When politicians jump on housing sector bandwagon

10 January 2011

It is generally agreed that politics and religion are such contentious subjects that they should be avoided at the dinner table at all costs.

In any case, most diners are far too busy discussing house prices and interest rates, how far the former are going to fall and the latter going to rise.

But what about when politics and housing collide? Since the start of the year, politicians have been wading into the housing debate to have their say.

First, we had Grant Shapps - since he is the housing minister we’ll let him off as it’s his brief house prices is over.

Home owners should no longer view property as an investment that will see them through their retirement, he argues, but as a roof over their head that fulfils a basic human need.

All rather sensible perhaps, yet one wonders how a government is going to interfere with house prices and make them do its bidding.

There is ominous talk of government levers, which Shapps says effectively means building more houses.

But one wonders whether imposing some sort of Capital Gains Tax on the sale of at least a first property isn’t on the agenda at some point.

Just picture the backbench revolt of a government, which is mainly comprised of Tories, introducing such a measure.

One wonders just how the government will interfere with house prices and make them do its bidding

Shapps has also been looking at mortgage availability, or the lack of it.

He famously commented last year that he would struggle to get a mortgage under the Financial Services Authority’s Mortgage Market Review proposals and met the FSA’s chief executive, Hector Sants, last week to ensure the regulator doesn’t shut the stable door after the housing correction has already taken place.

Shapps has the support of Prime Minister David Cameron, who has warned that the market is stuck and will not improve until the banks return to respectable lending.

One could forgive lenders if they are confused. One minute they’re slated for irresponsible lending and fuelling the credit boom, which has resulted in the inevitable bust.

They are told to get their houses in order, pay back the money they were loaned by taxpayers and ensure it doesn’t happen again.

Then they are told that they aren’t lending enough and need to do more. What is respectable lending anyway? The problem is that it is subjective.

Cameron talks about single people on decent salaries who are quite a good risk and are being refused 80% LTV deals, or unable to borrow four times their salary. That sounds safe enough.

He’s certainly not talking about 90% LTVs, although more competitive funding and more choice at that level would certainly assist first-time buyers.

And he’s definitely not talking about 120% LTV mortgages and mortgages based on 7 x income.

But these have gone anyway. The pendulum has swung too far the other way.

Common sense is what is required in all of this and over-zealous regulation isn’t going to help.

If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat