National Buy2Let Mortgage
We’ve all heard the Conservative/Lib-Dem analogy about thenation’s credit card. The coalition partners in Westminster love to accuse Labour of having built up the national debt as though they were maxing out a credit card. It’s easy to see why they do this – the public understand how a credit card works.
In a recent blog by the New Statesman this is described as “asinine nonsense” and a “poor understanding of basic accounting”. In my view it’s an example of political parties wrongly assuming that the public can’t get their heads around things like national debt so peddling a misleading line repetitively in the hope that the public won’t eventually work out that it was all a lie. Credit cards and national debt are totally different and the public will work this out in the end.
However, what other analogies could we create between household finances and state economics? What about looking at the old adage that paying rent is ‘dead money’ and therefore we should all get mortgages and buy homes instead.
Consider that 4.8million people are receiving housing benefit and that 32percent (1.5million) of these are renting from private landlords. The other 3.3million are housing association and council housing tenants.
Housing people on benefits in this way is expensive for the government. The average housing benefit recipient who lives in council housing receive just £67.83 per week, while those renting from private landlords receive an average of £111.19.
But rental money from council housing currently goes back to the treasury, while private landlords are taking around £166million a week of housing benefit. That’s £8.67billion a year by my maths!
So if the saying is true that ‘renting is dead money’ then government is wasting £5,781 a year on each housing benefit claimant in the private rental sector, and in years to come will have nothing to show for all this money. The alternative is that the government, like many households, could consider borrowing some money and buying or building some houses.
The government would have to pay interest on this borrowing. The average house price for a terraced house in England and Wales in April 2011 was £124,061 which at 4.2% interest would cost just £5,210 per year on an interest-only mortgage.
Just imagine if the government were to sit and watch Homes Under the Hammer, get inspired and send the Housing Minister Grant Shapps down to the auction room to start buying 1.5million terraced houses after popping down the high street to arrange a few interest only mortgages. As inflation kicks in and rents increase over time, the gap between the interest payable and the rents received will increase and the government would be able to keep the money that otherwise would be profit for private landlords.
Ok, so these are really crude calculations and I’m not for a moment suggesting that this is a sensible well thought through plan. But is it any clumsier than the credit card analogy that the government keep using?