Why George Osbourne’s Plan Might Just Work
George Osbourne has hit a lot of flack for his schemes that inadvertently artificially intervene in UK house prices. His flagship mortgage support scheme (and Funding for Lending before it) combine with near-zero interest rates ostensibly to address moans that “the banks just aren’t lending” (the reason commonly cited by those with vested interests as to why houses aren’t selling). George is doing what banks won’t - getting the UK government into the sub-prime business - lending to people who cannot naturally afford the means to take out simply enormous debts.
In a way it is sensible - a house price crash could topple the whole private debt pyramid the we currently teeter upon, wreaking the sort of the havoc unleashed in Spain, Ireland etc.
Osbourne of course makes no claims his actions are artificially propping up the market - instead that it will encourage houses to be built (since the funding is only currently available for new homes).
Where-in lies the twist.
Skewing the market so that a higher percentage are now seeking new housing will pull away the first link in the chain from many of the already restricted “second hand” house sales. This may be enough in an already fragile market to cause distressed sellers to lower prices, kicking off an adjustment toward more sustainable historic income multiples.

