In the news recently is the latest scheme from a Scottish council in Lothian to “help first time buyers.”
A Lothian council has allocated £1 million to guarantee deposits for first-time buyers.
The council have been in talks with “a major high street bank” to devise the plan.
The Lothian council want to guarantee up to 20 per cent of the cost. The council would agree to deposit £1 million with the bank to fund the deposits which in turn will only help around 40 potential buyers.
The buyer still has full liability for the amount borrowed and usual commitment with the banks. The council has no financial interest in the property and is not giving £20k to the applicant but acting as an guarantor.
Here’s the thing, to qualify for the scheme an applicant will only have to show some form of link with the area, or they can apply if living outside East Lothian but planning to move there for work or family reasons. So basically anyone with a good enough reason.
Kick start the economy
The theory behind the first time buyer deposit scheme is that it will “kick-start the local property industry, free up social housing and encourage more private investment in affordable homes.” This of course is total nonsense. The local problem- as it is in many places in the UK-is that prices are too high, not only that deposits need to be found.
This scheme will not help prices fall back to a lower more realistic level, it will however, contribute to the problem by supplying deposits that would effectively enable higher prices to continue be paid, thereby extending the problem of overpricing in the market.
From what I can see, this first time buyer deposit is for the banks and the council only to make profit.The funds could either be sourced through the council’s capital budget (taxpayer money) or through “prudential borrowing,” which must be approved by Scottish Ministers. So they may even borrow money to guarantee these loans!
This is a useful marketing hook which makes banks and councils look good on the surface, but are they? The reason that deposits are required is so that the buyer takes on some of the risk and has some responsibility. Taking away some of the risk does not solve the problem it exacerbates it.
Property Should Be Affordable
This is the same issue we had here with over lending via banks to those who clearly can’t afford it. It seems that banks and governments cannot stop meddling and are ever more desperate to prop up what is very clearly a property market on the edge of collapse.
Now, what if instead of giving away money, they put the same money into building truly affordable housing and selling them at a cost price. Or how about they spend the money refurbishing empty property as affordable ECO housing instead? A scheme such as the WDH at Parkdale both builds ECO housing and employs local apprentices. THAT would help a community, not just flinging money around for no reason.
You may wonder what this first time buyer deposit scheme has got to do with us in the rest of the UK, well this scheme is being launched nationally in the UK in the next few weeks by a major High Street Bank and many other Councils are ready to follow suit. So, what do you think is it a good idea or not?