I’ve been doing my usual reading of the Sunday papers’ money sections, and this week they’re full of the Government’s new plans to help first time buyers and key workers.
I’m in two minds about this. Why is there this assumption everyone has a right to own a house? Of course property ownership is desirable, yet it isn’t the panacea many people believe. I remember doing an ITV programme and talking to two 21 years old who were panicked they didn’t own a house, and were prepared to gamble their financial security to ‘solve it’. Yet there’s nothing wrong with renting. People have got used to ‘house price rises’ and thus see it as ‘throwing money away’, yet if house prices decline renting would be seen ‘as same bet against drop in capital values’.
Any product that is based on a marketplace, like housing, is automatically a risk product. It’s wrong to assume buying property is as safe as housing. There’s too much pressure and reliance on property prices in this country. If we were to have a house price crash, this is going to put us in trouble. I always hear ‘property
is better than a pension’, yet apart from the fact this is often based on a fundamental misunderstanding of pensions (they’re just a tax wrapper, not a product, and from next year you can have property in a pension), it’s also too much ‘all your eggs in one basket’.
Now before anyone panics, this isn’t a prediction of a house price drop. Nor am I saying buying is bad. The honest truth is I have no clue what will happen to house prices. Nor does anyone, that’s the point. No-one actually knows what will happen to house prices. Don’t believe anyone who promises you certainty. We can make risk-based estimation, but we don’t know. There’s a risk house prices may drop 30% and there’s a risk they may rise by 30%, we need to be aware of both risks.
This brings me on to the Government’s latest assisted housing plans. Here you’ll borrow 75% and the government/bank will provide the rest, which you’ll pay rent for. So first of all this means you won’t actually be paying that much less each month, yet you won’t own the whole house. While it does help those without deposits, actually being able to save for a deposit is a good test of financial security. Actually if you need to do this, doing some clever unsecured borrowing at 5% or less to provide the deposit is possibly a better route – or even better holding off, not panicking and waiting until your finances are sorted to buy is even better.
As for key workers, for me the problem isn’t so much that they can’t afford housing, but more that they’re simply not paid enough!