Is Gordon Brown right to help first time buyers?

Over the last fortnight, I keep hearing the Prime Minister making encouraging noises about the credit crunch, and commenting on how crucial it is we rescue first time buyers and make it easier for them to get on the property ladder during it. At first this seems a valiant aim, yet after mulling it over a bit more I’m not so sure.

Of course the Govt needs to do all it can to improve the Credit Crunch situation, and pushing the Bank of England into putting more money and greater liquidity into the mortgage market is a good move. Yet to dress this up as helping first time buyers worries me; what type of message are we sending out?

I don’t normally write anything Political with a big P, but this has been playing on my mind.

Should people be buying houses now?

The market is certainly less buoyant than it used to be; as I’ve discussed many times before I have no clue what’ll happen to house prices, yet the risks of price falls are higher now than they have been for a long time (though let me stress, that means I think it’s a risk, I’m not predicting it’ll happen).

My worry about the Prime Minister’s statements is that he’s bought into this mantra that “buying a house is a must” and “people have a right” and “renting is a dirty word.” Which of course in an unstable market isn’t true.

During an It Pays To Watch, I was asked by someone with a very limited deposit who earned £25,000 a year, about how she could buy a home worth £200,000 to get her first step on the ladder. My answer was simple: “you can’t”. This is eight times her earnings, yet you can almost hear the underlying mantra of “gotta buy, gotta buy, gotta buy” being whispered on everyone’s lips and now the PM’s helping.

I have no problem with people buying affordable properties as a long term investment, if they’re not overstretching their finances and have a decent deposit (see the mortgage guide). Yet to hear the Prime Minister bolstering the idea that ‘first time buyers must get on the ladder’ at a time of possible risk worries me; what message does that send out?

Surely the aim is to put some liquidity in the mortgage market and allow those who can get sensible lending access to it. Buying a house is not always a solution, it’s a nice long term aim, but it’s not something we must always pursue as a necessity. In many ways, more crucial is allowing those people who have mortgages and who’ve borrowed well and sensibly benefit from the decrease in interest rates.

The fact that a government-owned bank, Northern Rock, has penal rates of interest to get customers to leave, when many of those customers can’t get mortgages elsewhere due to 100%-plus mortgages, may perhaps be a more sensible way of giving an example of the perils that can befall some. Shame Mr. Brown seems not to mention that.

I’ve written much more extensively on my views of how we’ve been hypnotized into thinking property ownership is a must (see my various when did home ownership become a right, House prices could fall, if I hear renting is a dirty word again…, and a nation hypnotized by property porn blogs for a more extensive explanation of why I feel this way.

What do you think?

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