A common definition of madness and government housing policy is doing the same thing over and over again and expecting different results.
Wednesday’s budget is likely to revive the mortgage guarantee scheme, which was a less popular companion to the Help To Buy equity loan. Starting next month, the government will offer to partially backstop mortgages for first-time buyers who have at least a 5 per cent deposit. The scheme covers purchases up to £600,000 and will apply to the whole market, not just to new-build property.
A shortage of mortgages is what justifies this reboot of a scheme that was launched in 2013 then cancelled within four years. But the impression it gives is of a slightly reckless market support exercise that encourages buyers to load up on debt at a moment when interest rate expectations are creeping higher.
Last time out, the scheme was barely used — the government made available £12bn of guarantees but just £2.3bn were drawn down. Resilient house prices and sustained low interest rates meant its help was not required. Even high-risk speciality lenders chose to self insure rather than take state aid. By the time it was shut down at the end of 2016, it had been applied to slightly more than 100,000 mortgages, equivalent to 2.7 per cent of residential completions. Over the same period, it had paid out against just four repossessions to a total value of £40,117.
Pre-budget leaks suggest little ambition to make the new guarantee scheme more widely used. The government has a reported target of underwriting just 3,000 loans a month. That compares with 98,994 mortgage approvals in January, according to Bank of England data, which was about 50 per cent above the long-term trend ahead of the stamp duty holiday expiring at the end of March.
With first-time buyers ordinarily making up about a third of the total mortgage market, the new scheme as reported will be a drop in the ocean. It is no like-for-like replacement for Help to Buy equity loans, which will gradually become less available from next month ahead of the scheme’s closure in 2023, having already saddled the nation with about £16bn in loans. Neither does it deliver on the Conservative party’s 2019 election manifesto pledge to introduce lifetime low-rate mortgages.
Housebuilding stocks responded positively, however, as they always do to any policy support for continued house price growth. Persimmon, Barratt Development and Berkeley all rose about 5 per cent on Monday.
They ought to lose a certain amount of business if the policy works because borrowers with small deposits have few options right now other than to sign up for the Help To Buy equity loan — which applies to new-build only. But for the builders, normal rules of supply and demand never apply. Their customer order books are already full, their substantial landbanks make it a hard market to enter and their shareholder returns are already being restored, in spite of 2020 completion rates that are likely to be down a fifth on 2019’s already meagre level.
All of which raises one question: why is the government not rebooting another historic scheme instead? The 2012 NewBuy scheme was Help to Buy’s quickly cancelled predecessor, offering state backstopped mortgages but also requiring housebuilders to pay a percentage of the value of homes sold into an indemnity fund. A recent Barclays analysis estimated that if builders had to pay 3.5 per cent of sale values into an indemnity fund it would cut operating profit by 10 per cent — though that ought to be a price worth paying to maintain a favourable market.
Investors in housebuilding stocks have long understood that whatever politicians promise, the career cost from any policy that undermines house prices would be too great. It is time they shared some of the moral hazard.
The Plessis principle
Retirement speeches tend to concentrate on the positives. So it was with Jan du Plessis, who announced plans to step down after less than four years as BT chairman.
“Above all, our relationship with Ofcom has improved significantly over the last three years,” said the 67-year-old Afrikaner. He did not expand on whether friendly relationships are likely to be maintained if Paul Dacre, the trenchant former editor of the Daily Mail, takes over at the communications regulator.
Though Du Plessis intends to stay until a successor is found, his unexpectedly short stay might appear to leave one job half done — the job of extracting value from Openreach. Whereas chief executive Philip Jansen has hinted at the possibility of cashing in on Openreach, Du Plessis often rejected the idea of a split.
Yet it’s implausible that a defence strategy veteran — who played hardball over SABMiller’s 2016 takeover by Anheuser-Busch InBev, sold the food business RHM to Premier Foods in 2007, and has had to field perpetual rumours about the intentions of Deutsche Telekom, BT’s 12 per cent shareholder — would not have already considered all options on Openreach. Regulatory flux aside, there is no reason to take his departure as a sign that BT is any closer to engineering its long-awaited break up.