Margaret Thatcher "gave the Conservative Party intelligence and committed leadership"
What she would never have done would have been to use taxpayers' money to manipulate the property market. It is manifestly statist to devote £12 billion of other people's hard-earned cash to guarantee the mortgages of 200,000 in order to bypass the caution of lenders to stimulate house-buying. The doctrine of Thatcherism no more entertains this than it does spending taxpayers' money to create jobs. It is businesses, enterprise and innovation that create jobs: it is building societies and banks that lend money for people to buy houses, and they should exercise caution and lend wisely. When they throw caution to the wind, they go bust (or should).
Margaret Thatcher understood the value and force of the market. As Lord Flight said yesterday, this mortgage guarantee is "unwise" and will "end in tears". Eds Milliband and Balls haven't condemned it entirely because it is precisely the sort of state intervention that they see as having moral force. But many Conservatives will view this as a moral hazard zenith.
It’s hard to tell if this unmitigated folly is a high or a low: His Grace is unsure of the unit of measurement or if a negative quantity is beneficial or detrimental. Either way, the proposal for the taxpayer to underwrite 95% mortgages is an offence against all that is moral, just and right. It amounts to the taxpayer-enforced insuring of the individual against incautious investment. No longer caveat emptor, but screwat taxpayor.
The proposal is aimed at first-time buyers. David Cameron wants to help 200,000 of them to get a foot on the first rung of the housing ladder by providing a mortgage indemnity scheme. At a time of increasing national debt and growing budget deficit (ie failing Coalition policy), the Government is intent on restoring 95% loan-to-value mortgages to improve affordability and inject some life into the housing market.
It is difficult to conceive of a more peccable policy than one which lures you into a state of maximum indebtedness at a punitive rate of interest, especially when debts of such gargantuan proportions built on the shifting sand of inflated property prices were largely responsible for the global credit crunch and the state we’re in. This time, instead of financial institutions selling on the risk of sub-prime mortgages to an ever-cascading carousel of private banks, the taxpayer will act as guarantor of last resort.
As with the bank bailouts, the shareholder (homeowner) takes the profit in times of plenty, but the poor taxpayer takes the hit in the lean years. It is even more invidious when you consider that those who take out these 95% loans will be subject to a higher rate of interest than those who are deemed to present less of a risk: the repayments will be arduous and the emotional costs very high. This is simply piling Pelion upon Ossa. At these thresholds, the ‘dream of home ownership’ can rapidly become a nightmare trap of negative equity and unsalability: the Englishman’s castle becomes his dungeon. House prices are not guaranteed to go on rising in perpetuity: the easier-credit bubble will surely burst, just as it has always done. It is as if we have learned nothing from Gordon Brown’s economic innumeracy.
Of course, Conservatives favour home ownership: Margaret Thatcher heralded a revolution in the property-owning democracy with the sale of council homes to tenants. But these were massively discounted in recognition of decades of paid rent: they were sold at significantly less than their market value, and so presented no financial risk to the buyer. She was, as ever, mindful of the market, famously noting that it cannot be bucked.
The Bishop of Manchester-designate, David Walker, said: “Help to Buy is like tackling a food shortage by issuing food vouchers rather than getting more crops planted”. And he is quite right. If any shift were needed, it is either in increasing the building of social housing or in dispelling the shame associated with renting. The Royal Family rents; the Archbishop of Canterbury rents. What is this Tory fixation with owning that which the market determines you cannot yet afford?
David Cameron is taking an enormous risk with this policy: he is not only gambling that current property prices will be sustained; he is attempting to ‘buck the market’ by encouraging would-be home owners to a level of indebtedness beyond what the market believes is advisable, desirable, sustainable or moral. Lenders are cautious because they have just learned (the hard way) that debts must be secured. When they are not, you enter into the Looking Glass economics of Wonderland. The Lady will be turning in her grave.