View more on these topics

Housing Policy – dumb and dumber

Last week the government announced its intention to force local councils to use legal powers to make the owners of properties that are left empty for six months or more either let them out, sell them or face the threat of compulsory seizure.

Just when we thought this administration couldn’t get any sillier it goes and proves us wrong.

A pointless piece of legislation introduced Minister John Prescott should tell you all you need to know. Featuring so-called Empty Dwelling Management Orders, this draconian law was brought in to give local authorities the power to seize empty properties if their owners refused to take action to improve, sell or let them instead leaving them empty to blight the local community.

Housing minister Margaret Beckett now says local authorities should start to use these latent powers more, in light of the building slowdown.

Properties are left empty for a host of reasons. This is not simply the fault of faceless corporate landlords, especially when the housing market is in freefall. But apart from homes with owners who have legally approved reasons leaving them empty such as being in care homes or serving in the military, councils have the power to seize unoccupied properties and let them out, paying the owners rent. After deducting their expenses, of course.

This scheme is being encouraged as the downturn in the construction of homes continues. Meanwhile, there are in the region of 80,000 council properties standing empty as local authorities lack the impetus to renovate them. These same councils seem content to take properties from others, most of which will have been well maintained.

The government had planned to build 240,000 new properties every year by 2016 but this number is falling fast and private builders are mothballing developments. So we have a stockpile of bricks with which we could build a city the size of Leicester, and a raft of builders with nothing to do as a result of the downturn in construction.

This begs the question – why not employ these individuals to reduce unemployment and generate the affordable housing that we are continually told we need?

I understand the need to cut the number of homeless families but as repossessions rose by 54% in 2008 compared with the previous year, according to the Council of Mortgage Lenders, shouldn’t the government be looking at ways of keeping people in their homes rather than transferring them to rental properties – especially as even after they have left their homes they remain liable for the debt? The government’s own Northern Rock has been responsible for some of the rise in repossessions, seeing a huge increase in the number of its customers in arrears. But it is pleased that it has paid off 66% of its loan from the government already. How? By issuing fewer mortgages and tightening its lending policy.

This is counterproductive. What we should be seeing is an improvement in liquidity in the housing market, which was the government’s intention when it issued loans to banks and lenders in the first place. But the CML says gross mortgage lending declined to an estimated £12.4bn in January from £13.5bn in December.

Meanwhile, the base rate cuts which were supposed to influence the market have not eased the situation, and as levels of savings decrease more money is withdrawn from the market which reduces prospective borrowers’ ability to afford mortgages.

It’s a vicious circle. The government is failing to support individual home owners who are going into arrears, it’s not pushing banks and lenders to use their loans to stimulate the mortgage market and by reducing savings rates it is taking money from those struggling to get on the housing ladder. But the government is prepared to take consumers’ second homes to reduce its level of spending.

Yet another desperate attempt by the government to refuel the housing market seems to have failed. This should come as no shock to anyone, including the boffins in Whitehall. While it might have worked for the Tory government in the early 1990s, we are living in a different economic climate.

For a start, the supply of mortgage funding was high then, as was the lending appetite. And even though there was some negative movement in property prices they remained broadly stable during the period, unlike the dramatic 17% fall we saw in 2008. Not to mention that back in the early 1990s borrowers only needed 3 x income compared with near double that today.

And therein lies the problem. Given the lack of liquidity in the financial sector and lenders scrutinising their credit risk, providing well intentioned handouts to would-be borrowers will never solve the problem. The answer lies in restoring confidence and the ability to lend in the banking sector.

What the government fails to realise is that until liquidity returns to the market, even if borrowers can afford the low repayments or have the large deposits lenders are demanding, the funds won’t be there for them.

And the problem will be compounded by offering unrealistic and unsustainably low interest rates which are turning off the very savers the lending community relies on.

If the government wants to give something back to the housing market, ploughing back the £6.5bn the Treasury receives each year from Stamp Duty into the lending system would be more useful.


FSA publishes consultation paper on remuneration

The Financial Services Authority has published a consultation paper which consults on whether to incorporate its Code of practice on remuneration into the handbook and its application to large banks and broker dealers.

Sour notes

The credit crunch has also brought out the creative side of would-be musicians on YouTube.

Mortgage lending falls further in January

Mortgage lending activity continued to reduce in January with only 23,400 mortgages completed, down from 32,400 in December and 48,600 in January 2008, shows figures from the Council of Mortgage Lenders.


News and expert analysis straight to your inbox

Sign up