George Osborne has insisted that 95% mortgages are not “weapons of mass destruction” despite warnings that they could create another housing bubble.
Mr Osborne insists large home loans are part of a “healthy market” and “aspiration society.”
He made the comments in a speech in which he hailed the wider recovery of the UK economy, fighting back at critics of his house policies.
The most controversial scheme has been Help to Buy, whereby the Government underwrites high loan-to-value mortgages. This removes some of the risk from lenders and enables them to offer cheap loans to borrowers with small deposits.
Despite criticism, the chancellor said yesterday that the average LTV ratio for first time buyers had fallen from 90pc to 80pc.
Source: The Daily Telegraph
We say: If Georgeous George has been reported aright it is frankly worrying that a man with such a lamentable grasp of the facts of economic life continues to be in charge of the country’s economy. Only today the RICS (whose view of the housing market is perhaps better informed and more independent than that of the Chancellor) is reported as warning that soaring prices may herald another bubble.
There are two very obvious problems with big mortgages: first, if you stretch yourself to the maximum to afford a loan at a time when interest rates are at historically low levels what do you do when interest rates rise, as rise they must, sooner or later? Second, what do you do when the house in which you have 5% equity drops in value by 10%?
The answer in each case is default on the loan and hand the keys back: and no-one with an IQ higher than that of an amoeba or a memory longer than that of a goldfish would normally contemplate taking such a risk. But of course, the ludicrous “Help to Default” scheme removes much of the risk (or rather transfers it to the rest of us) and sanctions behaviour that would otherwise be utterly irrational. This will end in tears – the only question is whose.
