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
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.