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Financial Times - Uk State Set For £4.5Bn Help To Buy Profit

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Please do not post quotes from the article on this thread - you'll just put the moderators through the inconvenience of having to take them down. The FT are not cool with people quoting from their stuff and I understand that this has been a problem in the past.

Article at the link: Financial Times - Uk State Set For £4.5Bn Help To Buy Profit

Apologies that threads that link to the FT are not always the best as reading requires registration (in order to get a handful of free articles a month) and given that the FT (quite rightly) do not tolerate lifting their intellectual property wholesale you'll have to do a moments work in order to read the piece.

Long and short of it, the FT have done some quantitative work with the public numbers for the volume and value of Help to Buy equity loans and then used the OBRs forecasts for HPI and come up with a number, for what it's worth, regarding the profit the government will make from its share of the equity (if the OBR HPI forecast is right, natch) over the lifetime of the scheme. Just caught my eye as this story is front page of the print edition today and the editorial drift is pointing out rather unpleasant fact that Help to Buy is giving the government an explicit financial interest in pumping house prices - and as they are broke-ass losers, that ain't good!

The FT have no love for Help to Buy and, one hopes, little love for the bubble.

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So the "profit" relies on 4.4% pa house price inflation over the lifetime of the scheme.

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So the "profit" relies on 4.4% pa house price inflation over the lifetime of the scheme.

It also relies on the people who buy the houses next, after lots of 4.4% pa HPI, to be able to do so without the help of help-to-buy or any other Government "help". This seems.... implausible.

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It also relies on the people who buy the houses next, after lots of 4.4% pa HPI, to be able to do so without the help of help-to-buy or any other Government "help". This seems.... implausible.

Here are the OBR wage and salary forecasts for the next few years:

(%change pa)

2014: 3.8%

2015: 4.1%

2016: 4.6%

2017: 4.7%

2018: 4.5%

Source: page 106 in:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293759/37630_Budget_2014_Web_Accessible.pdf

So you're right, even by the OBR's optimistic forecasts wages won't close the gap with house prices which would enable people to buy without 20% HTB.

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how do they profit?

HTB 1 was interest free for 5 years.

HTB 2 was simply a loan guarantee paid up front by the bankers making the loans?

where do all these billions actually come from....imputed no doubt.

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how do they profit?

HTB 1 was interest free for 5 years.

HTB 2 was simply a loan guarantee paid up front by the bankers making the loans?

where do all these billions actually come from....imputed no doubt.

Worked for Zimbabwe...well, Mugabe. So it can work for Britain the tories.

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how do they profit?

HTB 1 was interest free for 5 years.

HTB 2 was simply a loan guarantee paid up front by the bankers making the loans?

where do all these billions actually come from....imputed no doubt.

It's debt for equity - the HtB equity loan (up to 20% of the price paid for the house) is similar to shared ownership and the govt takes a slice of the HPI profit upon sale of the house.

So basically, now the government have a direct interest in pumping house prices higher. On top of the revenue raised by taxes of course and the fact that they rely on housing debt to pump huge amounts of credit into the system.

Anyone who thinks HtB isn't going to be extended and expanded ad infinitum (by any party in power) is deluding themselves. It's ponzi all the way.

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Anyone who thinks HtB isn't going to be extended and expanded ad infinitum (by any party in power) is deluding themselves. It's ponzi all the way.

But the logical extension of this is anyone who can buy a house should buy a house, using HTB if necessary. HPC dilemma, no?

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ah ha, so it seems the percentage of the HTB1 is fixed...there was some confusion about that, or whether the equity simply was the loan face value.

I wonder how that will work out at sale time, assuming a 20% 5 year rise, that means the loan they are repaying is 20% bigger...that would imply that the interest at 5 years time will ALSO be on the newly risen mortgage capital sum...

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But the logical extension of this is anyone who can buy a house should buy a house, using HTB if necessary. HPC dilemma, no?

Indeed - the 'system' is now locked on a single path. As long as the system can continue, HPI can - and must - continue.

If you think we are headed for systemic collapse any time soon then find a safe haven for your wealth and wait it out.

If you think that the system itself can stumble along for a decade or more yet before utter collapse, might be an idea to consider buying if you are not living in an area where prices are already out of sane reach. Of course, I'm sure that there will be plenty of ever more generous 'help to buy' becoming available in the coming years.

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Here are the OBR wage and salary forecasts for the next few years:

(%change pa)

2014: 3.8%

2015: 4.1%

2016: 4.6%

2017: 4.7%

2018: 4.5%

Source: page 106 in:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293759/37630_Budget_2014_Web_Accessible.pdf

So you're right, even by the OBR's optimistic forecasts wages won't close the gap with house prices which would enable people to buy without 20% HTB.

That is seriously the OBR's wage forecasts till 2018? At least they are good for a laugh.

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It's debt for equity - the HtB equity loan (up to 20% of the price paid for the house) is similar to shared ownership and the govt takes a slice of the HPI profit upon sale of the house.

I find the this to be the most insidious part of the whole HtB scheme - "you don't have to worry about paying off the loan, you just pay it when you sell the house. Simples!"

...but when they sell their house they'll be 20% (ie.£10's of thousands) short to buy the next house; and that's just to buy one of equal value.

So....forgive me if I'm wrong but unless they either find a house that's 20% cheaper than what they're in (good luck with that!), or, get a huge increase in their mortgage (and bear in mind this will probably happen in 4 - 5 years time at who knows what interest rate) they won't be able to buy. They simply won't have the money to buy the next house. It gets worse with HPI; buy a house at £200k - loan at 20% = £40k: sell at £250K - the government take £50k and they are now at least £50k short to buy the next house.

Maybe folks using this scheme will knuckle down and pay off the loan but if they don't they're probably going to be trapped in the house they've just bought.

Unless, of course, the government comes up with a tax payer supported kicking the can 'Help to Move' scheme to help Hard Working People move up the housing ladder...

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Has the OBR ever been wrong?

:lol: Good one.

Does anyone else find it weird that we need an outfit called the 'Office for Budget Responsibility' in the first place? Surely acting in a responsible way is something of a given in the matter of governing the country?

Between the OBR and the BOE I think the political class are sending out some really odd messages- what they seem to be saying is that they cannot be trusted to deal with either the money supply or how that money is spent without adult supervision- but are they not supposed to be adults themselves?

From the OBR website;

The Office for Budget Responsibility was created in 2010 to provide independent and authoritative analysis of the UK’s public finances. It is one of a growing number of official independent fiscal watchdogs around the world.

So we have a growing number of 'watchdogs' whose role is apparently to supervise our elected politicians who-it seems- cannot be trusted to behave responsibly themselves.

So why can't I just cut out the middle man and vote for the f*cking OBR to run the country? After all if they are the guys who can be trusted to behave responsibly then they are the people I want to be in charge- not this other lot who apparently can't be trusted at all.

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It also relies on the people who buy the houses next, after lots of 4.4% pa HPI, to be able to do so without the help of help-to-buy or any other Government "help". This seems.... implausible.

It's not implausible, it's effing deranged. In fairness to the OBR, are they actually claiming this 'profit' or is it just a consequence of the delusional forecasts?

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But the logical extension of this is anyone who can buy a house should buy a house, using HTB if necessary. HPC dilemma, no?

Only if you believe they can avoid a collapse if they pursue this logic.

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I find the this to be the most insidious part of the whole HtB scheme - "you don't have to worry about paying off the loan, you just pay it when you sell the house. Simples!"

...but when they sell their house they'll be 20% (ie.£10's of thousands) short to buy the next house; and that's just to buy one of equal value.

So....forgive me if I'm wrong but unless they either find a house that's 20% cheaper than what they're in (good luck with that!), or, get a huge increase in their mortgage (and bear in mind this will probably happen in 4 - 5 years time at who knows what interest rate) they won't be able to buy. They simply won't have the money to buy the next house. It gets worse with HPI; buy a house at £200k - loan at 20% = £40k: sell at £250K - the government take £50k and they are now at least £50k short to buy the next house.

Maybe folks using this scheme will knuckle down and pay off the loan but if they don't they're probably going to be trapped in the house they've just bought.

Unless, of course, the government comes up with a tax payer supported kicking the can 'Help to Move' scheme to help Hard Working People move up the housing ladder...

This sort of reasoned analysis is ill-suited to Osborne's naked "pump it to May '15" short termism.

As you corretly point out, it doesn't fly outside of random inheritance or strong wage inflation.

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Is this connected to the banks gradually acquiring all the property? "Help to Move" 30% loans, "Help to Move 2" 50%, a generation or two and the state will own it all.

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So, its PONZINOMICS!

Ie, ANOTHER tax on anyone who wants to buy a home.

ie, thievery by government.

Sort of Robin Hood in reverse. Steal from the peasants in order to enrich the landowners. And claim the increase in landowner wealth is economic growth.

Edited by ingermany

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Not to mention the SDLT extracted from the FTB. So the state lends you 20% of the cost so that the seller makes more profit, and then taxes the FTB on the purchase price that HTB has artificially inflated.

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I find the this to be the most insidious part of the whole HtB scheme - "you don't have to worry about paying off the loan, you just pay it when you sell the house. Simples!"

...but when they sell their house they'll be 20% (ie.£10's of thousands) short to buy the next house; and that's just to buy one of equal value.

So....forgive me if I'm wrong but unless they either find a house that's 20% cheaper than what they're in (good luck with that!), or, get a huge increase in their mortgage (and bear in mind this will probably happen in 4 - 5 years time at who knows what interest rate) they won't be able to buy. They simply won't have the money to buy the next house. It gets worse with HPI; buy a house at £200k - loan at 20% = £40k: sell at £250K - the government take £50k and they are now at least £50k short to buy the next house.

Maybe folks using this scheme will knuckle down and pay off the loan but if they don't they're probably going to be trapped in the house they've just bought.

Unless, of course, the government comes up with a tax payer supported kicking the can 'Help to Move' scheme to help Hard Working People move up the housing ladder...

When they buy their next home, they can take advantage of a more generous HtB equity loan for that property, as it will almost surely have been expanded in scope and probably extended in size by then.

Profit for the government in rising house prices (HtB equity loan repayments, stamp duty and CGT where appropriate) and ever increasing amounts of newly created credit gushing into the economy. A perfect ponzi, until the amounts borrowed become so unrealistic that the defaults start to happen or hyperinflation wrecks the economy.

Kind of an analogue to what happened in the last credit/housing boom but that one wasn't explicitly backed by the state and was a side effect of banks circumventing the financial rules to make more profit.

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