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House Prices and the budget

The Budget has created another government piece of interference. The idea is that if they help people get on the so called property ladder that will make people think things are going better than they really are.

The idea is that if more people can afford to buy houses then they will, and that will make the housing market recover, and that will make everyone think they are more wealthy, and the feel-good factor will feed through into the rest of the economy.

So many assumptions, and every one of them dangerous.

A ladder is useful for going up on the roof. It's also useful for getting down to the ground from your bedroom window if the house is on fire. What I mean is you can go up a ladder, but you can also go down it. You dont need a snake to slide down. Thus, the concept of the property ladder is seriously flawed.

The real way to look at the purchase of a house is simply as a home. You dont get on the food ladder. You buy food and eat it. You dont get on the tv ladder. You buy a tv and watch whatever takes your fancy. You should be buying a house to live in, that's all. Similarly, if you cant afford the tv you dont buy it. If you cant afford a house then you shouldn't buy that either.

The problem with life in 2013 is that the government has over-spent, and most people have also over-spent. The answer to that problem is most certainly not to encourage people to over-spend even more. In that sense this new government scheme is daft, and counter-productive. What's new?

The other part of the idea is also misconceived. Property prices go up and down in line with demand, and money available, but there is a problem with houses being treated the same way as commodities. A home is for ever. You should be thinking of buying a home as a long-term situation. If you move house that doesn't really alter the situation, you are just changing one house for another, but you always need a home. You can rent it or buy it, but it should not be traded like stock market derivatives. House prices should ideally be largely stable.

Let's go back to this idea of the property ladder. The idea is that you climb up the property ladder, but you cant climb it unless you're on it. However, the whole point of the image is that you should aim to get on the bottom rung and climb up. You dont get on three rungs from the top, or even right on the top rung, because then the only way you can go is down, or stay where you are. What's the point in that?

The property market cant go up any more from where it currently is for one very good reason, and that means anyone getting on the property ladder now can only go down or stay where they are. We are currently at the top rung.

The reason we cant go up any more is that people cant afford to buy at current levels so they most certainly wont be able to afford to buy at higher levels. It really is that simple. It's common sense.

Wages need to be rising faster than inflation for there to be more disposable income to afford higher payments, but wages are not rising faster than inflation, quite the reverse. Secondly, interest rates are on the floor, and can only stay where they are or go up. As interest rates rise so does the cost of money, and therefore the cost of mortgages, and therefore, to compensate, house prices have to come down as they become unaffordable.

There is no sensible housing ladder. The housing market currently is a snake. The government's scheme is misconceived. People will be encouraged to enter the market at a high, and they can only lose by doing that. They are also being encouraged to take on debt when the country has too much debt, and they are being encouraged to lock in a debt at an artificially low interest rate which can only rise in the longer term, thus creating more debt problems in the future.

My recommendation is: Dont get sucked in. This is another idiot idea.

The only good thing is that I dont think it will encourage too many people to take on more debt, so there will not be any meaningful surge in house prices. If there is a surge it will be counter-productive and will ultimately lead to more people losing more money over the medium term as prices crash back again.


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