Everyone knows that 125 per cent mortgages (Northern Rock et al) were a dreadful, top of the market idea. Most realise that 100 per cent mortgages are also a bad idea. Because a home-owner has no equity in his house, any fall in prices leaves him – immediately – in negative equity.
So what on earth is the new “HomeBuy Direct” scheme which will form part of today’s package of measures to help the housing market? Under the programme, first-time buyers can borrow up to 30 per cent of the value of a new-build home – interest-free for five years – co-funded by both the government and housebuilders.
In other words, they wouldn’t have to put in any equity at all. And when five years have passed, they will be owners of a property, funded 100 per cent by debt, on which they have to pay interest.
Presumably the government think that prices will be going up again by 2013. Hazel Blears, communities secretary, was on the radio this morning talking about how the housing market had risen phenomenally over the last 5 to 10 years. The implication: that it would keep doing so after a temporary glitch.
That’s the same muddled thinking which has got us all into today’s mess.