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Thursday, 1 August 2013

Help to Buy is worrying but the real problem is inflexible housing policy

By Kristian Niemietz  

Milton Friedman once observed that, “with some notable exceptions, businessmen favour free enterprise in general, but are opposed to it when it comes to themselves.”

With this in mind, if a market intervention is criticised even within the industries that could benefit from it, it is probably safe to conclude that it is a really bad idea. Help to Buy, the scheme of government-backed mortgage guarantees and interest free loans first announced by George Osborne in this year’s Budget, falls into this category.

The policy recently attracted criticism from Pete Redfern, chief executive of the homebuilder Taylor Wimpey, who argued that Help to Buy could prove a “genuine hazard”. Yet his company benefits handsomely from the scheme, and has just announced that orders for its homes have hit record levels, with Help to Buy driving increased sales rates. Indeed, the first thing a visitor to the company’s website will notice is an ad drawing attention to Help to Buy. “Homeowners and first time buyers can now buy a new home with just 5 per cent deposit and 75 per cent mortgage!”      

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