In response to Ann Pettifor's recent PRIME post, "Britain in 2013: an Alice in Wongaland economy", one reader commented:
"I agree with pretty much all of this, except the bit about rising house prices. That is obviously the Government intention, and in London and its environs where its most important for their votes, it is undoubtedly the case that prices are rising. But, that is not the case in much of the rest of the country."
This is true. But while we all know in general terms that London's housing prices have shot ahead of the rest of the country, the extent of the divide is astonishing and shocking - and utterly inconsistent with achieving a "rebalanced economy", let alone an equitable one. Here is the picture for the last 20 years, comparing the UK average price with those in London and the North-East of England (from ONS).
From 1993 to around 1998, the gap widened but slowly between London and other parts of the country. But since the Coalition Government came to office, London has shot ahead of other regions. In June 2010 (also from ONS figures) the house price index for the UK (with 2002 = 100) stood at 177, and is today at 182. The London index was 171 in June 2010, and is now 198. London prices are rising at a rate of over 5% per annum at present.The UK index excluding London was 177 in June 2010 - and is today at...177!
A similar picture faces first-time buyers. Here is the 20 year chart for the average house prices for first time buyers, 1993 to 2012.
A first-time buyer in London is paying over £300,000 for his or her home; with a 75% mortgage, they must have over £75,000 deposit. Tough going to save up for this when the average salary is around £27,000 per year.
So this is where Chancellor George Osborne stepped in with his Help to Buy scheme, under part 2 of which from January 2014, the taxpayer will provide guarantees to lenders - i.e. banks and building societies, providing that the "purchaser" can put down 5% as a deposit on a property of up to £600,000. In the government website's prose:
"Help to Buy mortgage guarantees will be open to both first-time buyers and home movers. However, you won’t be able to get a Help to Buy mortgage guarantee if you’re planning on renting out the property. The guarantee is provided to your lender - not to you.
To qualify for a Help to Buy mortgage guarantee, the home you want to buy must be offered for sale at £600,000 or less. The property can be newly built or already existing. You don’t have to be a first-time buyer and there’s no limit on your level of income."
In other words, you need to put down just £30,000 to buy a house for £600,000, with the rest of us guaranteeing your lender that you will honour the deal!
As the witches in Macbeth put it,
"For a charm of powerful trouble, Like a hell-broth boil and bubble.
Double, double toil and trouble; Fire burn and cauldron bubble"..
And when Hecate enters she congratulates them:
"O well done! I commend your pains; And every one shall share i' the gains.."
But alas and alack, it all ends in tears.