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The government’s housing policies don’t match its strong rhetoric

22 November 2011

Yesterday’s housing strategy offered a mortgage guarantee for first-time buyers of new
properties, one of the few new announcements in a document largely consisting of re-hashed policy. At best, the mortgage guarantee helps to provide a boost to house builders and welcome relief for
some credit-worthy borrowers who simply can’t build up a sufficient deposit. At worst, it encourages risky lending, subsidises high house prices and raises unrealistic expectations for young

Unaffordable, reckless lending (at least, up until the credit crunch and collapse of the sub-prime market) threatened the stability of the financial sector and caused misery to thousands of
homeowners who later found themselves falling behind on payments and threatened with eviction.

The housing strategy itself quotes the estimated figure of 800,000 recent buyers who are in negative equity and unable to trade up to a larger home – but then sets out to get more people into
homeownership without an equity cushion to fall back on. At the same time, it encourages more right-to-buy, ignoring evidence that right-to-buy mortgages are twice as likely to fall into arrears as
mainstream mortgages.


That’s why the mortgage guarantee and right-to-buy schemes have to be backed up by a pledge from the banks to robust affordability checks, and stress-testing against future interest rate rises. So
far the industry’s resistance to proposals in the FSA’s Mortgage Market Review that have already been considerably watered-down doesn’t give confidence in any promises of prudent lending.

The government must also state its commitment to responsible lending more forcefully and stop basing its policy on the belief that the pre-credit crunch environment is one we should revisit.

Finally, the mortgage guarantee scheme fails to tackle the real problem – high house prices. It allows builders to sell the stock they choose at the prices they choose, doing nothing to bring down
inflated prices to more realistic levels. Shelter’s research has shown that first-time buyers
don’t want a return to risky lending and overstretching to get a foot on the ladder; they want sensible house prices.

First-time buyers are frustrated, and rightly so. But this strategy will provide them with little real comfort.

Campbell Robb is CEO of Shelter, the housing and homelessness charity.

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  • alexsandr

    or HMG could find all the redundant housing stock, refurb it at a fraction of the cost of new build then sell them on to owner occupiers. They can put a covenant on the title to ensure that.

  • Sir Everard Digby

    If anyone examined the UK housing market more closely,they would see a trend which shows that home ownership in England has been falling since 2003 and has also fallen in the US, Australia, Austria, Finland and Ireland, to name just a few.

    The nature of the market has changed and will continue to change.

    I think buy to let landlords are part of the problem -they crowd out first time buyers.Rents are on the increase,so this trend is likely to continue.

    Logic suggest that supporting the rental sector would be a better strategy.

    Demand for homes is growing yet building them either as social housing or private developments has slumped.

    However,corporatist Dave wants to concentrate on his housebuilding friends,who are now working in market which is stagnant but even in the ‘boom’ years, demand to own its products was falling.

    Suggests he is backing the wrong horse. Like the rest of the political classes,he thinks he knows the answer without understanding the problem.

  • daniel maris

    Dimoto –

    There’s no contradiction there. Immigrants come in all shapes and sizes. There are the megamillionaires who soak up the best housing stock in London and putting pressure on prices further down the scale. There are illegals and immigrants from poor countries prepared to do menial jobs for low wages, sometimes illegally, and to put up with cramped accommodation, at least till they find somewhere better. There are immigrants who because of their lack of English, poor skills and alienation from our society’s values, who end up being simply a burden on the welfare state. There are immigrants who do well and start competing for private housing.

    But overall there is a simple equation between population numbers and housing shortage in a country with a limited amount of land that isn’t in mountainous areas or on flood plains, and which has strict planning laws.

  • daniel maris

    I think a better way for the government to proceed is for the government to build the houses (either directly or through contractors) and sell them to the highest bidder. That will guarantee a good supply which will relieve pressure on house prices generally and it means you can be far more certain about the number of houses being built.

  • Jon Stack

    These proposals show the government has been well and truly nobbled by the big housebuilders. They have to contribute 3.5 % of the purchase price to the indemnity fund; so the scheme will add to house price inflation as well. Who came up with that I wonder?

  • starfish

    “The same posters on here claim:

    1)That immigrants outcompete the locals on wages, partly because they live in dormitory houses, 10 to a room.

    2) That there is a housing shortage because immigrants (with little capital ?) snap up all affordable housing.

    Anyone care to explain ?”

    Yes. BTL/Landlords buy up surplus housing and stack 10 or more immigrants to a house. They in turn are not paying market rents because they are stacked 10 to a house


  • Dennis Churchill

    November 22nd, 2011 6:21pm
    They create demand for rental property so property is bought by landlords to rent to immigrants.
    Supply and demand again.

  • Peter From Maidstone

    Will Campbell Robb be coming back to talk with us?

    My parent’s house grew in value at a rate of 9% a year over 30 years. How was that sustained? It can’t have been especially due to cheap credit because if there were 2 people with unlimited funds and 5 houses available then they would not pay over the odds. It must be due to a lack of supply. And since in the 1980’s there was not a great lack of supply it must mean that immigration has driven house price inflation.

    If there were less people here then there would be less demand for housing, prices would fall, young people might be able to afford a mortgage.

  • Dimoto

    The same posters on here claim:

    1)That immigrants outcompete the locals on wages, partly because they live in dormitory houses, 10 to a room.

    2) That there is a housing shortage because immigrants (with little capital ?) snap up all affordable housing.

    Anyone care to explain ?

  • Frank P

    In the early 1960s, We acquired our first no-deposit mortgage from the LCC at 6% fixed rate interest when they decided to go into the mortgage business. Purchased a semi for £4.500. Had to prove we could afford the repayments, though. Sold it thirteen years later for £20,000. Inflation worked for working families in those days. Who threw the spanner in the works? Nothing wrong with local government lending money to people in work who can pay their dues. Money lending’s good business – provided it doesn’t descend into shylocking. The problems start when the government implements social engineering by ‘guaranteeing’ loans with taxpayers’ money to claimants who are already being kept by them. Insanity. See Fanny and Freddie.

  • Justathought

    The Housing Strategy states “For the first time, the receipts from additional Right to Buy sales will be used to support the funding of new affordable homes for rent on a ‘one for one’ basis, which is expected to deliver up to 100,000 new homes and support 200,000 jobs.”

    Thousands of tenants will now be given a better chance to buy their own home although the maximum discount should be restored to the Thatcher ere level of 70% rather than the suggested 50% (especially in London where property inflation has been highest in recent years).

  • REPay

    I can’t believe that government is proposing this crazy intervention on behalf of a few first time buyers. This smacks of the last government’s intervention for “key” workers which basically enabled houseflipping for the public sector.

  • Dennis Churchill

    Thomas Paine
    November 22nd, 2011 4:57pm
    As a general rule social housing does not pay its way. It normally (depending on age) has debt charges and is subsidised. Tenants get housing benefit in the same way as tenants in private rented accommodation. The government pays housing benefit to the local authority or housing association rather than to the local authority to pay a tenant who pays a landlord…
    Housing like every other market comes down to supply and demand.
    Rents in the private sector would be lowered if the legislative burden was reduced and court proceedings speeded up. House prices and rents would go down if there were less people or more properties in the areas most under pressure. You can probably buy a house in the outskirts of Liverpool for £30K because no one wants it. A studio flat in central London will set you back a quarter of a million.

  • Ghengis

    Another PR scheme in tune with the financial system that is the root cause of all our money problems. It’s pure debt upon debt, a sales pitch aimed at a market that suffers instability, offers that cannot be sustained and are obviously doomed and we all lose out.

  • In2minds

    “At best, the mortgage guarantee helps to provide a boost to house builders”

    Hardly surprising considering how much support the Tory party has had from property developers.

  • The Realist

    The solution is simply allow the markets to do their thing. If rates weren’t held artificially low then house prices would be much lower and heading to more normal levels of affordability. Problem solved. THe main issue is that both the Government and the BOE can’t help interfering with the markets and therefore it is no surprise we are where we are. The other obvious issue that Politicians fear to tread is that immigration over the last 10 plus years has much higher than any Government has cared to admit! ‘The Cocks will come home to roost.’ Downturns and corrections are natural parts of economic cycles – if you try and prevent them then you only magnify the bust when inevitably it comes!

  • Dennis Churchill

    The problem is one of population density specifically in south east England.
    Uncontrolled immigration has resulted in a population density higher than India’s.
    In such an environment owner occupation, at the rate traditionally expected, is not possible, neither is living in our traditional semi-detached three bedroom houses.
    A more transient population, which moves more frequently for work, suits a rental market and housing densities in London and the south east will result in more blocks of flats.
    The figure to remember is 70 million, which is what our population will soon be.It may, of course, already be 70 million as I see Westminster council is again challenging the government’s population estimate saying they have 20% more people in the borough than the government acknowledges. As the council is using council tax and medical registration figures I am inclined to believe them.

  • Thomas Paine

    Right to buy has been an economic disaster, substituting council houses (which paid their way) with massive subsidies to private landlords via housing benefit, a bill that probably takes the medal for the most out of control benefit on the books.

    The housing strategy is the coalition at its most contradictory and idiotic. If there were any justice it would end Grant Shapps’s career – but we all know that compliant idiocy is rewarded not punished in this administration.

  • TrevorsDen

    ‘welcome relief for some credit-worthy borrowers who simply can’t build up a sufficient deposit.’ — So? Whats wrong with helping these people. They are what Mrs Thatcher would have called ‘our people’.

    I find it nhard to get worked up about the govt underwriting to the tune of 200 million. growth is stalling and banks are not lending – yet again hysterics rule.

    P from M – the problem is one of loans not being available.
    Eric’s description of housing developers is cobblers.
    Once again ignorance rules. So much for the benefits of the Web.

  • dorothy wilson

    And if house prices were brought down to “more realistic levels” how many people would be in negative equity?

    The reality is that Labour’s supposed end to boom and bust have left us with choices on so many economic issues that are between the devil and the deep blue sea.

  • Eric

    Unfortunately, Builders/Developers always want a housing shortage in order to sell shoe boxes with unduly high margins. Simple.

  • Peter From Maidstone

    Campbell Robb, does Shelter believe that immigration has either caused or increased the problems of finding low cost housing?

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