More Budget Analysis

[redwing]

From today's Guardian

Thousands of key workers and other first-time buyers shoul benefit from a revamped government-backed homebuyin scheme that will enable a family with an income of £32,000 t afford a £200,000 home, ministers said yesterday. As predicted in th Guardian a fortnight ago, the government has launched an initiativ allowing teachers, nurses and others to take out a mortgage for as littl as 50% of the cost of the property they are buying

Critics say the previous incarnation of the Open Market HomeBuy scheme proved a flop, and that since October 2006 it has helped only about 2,000 buyers onto the property ladder. However, the government said the new range of products would boost buyers' purchasing power and were also much more flexible.

Open Market HomeBuy is a key plank in the government's strategy for helping people into home ownership, and is primarily for key public-sector staff working in health, education or community safety in areas where high house prices are affecting recruitment, social tenants and those on the housing register, and other "priority" first-time buyers.

All the deals currently on offer will be withdrawn and replaced with two new offerings available from April 1:

· MyChoiceHomeBuy, where an individual finds the home they want to buy and takes out a regular mortgage from any lender they choose for as little as 50% of the property's value. The remainder of the purchase would be funded via an "equity loan" of up to 50% of the price, with half of the money for this coming from the government and the other half coming from a consortium of eight housing associations. The individual will have to pay interest on the equity loan from day one, though this "rent" will initially be set at only 1.75% per annum, rising to RPI inflation plus 1%.

· Ownhome, where, again, individuals choose the property they want to buy and then take out traditional mortgages for a minimum of 60% of the property's value from the Co-operative Bank. An equity loan of up to 40% from housing and regeneration group Places for People makes up the difference.

One benefit of this deal is that there is no rent to pay on the equity loan for five years. There is a charge of 1.75% a year in years six to 10, rising to 3.75% a year in year 11. The equity loan is funded 58% by Places for People and 42% by the government.

With both products, no deposit is required, but buyers can put one down if they are able to, and when the property is sold the provider of the equity loan will be entitled to a share of any increase in its value.

Ministers said the new products, which will replace three existing Open Market HomeBuy deals, would allow buyers to shop around for the best mortgage for their needs, were simpler to arrange than previous products, and give people more buying power. "This means a household with an income of £32,000 could afford a house of £200,000, paying £760 each month - as opposed to £1,350 without the scheme," said a spokesman.

Caroline Flint, housing and planning minister, said: "We have already helped more than 95,000 households onto the housing ladder since 1997 through our low-cost home ownership schemes. These new products will help us do even more."

However, the Chartered Institute of Housing said that though it welcomed the measures to give more people access to home ownership, it "remains concerned that the products are too complex for many prospective customers and, despite the lowering of the threshold, affordability still remains an issue".

The Building Societies Association said allowing eligible buyers to purchase only 50% of their property was welcome recognition of the challenges first-time buyers face, "but we still expect demand to remain low, not least due to the problems associated with saving for a deposit".

Let's do sums! and deconstruct this nonsense.

1. What is a family? I reckon it must have at least two people living together, strictly speaking with a child (or children). e.g. two adults + child or adult + children

2. A family income of £32,000 - both (or single) parents' wages + benefits, child credit etc.

If I were a lender, lending cautiously, I'd lend 2.5 joint income = £80,000.

3. Let's say this hard-working family has a 20% deposit. (Unlikely according to the BSA in the article).

4. They can really afford a £100,000 house or flat.

5. This government scheme wants them to buy something for £200,000. Twice what they should really be buying.

5. This stupid scheme is almost criminal in getting average (or less than average) earners to overstretch themselves.

The only real way of making housing affordable is a correction in prices to bring the average price down from c. £200,000 to c. £100,000.

I have a gut feeling that this is what houses are really worth and the coming correction will bring housing back to affordability.

Thoughts anyone?

[drrayjo]

From today's Guardian

Let's do sums! and deconstruct this nonsense.

1. What is a family? I reckon it must have at least two people living together, strictly speaking with a child (or children). e.g. two adults + child or adult + children

2. A family income of £32,000 - both (or single) parents' wages + benefits, child credit etc.

If I were a lender, lending cautiously, I'd lend 2.5 joint income = £80,000.

3. Let's say this hard-working family has a 20% deposit. (Unlikely according to the BSA in the article).

4. They can really afford a £100,000 house or flat.

5. This government scheme wants them to buy something for £200,000. Twice what they should really be buying.

5. This stupid scheme is almost criminal in getting average (or less than average) earners to overstretch themselves.

The only real way of making housing affordable is a correction in prices to bring the average price down from c. £200,000 to c. £100,000.

I have a gut feeling that this is what houses are really worth and the coming correction will bring housing back to affordability.

Thoughts anyone?

http://www.ownhome.co.uk/faq.htm

My friend is considering this scheme. They see it as getting extra house on a low interest loan which they can choose to repay at any time in 5% chunks, apparently. If they don't then on sale the percentage of equity borrowed on the loan becomes due in full to the lender.

Looks like it's going to get at least one taker as my friend doesn't believe price falls will be big enough or fast enough for her needs! From that point of view the scheme perhaps has merit and flexibility, but it's not one I share.

[IMHAL]

The government are complicit in drawing people into debt.

They are either stupid or evil. I have a feeling they are both stupid and evil.

When they are kicked out they will not get back into power for generations. People will not forget how they destroyed a country - Labour politicians will not be welcomed into other parties because of the stigma attached to them.

Labour are desparate to keep the debt party going and prop up their only legacy - a debt fuelled orgy.

HAL

[Moo]

Thoughts anyone?

Bows and arrows against the lightning.

Or, more to the point, I suspect it's nothing more than a PR exercise, just like the original part-ownership scheme.