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Small mortgage rescue – not many saved

This week’s mortgage announcements might be summarised as “small rescue operation – not many saved”.

Let’s take it as read that this week’s changes represent small albeit helpful changes – a salve for some but no solution.

More buyers of smaller properties or those in areas of lower prices will be spared stamp duty, there is some state help with income support for mortgage interest coming in after 13 weeks covering £175,000 of the value, which may stave off repossessions for those who lose their jobs, and some action is being taken to allow housing associations to buy or part buy homes under a sale and rent back scheme. So some will be better off tax wise, a few may avoid the disaster of repossession or swap it for the less soul destroying experience of reputable sale and rent back rather than falling prey to “sale, rent back and turf out” sharks.

Whether interest free loans of up to 30 per cent LTV for five years to help first time buyers on to the ladder are a good idea is debateable – if the new buyers understand that prices may still fall quite a bit further – maybe it is. As long as they play a willing i.e. well informed part in freeing up the market then it is all to the good.

One of the policies – the year long stamp duty holiday – is a temporary measure at the moment therefore it may only have a temporary effect. The last holiday, under the Major Government, gave a brief respite from tax in a falling market but had little real impact as prices continued to fall anyway. The London Evening Standard this week noted wryly that the borough where the policy was announced, Ealing, West London had only eight properties on sale that would now avoid the tax but then again in Yorkshire and Humberside it represents more than 70 per cent.

Indeed in many ways, this is only the Chancellor putting right a wrong with speculation about a change having delayed some of the few sales left in a constricted market.

Indeed this particular part of the story may show just how ill-equipped this Government is for crisis-management.

Back in the days of Government popularity, running a policy up a flagpole was a good way to test reactions from the press, the voters and other (forgive the horrible New Labour word) stakeholders. It always felt slightly inappropriate though it was used by Brown, Blair and most of the cabinet. In effect ministers did not take the flak if a suggested move was not popular and it could flush out the opposition. The PR spin machine used it pretty ruthlessly, while the media, overly reliant on those spin doctors, played along. In times of crisis where every Government economic move is under scrutiny what may once have been good PR is very stupid politics.

Yet these measures, the good ones, the okay ones and the corrected mistake do not add up to a rescue plan for the housing and mortgage markets.

If a real rescue plan is to be considered I think it can probably be divided into four big questions and frankly I am glad I am not in the Government that has to decide.

These are as follows:

Would a Government intervention to swap its own securities with newly created triple A rated mortgage backed securities kick start the mortgage market?

What is the risk that the Government and therefore future taxpayers will be left with big liabilities as a result and is this contingent on the impact of mortgage supply and house prices?

What is the risk of doing nothing in terms of continued lack of supply, falling house prices and the creation of a vicious circle of falling property values, increased unemployment, further house price falls and so on?

Is there a time beyond which such an intervention comes too late and the market will only be kick started by prices finding their natural bottom in a market supplied with less mortgages?

I know that most in the mortgage broking and lending communities will want intervention. I know a separate school of thought will suggest that we need to suffer pain until asset prices, credit availability and everything else that got so out of kilter gets back to normal and that won’t be a normality with 125 per cent mortgages.

Some of this relies on who wins the argument.

We are led to believe the Chancellor doesn’t favour this intervention, nor the Bank of England, nor indeed, by his public statements the probable next PM David Cameron.

Much else depends on James Crosby’s report but it is not his decision.

Beleaguered or not, Gordon Brown is still the most powerful person in the country.

And he is the closest thing to a sympathetic ear the mortgage and housing industries have on this. And if that doesn’t show what strange times these are, I really don’t know what does.


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