely everybody must be aware of the crisis by now, and they can see that it's better to wait a few months* rather than jump in now.
(* If anybody asks, I always say "wait a few months and see". It sounds less gloomy than "wait two or three years", which is more realistic.)
4. Alan Lubin said...
am i reading this wrong? they are prepared to pay the 30% deposit on a new build and waive it if the value of the property drops by 30%. ignoring the fact that nobody ought to by a new build - that is an insane offer. and as 15% is coming from my tax payments - i'm wondering how many more losses i need to take from a housing market that i have chosen not to get involved with.
5. mark wadsworth said...
@ Drewster, that's interesting. I always blurt straight out "at least two years" or "not until 2010" (which is only a year and a bit away now, obviously).
6. a saver said...
This is utterly unbelievable. Who told GB he could p*ss our money away like this?
How come there aren't riots on the streets?
drewster @2, it looks like the taxpayer takes the hit when the property loses value.
7. symo said...
The short sightedness is unbelievable, these idiots failed to control mortgage fraud last time and now this is a tax backed scheme, goodbye forever pound.
8. drewster said...
MarkW I agree that we're in for a long wait. However public opinion is like a bendy bus, it takes a long time to turn around. Some people are at the front of the bus and can see what lies ahead, others are at the back of the bus (looking out the back window) and don't even realise we've started to change direction. My "wait a few months" advice is aimed at the latter, because by then even they will realise that the economy is turning.
9. phdinbubbles said...
How many desperate throws of the dice is that now?
Muppets
10. Spotthedog said...
Once again the goverment shows it's gullibility.
Basically the only buyers around are only able to pay 70% or the ridiculously overinflated peak prices the developers had hoped to sell it for. This means the real market price has fallen by 30%.
So the developers found a new mark to take their place - taxpayers. The 15% loan from the government goes straight into the developers pocket. The 15% from the developer is at risk but they are still better off than if tey had dropped their price to the real market value.
The homebuyers who are eligible for this deal lose out because they miss the opportunity to buy the property for the 70% that would have been the case without government intervention.
Homebuyers who are not eligible for this deal also lose because they need to compete with the government subsidy.
It is a terrible lose-lose scenario for everyone but the property developer.
In the past, labour governments were suspicious of capitalists - now they have embraced capitalism without taking the trouble to really understand it they are just being gullible.
11. inbreda said...
"a scheme to help the less-well-off get on to the property ladder"
That sounds almost exactly like the NINJA loans made in america that got the globe into this mess in the first place. How exactly, is lending even more money on overpriced properties, to a group of people least likely to be able to repay it, going to help this situation.
Looks like GBH is going for the "going for broke" option. I think the UK will be bankrupt soon. It is starting to look like a pyramid scheme. Everyone works for the government, and their salaries are paid for out of the tax they pay, and so is the funding for their mortgage which is funded by their tax and prevents them from packing the job in. Sooner or later it is going to be identified as a government fraud.
12. str 2007 said...
Guys
Did you pick out this sentence
''Interest on the loan does not kick in for the first five years. If the property has gone down in value when the owner sells it the 30 per cent loan need not be paid back, providing a cushion against negative equity''.
They loan you 30% deposit without interest for 5 years and you only pay it back if the properties gone up in value, when you sell it.
Heads everyone wins (except the tax payer) Tails tax payer looses (everyone wins).
To be honest I'm surprised there arebn't alot more comments/discussion on here about this. Afterall LTV are crucial in the scheme of things. All interested parties (Banks) suggest 75 - 85% LTV as a minimum. Government thinks 100% LTV is sensible in a falling market because they have tax payers money to throw at the problem.
This is disgraceful.
Further if a couple are earning £60k, why can't they save up their own deposit ?
13. Big Friendly Bear said...
@str 2007... Couples earning ~£60k between them are probably trying to pay back the student debt they accrued at university... Which of course is a debt they built up trying to better themselves and earn that sort of money in the first place. If there are going to be riots it'll be the sub-thirties generation realising they've been rinsed every day since coming of age in new Labour's new order of society...
14. the haunted said...
and for those of us that do earn more than 60k but have been prudent enough to not waste our money or get into unmanageable debt? Oh, that's right, you worked really hard to earn as much as you do and you were clever with your money and didn't fall into the culture of borrowing, so YOU can pay for this scheme with your tax money. What a great incentive to work hard and be sensible. I dispair, I honestly think I would have been better signing on the dole than taking my first job.
15. 51ck-6-51x said...
My sister in law is a mortgagee of about five years and when her husband told her that house prices are going to fall a lot further she actually said, and I quote, "That's good it means we'll pay even less on our mortgage" - this shows how some people just do not grasp finance - at least she does not try to run a property empire, but these are the kind of people who will get suckered into this kind of scheme.
@ The haunted
I also have no debt & studied and worked hard to make a fairly good wage, of which I save as much as I can, but I do understand that, although it's unfortunate, we should take some of the pain for the over exuberant credit culture - I think it's better in the long run to spread the pain and better for society as a whole, although it does seem unjust on the face of it.
HOWEVER I also do not advocate this kind of attempt to spread said pain! I much prefer the idea of using these taxpayer funds to protect those who struggle with the payments of an existing mortgage (say pre-01-Sep-2007) on their one and only property as a result of a change to their circumstances out of their control as previously proposed (although the particular proposal was flimsy).
I feel that the state should protect society after events, not attempt to steer markets, providing information in the process [people will use that information to their own ends].