Wednesday, February 03, 2010

Bailout for FTBs in negative equity?

Brian Lucey is back in the Irish Times – again.

In an opinion piece titled “State must not bank on bailout of bad mortages” he makes a number of points I’d agree with (for a change).

However there’s one I’d like to take issue with. Lucey identifies first time buyers from 2004 onwards as those most likely to be suffering from negative equity, but he also highlights a potential problem with a NAMA-style bailout for mortgage-holders as involving “transfers from persons who did not borrow excessively to those who did.”

However, during the boom it was routinely estimated that Government, at national and local levels, received about 40% of the sale price of every new house and apartment, garnered through a range of taxes, duties and levies from a variety of sources.

Therefore, a Government bailout of those first-time buyers would constitute a refund of their own money, rather than a transfer from anyone else. As the major financial beneficiary of the construction boom, the Government, rather than the banks, bears the primary responsibility for any bail-out of mortgage-holders.

My advice to FTBs who find themselves in a real bind: “Get your own back”.

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