Tory’s Proposal On Rent to Buy Does This Get Us Any Further Up The Road?

Whilst it is laudable for Eric Pickles, and the Tory Party, to make some valiant attempt to solve the first time buyers housing problem I am not sure whether this Help-to-Rent scheme takes us any further up the road.

A discount from market rent, organised through government funding of housing associations, is well intentioned and certainly gives the applicant a discounted rent for seven years with a first option to buy at the end.

Yes, it does allow someone to save money for a deposit in order for them to finally buy but, in essence, their post tax money is still going towards rent.  If property prices rise over the years (as they relentlessly do) the tenant has to pay the higher price (fuelled by inflation) at the end of the day.  So, they may have a deposit but this deposit becomes a smaller and smaller percentage of the full purchase price over the years.

Frankly, renting is not the answer to the problem.  The only way you can help first time buyers is to get them to spend their money on a government assisted mortgage, even if this is a 100% of the purchase price, since the value of their debt will shrink in relationship to property values as they rise.  This means in seven years time they will have a substantial amount of equity in their property that they could realise if they were to sell it and then transfer to a cheaper property so that their equity, as a proportion of the value, becomes greater.

The answer must be to extend Help-To-Buy, since it is a particulary well conceived and much needed initiative, if its scope could be enlarged.

We are a great property owning nation, it makes us feel better.  If we are feeling good with stable employment we are going to inevitably buy consumer goods and, since this is a consumer led recovery, it will stimulate growth in the UK.

Regrettably, the only good that could come from a property crash, with much lower prices, is that first time buyers will be able to get onto the property ladder at an affordable price which is a drastic way to help this sector and is thoroughly undesirable.