The poor deserve what they get. Always

The bedroom tax is an increasingly bad move for the Tories, you know this when the government sends out no-marks like Sajid Javid (who?) to respond to Labour i.e. none of their big dogs wants to be seen to be standing up for it.

Yet, judging by "any questions" at the weekend, the notions of fairness presented in support of it still appear to carry some weight, this being people renting privately don’t get a spare room (am sure lots actually do), so why should those in social housing? Eh? Except, this is by definition yet another example of the mealy-mouthed, shit on thy neighbour cos someone bigger shat on thee mentality that politicians are playing up to as hard as they can right now.

By contrast, the facts of the bedroom tax are straightforward:

If you live in social housing, then by definition, you have a social need i.e. you are poor.

If you crank up the cost of social housing, then you are taking money off the poor.

There are not enough smaller properties for people judged to have a “ spare room” to move/"downsize" into.

So, again by definition, the bedroom tax simply takes money off the poor and the vulnerable who are effectively trapped. And because they are poor i.e. don’t have much if any spare money, the end result is a jump in rent arrears, an increase in suicides and all sorts of good fun.

And, because the bedroom tax is hitting people councils have an obligation to house - because they are poor and have a social need - it's creating all sorts of unanticipated costs, due to the explosion in rent arrears, of having to re-house people and move them into new housing, said people being mad skivers who reckon cerebal palsy justifies them getting state aid.

But, we’re talking “fairness” here, so lets be fair. Alongside the bedroom tax that’s supposed to save £505m in 2013-14, then £540m the year after, the Tories have also introduced the help to buy scheme, which has already set aside a £3.5 billion honey pot of taxpayer money to be used to give completely free loans (for five years) to people wanting to buy a house.

Now just chew on that for a few seconds. On the one hand, poor, disabled people are being evicted to save what was intended to be £0.5 billion a year, but will actually save less due to the costs involved at the same time as £3.5 billion is being pissed away to boost house prices and house builder profits so people with good jobs and good wages can get a completely free i.e taxpayer subsidised loan of potentially hundreds of thousands of pounds for up to five years.

You really couldn’t make it up. Like, I don’t know about you, but that doesn’t strike me as fair. Or moral. Or civilised. Or decent.  Or good economics. Or moral.

But, it does make clear what the values of the modern Tory party are; they are disgusting, nasty, piss on the poor because they've the temerity to be poor cunts. And if the bedroom tax was put in its actual context, which is the broader Tory housing strategy, then the notions of “fairness” being presented in support of it simply melt away.

No seriously, the help to buy scheme really is mental

First off lets be clear, the various government Help to Buy schemes are and will make a lot of people a lot of money. House builders obviously, but you too could cash in if you:

1)      Borrow as much as you can to buy a house in London and the S.E. of England within the next 18 months.

2)      Live in it for 24-30 months

3)      Sell it and buy somewhere cheaper outside London and the S.E. of England

4)      Use the profits to travel the world for a year or two

5)      That’s it.

Now bearing in mind the scheme hasn’t fully kicked in yet i.e. its not boosting house prices as much as it's about to, lets do some sums. If you bought (and remember the more you can borrow i.e. the bigger your income cos this is about helping the already well off, the more you’ll make) a £300,000 house, all you’d need is a £15,000 deposit. If the current rate of house price growth was maintained, after 30 months you’d be something like £54,000 up on paper. Nice. And I guess making the housing market more accessible does generate the broader economic benefit of freeing up the labour market/making labour more mobile. Despite that though the schemes are still feckin’ mental and profoundly unfair.

Lets bring some additional reality into play now. Most people get a 2 year fixed price mortgage (really, right now you should try and get a 5 year fixed – please don’t consider that professional advice BTW). Except, depending on who you talk to interest rates are now expected to start rising from late 2014 onwards and even more likely to start doing so from 2015/16. Then you look at the details of the government schemes and see that after 5 years of being a freebie they start charging 1.75% in year six and then retail price inflation plus 1% thereafter.

This means:

1)      Government policy is to help people who can’t afford a mortgage get a mortgage

2)      The cost of these mortgage will start rising from 2014/15 onwards

3)      It’ll really start rising when the charges kick in

4)      Pay rises are pants and lag house prices. A lot.

Now I guess one way of dealing with the government charges is to remortgage i.e. borrow more and use that to repay the government, except that’s to assume asset prices only ever go in one direction (see here for a list of companies that made this same assumption). Alternatively, you're taking a punt that banks will be more willing than they are now to do higher LTV mortgages.

Really, what we appear to be contending with is a government whose policy is to increase risk/enable people to go bust from 2018 onwards i.e. they are planting a cheeky wee economic time bomb at the same time as boosting already questionable house prices by helping voters borrow to buy something they can't afford. This will also direct money towards unproductive assets i.e. houses rather than say new factory equipment.

It is truly mental.


P.S. A thing that's always struck me about the left is they're very good at critique, but pants at proposing an alternative. Here's one. Instead of giving free guarantees to the middle classes worth tens of thousands of pounds, give them to housing associations instead or establish a big pot of debt for them so they can build tens of thousands of new social housing. This would push down on rental costs, create state assets and give more people decent homes. The current proposals do none of these things.

The help to buy scheme is mental

The government’s help to buy scheme is all sorts of bad rolled into one. Here’s some quick context as to why; one of the main things the actual and former building societies that blew themselves up in the financial crisis did to blow themselves up was to lend too much against assets. House costs £100 grand? Here, borrow £120 grand - i.e. a loan to value or LTV of 120% - so you can buy new furniture and a car as well. 

Things subsequently changed with the onset of  the credit crunch - we’re still very much in - as (a) the more mental banks failed/where taken over and (b) the remainder started using tighter lending criteria to ration credit, that being what a credit crunch is.

Or in more straightforward terms, there aren't any banks willing to do stupid LTVS. Or in even more straightforward terms borrowers have to stump up a much bigger deposit.  The problem is in a consumer driven economy and our consumerist culture - at a time when actual policy is to keep real savings rates negative to encourage spending and borrowing - borrowers need and want to spend rather than save, hence the housing market falling into the doldrums, people moaning on about not being able to buy a house and Sarah Beeny not getting as many channel 4 presenting gigs as she used to.

In response, the help to buy scheme neatly fills the gap between the deposits consumers have and what banks are willing to lend, so go go help to buy. Except, the amount banks are willing to lend is saying something very straightforward, which is this; we do not consider lending at high LTVs to be an acceptable or affordable risk. 

Turns out the government response to this is to say fair enough we’ll put the taxpayer on the nail to cover the gap - i.e. take on board the risk you consider unacceptable - between the deposit someone has and what you’re willing to lend. Lovely.

Now, another thing the actual and former building societies that failed  failed to do was to adequately price for risk. Again that’s not so much the case these days. Here’s the mortgages the post office is offering as of today to illustrate what I mean: 

• For a mortgage where the LTV is 60% the overall cost for comparison is 4.2%.
• For a 75% LTV its also 4.2%, 
• By 80% LTV its crept up to 4.3%.
• It's 4.4% for an 85% LTV mortgage. 
• Finally, at 90% LTV it’s 4.6% or 4.7% for a 5 year fixed rate mortgage. 

 I’d put in the 95% rate except they don’t do one that high. Similarly moneysupermarket.com told me there aren’t any mortgages for an LTV above 90%, presumably because EVERY bank in Britain right now thinks that’s just too risky. Still, the Post Office example makes the point, which is the higher the LTV, the more expensive the mortgage i.e. the greater the return required to compensate for said risk*.

This is nice and straightforward really; more risk = borrowers being charged more to borrow, that being what the lender uses to encourage bigger deposits and to cover the losses lending to higher risk borrowers entails (think whatever 1000% p.a. Wonga charges if you want another example).

Now lets look at the terms of the help to buy scheme: “you’ll need to contribute at least 5% of the property price as a deposit” – here, hang on a mo, this taxpayer backed scheme is open to people with a deposit the British banking industry considers too low? Crikey. Well I hope there’s a charge to compensate for the risk this involves …… “You won’t be charged loan fees for the first 5 years of owning your home.” – sorry? Are you serious? Nothing extra, like not a penny? Nope, I missed the small print; “In the 6th year, you’ll be charged a fee of 1.75% of the loan’s value. After this, the fee will increase every year”. Thank Christ, so its not simply a handout intended to turn house buyers into Tory voters.

Except, hang on a mo, going back to the Post Office example, the higher the LTV, the greater the risk, the more the borrower should be charged isn't it? So what about the help to buy scheme, like if I got support worth 20% of the place I was wanting to buy I’d presumably have to pay more than if it was only 5%, wouldn’t I? Wouldn’t I?

Nope, you’d be charged the same, which is nothing for 5 years i.e. the government’s scheme not only puts the taxpayer on the nail for risks banks are no longer willing to take, it appears to take absolutely no account of the different degrees of risk doing so involves. Even worse it creates an obvious incentive to get as much government aid/save as little as possible because to the recipient its essentially 5 years worth of free money be it bridging the gap between a 5% or a 15% deposit and what a bank will lend. Brilliant, so this actively encourages an increase in the risk being dumped on the taxpayer. And, as the Post Office example shows, because it lets borrowers reduce the LTVof their mortgage, they get to borrow at cheaper rates.

Obviously, a lot of things can happen over 5 years. House prices can be kept unsustainably high, helping people borrow more will kick hard against the deleveraging that’s supposedly a central plank of government policy, it'll expose more people to the risk of interest rates rising in however many years time than might otherwise have been the case etc.,. Oh and because of the time it takes builders to respond to market signals cos  it actually takes a while to build a house, then other than Wimpey and what no getting to trouser the profits resulting from a sudden pick up in house prices,  it won’t actually do hee haw about the size of the total housing stock either this year or in 2014.

So in return for the potentially Orish levels of risk the government has decided to dump on us all, this risk being something the entire banking sector is simply unwilling to take on (and the associated potential damage to Britain’s credit rating against which Osborne used to say he should be judged, that being presented as a reason why there’s all those shitty spending cuts) we’re officially getting f’all before 2018 in return**.



* the risk here is straightforward – can’t afford to pay your mortgage? The bank repossesses your house and sells it to repay what its owed. The higher the LTV, the less likely the bank is to get all of the mortgage repaid (what with it being a fire sale, the borrower not having had enough money to keep the property up to scratch and so on). 


** Reading a bit more its banks that appear to have to pay a fee. Hiding things behind the scenes like that just makes this look even more like bribing voters.