The Budget and Bubbles...

The UK budget was announced yesterday and really it was a bit of a let down. There were no bold policies to tackle unemployment, no venturing from the austerity path and really it seems that the UK is going to attempt to muddle through the current problems and that growth, at best, is going to be very slow, if not declining.

There was one interesting point though that I think it's worth commenting on and this is with regards to UK housing. The coalition has pledged up to £130bn for mortgages where buyers can only afford 5% deposits - in effect they are guaranteeing high risk mortgages. The reason to me why this is quite alarming is that high risk (or sub prime) mortgages in the US were what brought on the credit crunch. In effect banks were lending money to people who simply shouldn't have been lent money; this created demand for housing, forcing up prices. Once it became apparent houses were over valued and that many people could not maintain mortgage payments house prices tanked, triggering the start of the credit crunch. 

Since then, it has been a lot harder, and rightly so to acquire a mortgage, with banks demanding bigger deposits. So it seems a little strange that the coalition is now willing to support these house buyers who regular banks would deem not fit for a mortgage. 

For now we will have to wait and see what happens. Home builders such as Taylor Wimpey saw their stock price rally yesterday on the back of this news, with markets foreseeing demand for housing and new homes growing.