There is not going to be a lot of mortgage lending and it is not really in anyone’s interest that there is unless you believe in more of the same of what got us into this problem in the first place, which was an economy built on a strong housing market. The Govern-ment wants or needs that like it needs a hole in the head.
When push comes to shove, the Government does not want a housing boom. That is why I support the Government handing back control of the prudential side of regulation to the Bank of England. The only tool the Bank of England had in its armoury was the dreaded blunt interest rate tool.
The simple fact is that if the funding was available, we would have a house price boom. Why? Because there are not enough houses to satisfy demand.
We have a population of 62.5 million and there is not the supply to satisfy the demand if the funding was available.
What it means, in the short term at least, is that lending has to be constrained because of the old-fashioned supply and demand. If you get the supply, demand will go through the roof. And, of course, it is counterproductive to assisting first-time buyers. The last thing they want is to be chasing or buying in to an inflationary boom.
What you do not want until you have got broad equilibrium in supply and demand of houses is too much funding available, putting inflationary pressures on the housing market.
The reason that the housing market has recovered in the last year has not been because everyone is buying. The turn-over of housing has been abysmal but what it has been is a lack of supply for what little demand was there.
When everyone is saying you cannot get a mortgage, there is already too much demand for the pool that is available.
If you look at it from a broa-der perspective, if you are the Government, apart from not wanting a housing boom when you are trying to rebalance the economy, what you are trying to do is keep interest rates low and you want money going into something that is going to create wealth for the country, not creating an artificial boom.
This particular asset bubble would lead to demand inflation and the good old fashioned blunt interest rate tool has to be used again. The Govern-ment does not want to do that. It wants to keep rates low. Tough as it is going to be, we have to get used to the fact that mortgage lending will be constrained for the foreseeable future.
Danny Lovey is principal at The Mortgage Practitioner