The Mortgage Rescue Plan: What we think

What a week it has been for our government. Saturday saw chancellor Alistair Darling forgetting Prime Minister Gordon Brown\'s tag line that \"the economy is resilient and so what if it\'s not we\'ve just won lots of nice gold medals\" by telling the people of Britain how it really is.

In an interview with The Guardian newspaper Darling claimed Britain is facing “arguably the worst economic downturn in 60 years, which will be more profound and long-lasting than people had expected.”

The beleaguered chancellor may have made some cock-ups in the past year but for Gordon Brown at least, this beat them all.

Despite his appearance at the Beijing Olympics, brimming with pride because we have some great sportsmen even if the financial and indeed social structure of the country is in tatters, Brown knows that he’s on his last legs.

He needs to do something now and it needs to be good. Worry not though, he thinks, because the Great Mortgage Rescue Plan 2008 is about to be unveiled and, boy, this will knock the socks off them.

If ever a plan had to be good it was now.

And what do we get, drum roll please, a lukewarm rescue effort that does little except show the government now at least realises it has to step in and help – only 14 months after the crisis hit.

After the blunder of all blunders when the government announced it may, or may not, scrap Stamp Duty it has decided to offer a one-year Stamp Duty holiday, but only for properties below 175,000.

Fantastic – except the average house price in England and Wales, according to the Land Registry, is 178,364.

Then there’s the mortgage rescue scheme whereby families can convert all or part of their mortgage into rent with councils, housing associations or developers taking over a share of the declining asset.

This scheme will help some homeowners avoid repossession but the monthly payments remain the same so if a homeowner can’t afford to pay the mortgage they’re obviously going to struggle paying their rent aren’t they?

One rescue measure that perhaps deserves some praise is the Homebuy Direct scheme, which offers free five-year loans to first-time buyers for new-build properties (albeit there are charges if the loan is not repaid within that time).

Aimed at getting up to 10,000 first-time buyers into affordable housing in the next two years the 300m scheme will help any first-time buyers with a household income under 60,000.

The potential home owners will be given the chance to buy newly built properties and offered an equity loan of up to 30% of the value of the property, co-funded by the government and the developer.

First-time buyers in London though may find themselves left out in the cold as since the average house price in the capital is over 300,000 it is unlikely a combined household income of 60,000 or under would get them far
– with or without the equity loan.

And if Propertyfinder.com reports even now that 19,000 first-time buyers are getting on the property ladder each month doesn’t that 10,000 need a couple more zeros?

And then there is the 400m devoted to affordable housing.

The government has invested the money to support affordable housing schemes across the UK apparently showing it is committed to meeting the rising demand for social housing and cutting waiting lists.

Good news for the house building industry but not exactly tackling the issues in the mortgage market, is it?

And there you have it, the key components of Brown’s mortgage rescue plan.

Well that’s it then.

Sorted.

Excuse me Prime Minister but I think you’re forgetting one little thing.

You may have heard it mentioned once or twice – liquidity.

There isn’t any.

But don’t worry you can’t be blamed for forgetting that little thing.

It’s not as though it’s been the only thing the financial world has talked about for the best part of a year.

These plans are a step in the right direction and show the government is taking notice but they fail to address the real issue of mortgage availability.

The Bank of England swap scheme must be extended in order to increase liquidity in the market and the measures the government has laid out must go further.

Despite all the mishaps, hiccups and down right cock-ups we were wiling to give the government another chance.

But Brown’s rescue plan is much too little too late and now all the gold medals in the world will not save him in the next election.