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How I would sort out the UK’s housing market if I was the chancellor for the day

I was recently asked what I would do to help the property market if I was chancellor. I hadn’t thought about it before as it’s not something I am usually asked, but I guess I should not have been surprised as I am known for my political correctness.

Nigel Stockton
Nigel Stockton

But as the Treasury has asked lenders and commentators for input on how to kick-start the first-time buyer sector, I thought about what I’d do if I were housing minister. While it is good news that housing minister Grant Shapps has a keen focus on affordable housing, the issues effecting second home ownership should not be sidelined.

Chancellor for the day

My suggestions cost money, so won’t happen any time soon, but they offer a bit of a distraction while we worry about the euro, debt ratings and banks’ share prices.

My first decree as economic overlord of the UK would be not to over-complicate policy

My first decree as economic overlord of the UK would be not to over-complicate policy. Keep it simple, mainly because I’m a simple soul at heart but also because complex propositions are rarely fully implemented.

So I’m going to keep to providing a one-year boost to the market. I think we could all come up with some long-term reorientations but quick wins are what I’d try to achieve by the end 2012.

I’d probably kick off with three telephone calls to our nationalised and part-nationalised lenders. I would insist that they lend £500m each at 95% LTV to first-time buyers.

Lenders can keep their current scorecard as well everyone knows it is deposit not affordability that’s the main issue. The criteria would be that it must be for a house purchase and buyers should not have owned properties before.

I would also insist they lend another £500m each to the new-build sector at 90% LTV and not differentiate between flats and houses. I’d develop this scheme to run through the top 10 house builders by volume and distributed proportionally.

The usual scorecard would apply, with the government providing a guarantee for the top 5%. That would be £3bn of incremental money over and above what these banks are already committed to by December 31.

Failure to lend it in terms of completions, not applications, would mean that they had to pay a Stamp Duty-style tax of 5% on the amount unspent.

I reckon Northern Rock, the Royal Bank of Scotland and Lloyds Banking Group would easily be able to do this.

Even in this market, I think £1bn in funding is doable. It is £3bn extra or at £130bn gross lending, a 2.5% increase of lending in the second half of the year so equivalent to a 5% bolster to lending on an annual run rate. It would be a start if nothing else. Next, the core market
I did consider mortgage interest relief at source but realised that it would take about four years to implement on the systems front so that is no good.

Instead, I plumped for Stamp Duty. This is raising half the expected amount, with house purchase transactions at 550,000 versus the 1.25 million long-term average.

So why not halve it on all properties for the whole of 2012?

It costs far less than you think and would provide a boost to all walks of life. I’d also make it compulsory without exception, even for corporates, so it might not be a big hit after all.

Getting a grip on the private rental market

Lack of rental property is a huge issue so I’d increase tax breaks for those who buy new properties for buy-to-let purposes.

I’d do this by saying that if they buy a property and rent it to a housing association or local authority, they could apply to pay no Stamp Duty at all in 2012.

For others in the private sector, I’d allow the first year’s rent for all new rental property to be added to the interest paid and allow this to be offset against tax.

These measures do not cost much individually, but together they would give the housing market the push it needs.

Then all we would need to worry about was 2013 as I’ll have probably been accused of creating a small housing bubble.

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  • Mark C 28th September 2011 at 2:23 pm

    Seems very keen to assist new builds, can’t think why that could be.

    Selling houses at sensible prices by Countrywide and their developer friends might be a better start.

  • david barker 26th September 2011 at 9:48 am

    Banks should be lending to real businesses they should not be propping up an over inflated property market. The answer. The private rental sector already benefits from a massive tax advantage as all interest can be deducted from earnings however highly levaraged the property. Remove/restrict this tax break and make it a level playing field with first time buyers. The resultant fall in prices will allow many more to but without a life of debt slavery.

  • Barry 25th September 2011 at 8:43 pm

    “Lenders can keep their current scorecard as well everyone knows it is deposit not affordability that’s the main issue.” Completely disagree with this. I am a potential first time buyer with a £150,000 deposit, but I’m not buying a house until prices come down further. High prices are the problem, and a return to irresponsible lending is not the answer – only price reductions can help.

  • Drum_Roll_please 25th September 2011 at 11:31 am

    More Keynsian short-sightedness ? Put the banks that have the most risk into liquidation (paying ALL deposits off with printed money) and let the business cycle flow naturally instead of kicking the can AGAIN.

  • salil chaudhari 24th September 2011 at 8:26 pm

    Add the following to what Mr Stockton has said might make it more effective:
    1. BOE lends directly to FTB’s at much reduced rate than the average market rate for similar product(at least 2% below)
    2. Cut base rate to 0.25% immediately
    3. BOE to abolish product fees and charges for its products for FTB’s
    4. BOE to bring in 95% LTV’s for FTB’s

  • Gavin, London 24th September 2011 at 8:25 pm

    So your idea is get people buying in 2012 in negative equity. Why not just let house prices fall to normal levels and then transactions will increase.

    Also you could remove tax concessions for buy to let and tax developer unbuilt land banks.

  • larry levin 24th September 2011 at 5:39 pm

    The goverment should give the 0.5% money directly to mortgage holders, cut out the banks as intermediaries. for instance the government could say will give you finance your mortgage at 0.5% 70% of the market value of your home, this would instantly help the economy, the government could also do the same for credit card/car loans thereby freeing up huge amounts of disposable income.

  • First Time Buyer 24th September 2011 at 4:31 pm

    What an utterly moronic statement, from a man who has obviously never had a single conversation with a First time Buyer.

    The Average House Price was purposefully manipulated to rise by 300% in just a decade, Yet without the bank bailouts, House Prices would have reverted to their long term average affordability, as a proportion of income. Which is 3-3.5x salary of an individual.

    So what this buffoon is proposing, is that we pass the banks toxic mortgage debt along to FTB’s.

    There will be 3 million priced out of housing by 2015.

    Guess who they will NOT be voting for?

  • First Time Buyer 24th September 2011 at 4:29 pm

    Guess who they will NOT be voting for?

  • timhm 24th September 2011 at 3:55 pm

    Indeed, what would you do when 2013 comes around and house prices have been pushed further out of reach of first-time buyers? Keep throwing public money at them?

    Better to let the housing market fall to sustainable levels by:
    *Removing public sector supports like the SMI and first time buyer schemes
    *Building more social housing which in the long run is likely to be cheaper than relying on the private sector
    *Removing tax breaks on BTL to slow the wealth transfer from the young to the old
    *Increase council tax/other tax on owning multiple properties
    *Shoring up pensions as the best way to a financially secure future
    *Make more land available for building, and make sure it gets built on promptly
    *Reduce/replace income tax, national insurance and/or council tax with a land value tax

  • david 24th September 2011 at 3:45 pm

    to be honest its clear you have no gripped the fact that the existing housing bubble is being propped up by super low interest rates and lender forbearance

    lenders would happily lend 90-100% mortgages if property fell 40% it should

    buy to let portfolios will be trashed when interest rates rise and/or prices fall.

    I suggest you speak to people in ireland for a clue as to whats about to happen

  • Tim Ware 24th September 2011 at 3:21 pm

    OMG wasnt it this kind of crazy reckless lending that caused the USA, Irish and Spanish housing bubbles to burst. Thank God these people are not in control in the UK.

  • Ann Nominous 24th September 2011 at 12:11 pm

    How about solving the problem by reducing or even reversing the population growth