Bank of England to Rein in Governments Help to Buy Scheme

by Editor | May 7, 2014 4:27 am

BANK OF ENGLAND TO REIN IN GOVERNMENTS HELP TO BUY SCHEME – When David Cameron announced last year that he was to introduce the ‘Help to Buy’ scheme, many economists waded in to warn him that such a scheme would not only fuel personal debt it would artificially inflate housing prices.

Help to Buy Scheme[1]

Certainly first-time home buyers were, and still are, having a hard time getting on the property ladder but it doesn’t take a genius to figure out that you cannot create or sustain an economic recovery on the back of personal or public debt.


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The consequence of Mr. Cameron’s insistence that he could control the housing market was of course complete and utter folly for by allowing people to obtain a mortgage where the deposit is secured by public funds was inevitably going to result in a sharp rise in housing prices as demand increased.

The Bank of England has on a number of occasions, since the ‘Help to Buy’ scheme was introduced, warned the Government that the housing market is in danger of overheating and with the amount of debt now attached to it a crash would ultimately send the economy into turmoil and may well bankrupt Britain.

The Bank of England has now once again stepped in to the affray to warn the Government that a recent international report clearly indicates that the housing marketing, due to increasing prices, is now a real threat to economic recovery.

The rise in house prices is being fuelled by three element; the first being demand, which is brought about by the second being low interest rates and thirdly the Government’s ‘Help to Buy’ scheme that effectively covers a first-time buyers deposit.

These elements are now clearly fuelling a housing boom as demand continues to grow but people are now taking on mortgages that they will not be able to afford once interest rates being to rise.

We are already aware that the Bank of England intends to increase interest rates up to 1.75% by late this year and it will unquestionable place thousands of homeowners in a precarious situation.

The issue here is … do they care?  That’s is if these homeowners have no financial risk, that is their deposits are secured by the taxpayer, what is stopping them from merely defaulting on their payments and walking away without any financial loss?

This is exactly what happened in the U.S which ultimately led to the 2008 financial crisis and it appears madness to many as to why David Cameron would want to put Britain at risk to bankruptcy.

We’ve heard the latest conspiracy theory in that David Cameron doesn’t want to pull out of the European Union for that’s where his meal ticket and career ultimately rests and if Britain was to go bankrupt it would then place Britain at the mercy of the EU as they would be the ones to pull the purse strings by the way of a financial bailout.

At this point, according to the conspiracy theorists, the EU would effectively have totalitarian control over Britain and its fate as a sovereign nation will be sealed in that it will be swallowed up and controlled wholly by the EU despot dictators.

Putting that theory aside let’s look at the facts.  For starters Britain’s debt is fast approaching £1.4 trillion; David Cameron has added approximately £700 billion to that figure; so much for austerity.

If thousands of homeowners declared bankruptcy due to being unable to repay their mortgages the Government would have to step in and bail out the banks yet again but whether the International Monetary Fund (IMF) or the European Central Bank (ECB) have the financial resources to bail out Britain is questionable at best.

We already know that the European Union is in fact broke; they over-spent yet again last year to the tune of £20 billion and such are the discrepancies in the accounts the auditors refused to sign off on the accounting records yet again.

David Cameron and the Chancellor, George Osborne, may well attempt to prop up their ailing Government by pretending that Britain’s economy is growing but its growth is derived from personal and public debt and history has time and time again proven that you cannot spend your way out of a recession nor can you artificially manipulate it with cheap borrowing.

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