This is an article that appeared on my
regular Local Government blog on the Progress website at www.progressives.org.uk
The stalled housing market is one of the factors threatening to
push the UK economy into recession. The consequences of
that would be dire – higher unemployment, pressure on public
spending, impacts on crime and family breakdown. The
Government must do what is necessary to stop that happening, and a
strong partnership with local government will help. It was
good to see the Government recognise a role for local councils in
this week’s package to help prevent homelessness and repossessions
and provide more council housing.
The new measures will help some of those worst affected, but
there was one bold step missing that could have made an even bigger
difference. Giving councils the power to offer competitive
mortgages to borrowers would tackle the real cause of the market
seizing up, and that’s the lack of mortgages available to people
who want or need to buy a home.
The housing market has stalled. House sales in May this
year were 43% less than twelve months earlier. This affects
labour mobility as people who need to move for work can’t. It
keeps house values artificially low as the supply of homes for sale
outstrips demand from potential buyers unable to get
mortgages. That in turn affects confidence in the
economy. Younger people aspiring to buy a home find
they can’t get a mortgage that gives them that important first foot
on the housing ladder. A year ago, you could find 33 lenders
willing to lend 100% of the cost of your new home. Right now,
there are only two. This locks up the private-rented sector
too as people find they can’t move out of it. Together,
this provides a powerful impetus tipping the economy towards
recession.
This week’s proposals from the Government do not address the
lack of availability of mortgages from the main lending
banks. They could have granted councils the power to offer
loans at competitive rates as a way of getting the market moving
again. Councils could use their financial power and security
(they can’t go bust) to borrow at more advantageous rates on the
open market than individuals or most institutions.
There are many credit-worthy individuals with good incomes and
secure jobs who can’t get mortgages. This scheme would help
them. There are others who pose a higher financial risk who
councils should not lend to. But with repossessions up 48%
over the past year, we could offer them longer-term repayment plans
that help keep them in their homes. This would be cheaper for
the taxpayer in the long run than having to house newly homeless
people in B&B accommodation. And for people looking for
their first property, councils could offer to lend them their
deposit in return for a small stake in the property they’re buying
– in effect, an expansion of the popular shared-ownership
scheme. Again, in the long-term, a low risk option that could
help stimulate the housing market, support aspirational
citizens, and help steer the economy away from recession.
Of course councils would need to be cautious about taking on
risk they may not fully understand. But there are plenty of
financial institutions and lenders out there who would offer the
expertise in return for a share of the business. Some
councils are already looking at piloting such a scheme in return
for a share in the property being bought.
In 1980 around 600,000 mortgages were lent by local authorities
at a time when the financial institutions were less flexible about
lending. Since then, the banks have taken a near-monopoly on
this market. Today, we are seeing the banks become more
inflexible and this is threatening the livelihood of millions who
would be affected if recession comes. Councils are well
placed to intervene, supporting homeowners and homebuyers in a way
that could keep the economy stable. And that, after all,
means securing the future for those millions of hard-working
British people who need and deserve Labour’s support through the
current economic difficulties.
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