The headline grabbing lines “£10bn burden” exaggerate the strength of Margaret Hodge’s argument. The equity loan part of Help To Buy is relatively less controversial. It was tested in previous ideas like NewBuy or HomeBuy, which I believe was a Labour scheme.
Helping people without sufficient equity to buy a house is risky. That is why it needs to be an equity-style operation, with potential upside. Which is exactly what the first phase of Help To Buy achieves: the FT has done the maths and worked out that the Government may in fact make a huge profit on it. They may well have broken their own rules on how to go about it, and there may well be difficult administrative issues going forward, as the PAC claims. But this is the Treasury, the only department in Whitehall able to act that way. That’s why we have Enterprise Zones and Shares for Rights, two other ideas you wouldn’t pass normal policy making scrutiny (in my view).
The real problem is the mortgage guarantee part. Granting a put option on the hugely overvalued UK housing market, on the shaky premise that failing to get a 95% mortgage constitutes a “market failure”, is extremely dicey policymaking. It may be naive to think it won’t become permanent.
What I found most frustrating about it is that there are all sorts of areas of the British economy that felt like they needed a bit of a demand boost in 2012. Government is continuously coming up with ideas for contingent liabilities to boost the economy; think of what such an underpinning might achieve for speculative new green energy projects. The Treasury then went out and chose the one big market where there is definitely a massive supply problem. After a couple of years of solemnly warning us that there isn’t money to be risked foolishly on the helping the economy, they found their defences strangely weakened when it comes to anything with “…toBuy” in its name, and the house-obsessed British voter somewhere in the spec.