It’s difficult not to be angry with the Baby Boomers. I recently read this great piece which really summed up for me the many problems now facing the Millennial generation. They are in a cruel situation, and it’s partly fault of the generation above them. Priced out of the housing market because every affordable property has been snapped up by greedy buy-to-let landlords, in a world where wages are not keeping pace with living costs, a lot of Millennials are being forced to stay in some sort of twilight Peter Pan world of perpetual adolescence. Ironically, their Baby Boomer parents are now seeing their ‘boomerang children’ back home living with them again in their 30s (or in depressing flatshares), and the only ones who can get on the property ladder now are those who have help from the Bank of Mum and Dad. A lot of them are also in debt.
Normal, grown-up ambitions like homeownership and parenthood now seem like an impossible dream for a lot of people, which is desperately sad and unfair. Because the roots of this problem can arguably be found in the property market, the government is throwing money at it with a number of new initiatives under the umbrella ‘Help to Buy’.
In the Autumn Statement and Spending Review, the Chancellor pledged to double the housing budget and create 400,000 ‘affordable’ new homes. Shares in housebuilders jumped as much as 6% as this news leaked ahead of the speech, so at least someone’s benefitting from this.
Osborne also recognised (in a muted way) the role buy to let has played in the housing crisis when he announced a 3% increase in stamp duty on second homes or buy to let properties from April 2016. But it doesn’t go far enough by any stretch, and won’t deter overseas cash buyers who want to invest in our soaring property market. As more evidence of the struggle facing first time buyers, Osborne unveiled a new Help to Buy scheme for London, and said he will extend the existing Right to Buy scheme to housing association tenants.
George loves to talk about how many new houses the government is building, but actually the problem is not the lack of housing stock, it’s that buy to let has got completely out of control and is changing the normal supply and demand dynamic which would see property prices fall back when they are so out of step with wage growth. You would expect that when first time buyers don’t stand a chance of affording the property there is, activity in the market would grind to a halt, and prices would be forced to come down in order for things to get moving again. But the government’s measures are helping to ensure this doesn’t happen, by keeping prices artificially inflated and encouraging people to stretch their finances to the max and struggle on to the lowest rung of the ladder with an overpriced property. These initiatives are great news for developers but, for everyone else, it feels a bit like sticking a plaster on a severed artery.
Having said that, I still think everyone who can should take advantage of one aspect of the government’s Help to Buy initiative, the Help to Buy ISA. The scheme launches on 1 December, and a number of banks including Barclays, Lloyds Banking Group, Nationwide, NatWest, Santander, and Virgin Money have signed up to offer these ISAs. But, with less than a week to go, no-one wants to be the first to show their hand on the rates they are planning to offer. Undoubtedly, they will be rubbish rates as banks know savers will flock to these products regardless, because the incentive from the government is so good.
Help to Buy ISAs will allow you to put in £1k at launch, and then save, tax free if you are a basic rate taxpayer, up to a maximum of £200 a month. The government puts in an extra 25%. If you save the maximum allowed for five years, you should have £12k, and the government puts in a maximum of £3k, giving you a total of £15K to put towards a deposit. You can only access the government’s contribution through your solicitor once you begin the housebuying process. Also, you can’t have a Cash ISA and a Help to Buy ISA in the same tax year, you’re only allowed one, but you can transfer your money across from your Cash ISA. All the details can be found here.
Help to Buy ISAs are a positive thing because they encourage the savings habit and, of course, it’s FREE MONEY. So, although I’m sad about the housing situation in this country, I still think saving into the Help to Buy ISA is a no-brainer.
But unless Osborne clamps down harder on the rampant greed of buy to let so some of the heat comes out of the housing market, the sad truth is that many first time buyers will still not be able to afford a home, even with the government’s help.