Saturday, March 22, 2008

Labour Set on Leaving a Mine Field

By any account the precursors of the credit crunch that is now a global issue were in "Low doc" or "No doc" loans granted in the US to people of poor credit standing who could not otherwise afford a house loan. Once the long bull run for house prices collapsed these loans were exposed as worthless along with the asset they were secured against.

News The Housing Minister Maryan Street has announced Labour will boost the free loan amount to first home buyers in New Zealand's hottest and moist expensive housing market is breathtaking in its cynicism.

The Labour Government in a wonky sop to solve the so called problem of affordable homes is proposing to effectively decrease the percentage of equity contributed by new owners of homes in Auckland. The mechanism is the Government will provide First-home buyers earning less than $85,000 a no-deposit loans for up to $200,000 and up to $280,000 if they pay 15 per cent of the amount over $200,000.

This is being offered at a time when house prices are not increasing (collapsing anyone?) and interest rates are at a generational high with predictions interest rates will stay high for some time.

The Government is essentially underwriting these loans as it will be the first loser in a downturn and foreclosure. Usual story with socialists - socialise the losses.

The Government must know that many of these loans will be bad bargains and in any event the effectively "free" money will simply encourage potential owners to undertake more risky purchasing behaviour ...afterall it's not their money.

Where will that end? Tears, that's where. However by the time it comes to pass Clark, Cullen, Carter, Street and co will be on the street. A mine for the incoming centre-right Government to negotiate... cynical.

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