Beware sub prime


             The Chancellor’s wish to revive housebuilding and promote more home ownership is an understandable  one. His critics now allege that he is seeking to invent  US sub prime style lending, allowing people who can scarcely afford it to borrow more than they should to meet current levels of home prices.

              This need not be the case. Indeed, I hope that is wrong, and that the new scheme will protect against any such danger. Any government intevrention in the mortgage market, on top of owning one of the UK’s biggest banks, should ensure proper checks on the credit w0rthiness of anyone they help, with a view to minimising taxpayer losses. Interfering in the market too much or offering guarantees against a loan prospect that a commercial organisation wouldn’t make is not a good idea.  What we do know is the construction industry is operating well below past levels of output. Very few new homes are being built. Meanwhile even after the reductions in net migration achieved so far, the population is growing through substantial inward movement of people.

            There are all too many people born here or legally settled here who have not been able to buy their own home. Young people have to wait many more years on average before being able to take on their first home with a mortgage, than the generation that went before them. The two main constraints today on them buying are the high level of deposit required, and in some areas the high level of house prices in relation to incomes.

              The issue of home prices creates a problem for the government. Following a policy designed to get them to fall further, as we experienced during the intense phases of the Credit Crunch, would put people off buying and make the position worse in the short term. It could also add to taxpayer losses incurred at RBS and HBOS, where we own big stakes in the  existing mortgage books.

              The price of homes is heavily influenced by the price of second hand homes, which in turn is influenced by mortgage availability and multiples of earnings lent. The government’s solution is to seek to cap home price rises by supplying more new homes, without doing more to withdraw credit and undermine prices further. Indeed they now think they need to boost credit a bit with some taxpayer guarantees to help banks lend a bit more.  Prices did, after all, experience a substantial fall towards the end of the past decade outside central London.

             To make a success of the new policy of guarantees of the extra borrowing needed to reduce the deposit, the government will have to ensure sensible  credit analysis. It would not help to end up with a load of sub prime mortgage guarantees on the state books. 

          The reason the government has been driven to this policy is the banks have not been mended sufficiently to sustain normal commercial lending at a sufficient volume . The regulators have lurched from being far too loose to being too tough, leaving the mortgage market starved of funds.   The government needs to move on from these special schemes, to sorting out the rest of the state banking problem, in ways we have often discussed here. What we need is a set of competitive working banks with enough cash and capital to allow sensible levels of lending. Then we will not need special measures like this. I still favour dealing with the problems of RBS as described, rather than new special measures to get round the problems of the banks.

          I hear there is also a political spat about second homes. I trust the government will design the detail of the scheme in a way which does not use state support to help buyers of second homes.



  1. lifelogic
    March 22, 2013

    Simple relax some of the many absurd over the top and often silly building regulations, relax planning controls, let builder builders build what the market actually demands where it demands it. You need to get builders finance to not just the buyers. RBS/Natwest, government owned, seems to have made it its main priority the pulling back of property development finance.

    The building and planning regulations on new houses often produce absurdly small houses with small windows, no room to expand and no where for visitors to park (or often even hang their coats). I have seen better caravans and even tents. Get rid of the silly boiler regulations that force unreliable and expensive boiler on to people and daft dim lighting systems.

    Only more supply of good houses where needed will keep prices down than and control of the population.

    Of course people will need jobs to pay for them. So we need lower taxes, proper banking, less EU, a state sector half the size, a real small state vision and cheap non green energy but we have the coalition for two more years, alas then the same tax borrow and waste from Miliband.

    1. Bazman
      March 22, 2013

      For once I agree. There has been a policy around here to build small flats with no parking to discourage car use. The result is cars all over the place and illegally parked. Can’t just walk away from this policy. They can’t even incorporate a wheely bin compound so these are all over the road to. Illegally small rooms. Slums of the future and all allowed.

      1. alan jutson
        March 23, 2013


        Agree its the same here in Berkshire.

        Council policy seems to think if they reduce or eliminate car park spaces and introduce double yellow lines, we will all use public transport.

        They forget family visitors, tradesmen, social services, doctors, ambulances, all need to park somewhere, they also seem to forget that the local bus service stops at 18.00 hours.

        Absolutely clueless, no joined up thinking, and as you say, slums of the future.

      2. lifelogic
        March 23, 2013

        Indeed and will not room to enlarge or anything often.

    2. uanime5
      March 22, 2013

      Given that the market is demanding large houses for the very wealthy because they’re the most profitable doing what the market wants will make the housing shortages worse, as there’ll be less land available to build regular sized houses.

      1. Bazman
        March 23, 2013

        Or squeezing as many daft flats as the law and some times more than the law allows in to the land avalible.

      2. Mark
        March 23, 2013

        The building for the wealthy is rebuilding on land which already has houses for the wealthy on it. Take a look at aerial photographs of the Crown Estate in Oxshott (a.k.a. footballers’ mansions). Their new houses are much bigger, and less space is devoted to gardens. In London, they dig down several stories of basement.

      3. lifelogic
        March 23, 2013

        Well it is not just demand for large houses and if people move on they release their old smaller house.

      4. Leslie Singleton
        March 24, 2013

        unanime–There is no such animal as the market–just everybody making their own decisions in their own interest with the results being boiled down. No doubt you would rather it were all done by diktat, on which recent blogs are eloquent on such as lack of car parking spaces which decisions I much doubt were made by the filthy rich–who need more and bigger spaces for their Rollers, Bentleys and the like.

  2. nina andreeva
    March 22, 2013

    Spot on with your analysis JR in that is all designed to protect the banks from any further falls in the value of houses. However rather than take on the liability of lending to those who otherwise need financial assistance to buy a new build of dubious quality. GO should have instead helped people feel more confident about their jobs, by concentrating instead on ways to convince employers to stop sitting in cash and invest instead. However looking at Caterpillar and Oracle’s (two companies whose global presence should indicate this happening) and the price of copper this situation seems to be getting much worse.

    1. a-tracy
      March 22, 2013

      Nina you say GO should “concentrating instead on ways to convince employers to stop sitting in cash and invest instead”. So how do you expect GO to do that? Companies need cash reserves to deal with unexpected client insolvencies and reserves to carry on trading whilst trying to replace lost work without laying off too many staff whilst you take stock.

      By helping the economy to stabilise and giving staff more of their earnings to spend thanks to the rising personal allowance, and not putting in the planned fuel duty rise and giving small employers the benefit of £2000 NI free period (although he should have started that 2013/14 tax year if he wanted to see an immediate benefit from that) I think he has done well with a bad hand.

      1. Nina Andreeva
        March 22, 2013

        Good point Tracy, but what I was talking about was the really large companies who can make a big dent in the unemployment figs through capital expenditure, rather than just sitting on piles of cash or indulge in things like share buybacks

    2. uanime5
      March 22, 2013

      One way to make employees feel more confident about their jobs is to make it harder to fire them. People are unlikely to spend when they worry about being made redundant.

      1. libertarian
        March 23, 2013

        There’s a really easy way to make it very hard to be fired and that is to be really really good at your job. Then even if you did have an idiot boss you walk straight into another one.

        If on the other hand you didn’t mean fired but made redundant then the only outcome of making that harder is more companies going bust. I would have thought a better idea would have been the German “mini job” scheme

      2. a-tracy
        March 23, 2013

        No, one way for an employee to feel good about job security is that they do such a good job, adding value and prosperity to the business that you’d be mad to lose them.

        If you remove the ability to terminate employment for poor, unproductive performance that is killing the business you’d rather the whole lot goes down? Or if you lost a contract where three people worked on it so you had no alternative work for them, you believe they should be employed for life. Well why don’t you build and create this perfect business and employ everyone out of your pocket? Just what’s stopping you?

      3. lifelogic
        March 23, 2013

        Yes but do you make industry compete and other employees happy if the company cannot sack useless employees or even the NHS even sack useless doctors, nurses and other staff who are even killing people?

        The best protection for jobs in the long run is easy hire and fire, that improves productivity and creates more jobs in the long run helping employees with competition for their talents.

        Legislation to protect employees just back fires and destroys companies, confidence, stops them growing, pushes them abroad, and destroys jobs.

      4. Leslie Singleton
        March 24, 2013

        unanime–Baloney and naive as ever–Employees are more confident in an easy fire environment because easy fire means easy hire which is over-riding in that being fired is no big deal because they know they can get another job. Also employers who (within reason of course) can fire incompetents (Have you ever worked and had to deal with such people? How’s it go? No–thought not) can run their companies more efficiently and have less by way of worry and costs for legal advice fending off law suits, which costs apply even if the employer has a rock solid case because as now he has to research the legal position before so much as breathing, so inter alia he can pay the worthwhile employees more. Big employers have to have whole departments. Some employers and prospective employers simply give up, which hardly helps employees much either.

      5. A different Simon
        March 24, 2013

        All the employment laws in the world are not going to help them when their employer goes bust which will happen a lot quicker if they are not able to fire when they need to .

        Look at the number of people who are fired at 3 months – a direct consequence of employment rights legislation .

  3. Leslie Singleton
    March 22, 2013

    Always seems strange to me that you never mention that, whether you like or agree with it or not, the banks are behaving rationally and are unlikely to change much merely because of the government’s quaint schemes. The long and short of it is that banks aren’t going to make mortgages available happily till 1) House prices fall to where the banks think they should be and 2) The economy improves so that general creditworthiness improves likewise. The Funding scheme might help a bit but only by reason of the cheap pricing of the relative funding and not by reason of extra funding per se. In any event neither of these effects is going to override banks’ opinions on the rather obvious credit problems, and very rightly so. It is, certainly was, a truism that good pricing does not in itself cover term risk. As for the latest scheme, I have already written (but not yet been moderated?–no way of knowing) that it is worse than wrong because if it is going to work at all (very debateable) it is going to raise house prices whereas as I have said what is needed is that they should fall, after which people could afford to buy and the banks could be adequately collateralised. The Government’s judgement is as usual up the pole.

    1. lifelogic
      March 23, 2013

      They are perhaps behaving rationally, given the legal regulation framework and Basel capital rules, but these are mad rules often forcing them to lend to the state or certain sectors.

  4. Mike Stallard
    March 22, 2013

    Times have changed.
    In Singapore, houses in central London are advertised on TV. These adverts are aimed at normal people who are taking part in an economy where there is more or less full employment. Yesterday I was talking to a Russian who claimed that Russian was now the lingua franca – she found that in Dubai everyone spoke it. In Phuket I found the notices are all in Russian, no longer German.
    Now we are facing a new tide of immigration next January thanks to Schengen and Lisbon.
    And local people have the power to stop more houses being built. The centre of our town is literally falling down. It would be a lovely place to live if it were rebuilt and made safe at night. But no, it has to remain as it always were.
    The real problem is that we English can no longer afford to live in our own country, and we are frightened of the future.

    1. Roy Grainger
      March 22, 2013

      The reason London properties are popular with overseas buyers is simple, no matter how many they own they pay no capital gains tax at all when they sell them. One way or another this situation should change so that UK residents are not disadvantaged in this way.

      1. Electro-Kevin
        March 22, 2013

        Many escapees from the PIIGS nations must be buying London property with money they’ve saved without having paid tax to their own governments. This must be true or their own countries wouldn’t be broke.

        So, not only do our people help to bail out failed European states indirectly, they are also competing against foreign investors who have the advantage of wads of untaxed money to spend.

        1. sm
          March 23, 2013

          Lots of articles on wealth per capita of Italy versus other Euro countries. As well as articles on the skewed wealth distribution at the multi million/ billionaire end.

          Then the rationale of austerity is?

      2. Lola
        March 22, 2013

        So, scrap CGT completely then.

      3. lifelogic
        March 23, 2013

        You do not pay CGT on any main residences anyway. Also gains are often not even real gains, after inflation. Just get rid of CGT or get it down to 15% of any gains after inflation.

    2. Nina Andreeva
      March 22, 2013

      I have never known why HMG does not follow the Singaporean HDB model instead? Over there I know a couple of doctors who are not embarrassed to live in what is effectively a council flat

      Its something funny about the British mentality that you have to be a homeowner. This is incomprehensible to my German friends, they rent, they can move around the country to follow the better jobs and enjoy a better standard of living as a result. However they have never really explained how you afford the rent when you retire? Though I have never seen any destitute German grannies.

  5. margaret brandreth-j
    March 22, 2013

    There are many houses out there which are deteriorating with windows boarded up and generally run down.These properties could be made into desirable homes with less money spent on them than using the free space which we have too little of.
    Why a nation always chooses to see new as better is a notion which in the main is self deceptive. Many of the post war council houses are more solid and spacious than the private matchboxes which are being squeezed into small football ground sized plots.
    I have 2 houses by bereavement , but have my children who can’t afford their own houses living there. Not everyone wants to make a business out of everything. Families actually want to help their offspring and not rely on the state which is already overburdoned with less fortunate people and sadly those who want to make a profit out of the state and others.

  6. Mick Anderson
    March 22, 2013

    It looks very much like trying to solve a problem caused by borrowing by encouraging yet more borrowing. This looks like a scheme lobbied for by the big housebuilders, to help prop up poor sales. We could do with a lot fewer new-builds if it was more cost-effective to renovate existing housing stock.

    A better approach to make housing more available would be to remove VAT on the materials and labour required to renovate or upgrade an existing property, to match the VAT-free status for new-builds.

    There are lots of unoccupied properties within the financial reach of either new buyers or small building firms, which could be brought back into use for a lot less money and time. However, in many cases the VAT makes it too expensive to be economic. That leaves the options of walking away, or knocking down and rebuilding, which of course is only really a practical option for free-standing houses.

  7. Steve Cox
    March 22, 2013

    John, your faith in the government’s ability to produce a clever and well-targeted set of rules or guidelines in a short period of time amazes me. For goodness sake, the imbeciles who advise George Osborne at the Treasury couldn’t even get the pasty tax right last year! This is just going to be another shambolic waste of money, and given how much other money the government squanders every single day I’m sure that it doesn’t care a fig, as long as the £130 billion produces a rosy glow in some form of economic recovery by 2015. Even if it manages to achieve that, though, it will be a false dawn, another British economic castle built on quicksand.

    Roger Bootle described this policy correctly in his article two days ago:

    Then there were the measures to boost home ownership. This continues to be one of the worst features of post-war British policy. Housing is not the key to prosperity. And however important it is, what is needed is a stimulus to supply, not increases to demand. We can no more get rich by buying and selling each other’s houses than by each agreeing to take in each other’s washing. Increasing the demand will only raise prices further.

    1. Steve Cox
      March 22, 2013
    2. outsider
      March 22, 2013

      To Steve Cox:
      There is a big difference between the equity loan scheme, which is designed to stimulate a short-term boost to new building, and the mortgage guarantee scheme, whose main effect would be to push up house prices.

      The one can be justified as a risky but time-limited boost to economic activity. The other is just madness. If it works as intended it would just help some new people to buy homes at the expense of others who can no longer afford to. I note that it does not even come into force for another year which seems to make it even more pointless.

    3. Electro-Kevin
      March 22, 2013

      “Increasing the demand will only raise prices further”

      And if that rise in prices is met with borrowed money (as it will be) then where will we end up ?

      A sound economy is what begets a healthy housing market. Houses on their own beget nothing. There are millions the world over standing empty.

      1. Bob
        March 22, 2013

        “Houses on their own beget nothing. There are millions the world over standing empty.”

        Is that because their previous occupants all came to Freebie Island looking for a better life?

        1. lifelogic
          March 23, 2013

          Houses provide needed accommodation for worker’s families. They are as important, as the production line or the office to growth and GDP. To suggest otherwise is a silly Libdem argument, just like the short term long term returns drivel they come out with. If the Libdems say it it is nearly always stupid and wrong. They are neither liberal or Democratic just rather dim.

  8. Robert K, Oxford
    March 22, 2013

    Instead of cooking up fancy schemes, wouldn’t it be great if the government’s first step in every policy was to ask this: “What is the government doing that might be part of the problem?” Or “How, by doing less, can the government encourage citizens to do more?” So, for example, if the problem is a lack of housing, perhaps part of the problem is too many government imposed restrictions on planning and building design. If house prices are too high, perhaps it is because of the government’s policy on interest rates. If there is hard for people to borrow money, maybe the government should get out of the banking business by breaking up RBS.

    1. alan jutson
      March 22, 2013


      Why no new housing ?

      Perhaps the folowing may help.

      Not enough land, or too many people in such a small area.

      Prices too high because not enough houses, not enough houses because not enough planning approvals, not enough planning approvals because too much green belt, too much green belt because no one wants houses built near them.

      No one trading up or down, so market slow, no real surprise with Stamp duty at the rate it is, and in addition it is charged at the highest rate on the total price.

      No one building because the banks will not lend,
      Banks will not lend because they have beeb told by Government to increase their reserves.

      Blackmail for Planning by local Authorites with Section 106 agreements which add to the cost.

      Ever wonder why we are in such a state ?
      Given the circumstances its amazing that we continue to build and sell anything. !

    2. lifelogic
      March 23, 2013

      RBS/Natwest “Helpful Banking” (you must be joking-ed). More like the main reason for negative GDP growth. A government owned recession generation machine.

  9. Andyvan
    March 22, 2013

    Hasn’t the housing market had enough political meddling? The boom and bust was entirely due to Brown’s manipulations and where has that got us, gigantic debt and massively overpriced housing. If you want a long term stable market remove all the rigging of the market and let prices find their own level which will support new builds as well as existing stock. Of course that won’t happen because it would require interest rates to rise to a commercial level and that would ruin George’s borrowing and money printing plans.
    So instead we will have more stupid policies dreamed up by a man that is clearly not fit for his job and desperate to appear busy. No wonder we’re so far up the creek minus propulsion.

  10. JimF
    March 22, 2013

    I don’t think you believe this tosh.
    1 Do you really think the government will make a better analysis of peoples’ credit worthiness than the banks?
    2 Do you really think that encouraging any and all to buy overpriced houses with a 5% deposit and temporary 2% mortgages is sensible?
    3 Do you really think this policy won’t have the contradictory effect of increasing prices, eventually shutting more people out of the market, unless of course, the next stroke of genius is to give money away at even less than 2% for people to pay even higher prices?
    4 Do you really not know who is paying for this? Clue: Most deposit accounts now paying zero to 1.5%.
    Please post what you truly know and believe rather than this Treasury-minister inspired BS.

    1. A different Simon
      March 22, 2013


      “Do you really think that encouraging any and all to buy overpriced houses with a 5% deposit and temporary 2% mortgages is sensible?”

      This has got miss-selling scandal written all over it just like the new NEST pensions .

      The Govt is going to end up in court about this and the compensation will be socialised .

      The Conservatives would do well to implement a location based Land Value Tax to discourage hoarding of land and enable taxes on labour and industry to be reduced .

      They could actually do a better job of this than the other two parties because they could do it without turning it into a wealth tax .

      I don’t detect any desire to move away from an economy based on house prices , chain coffee shops and nail salons .

      1. zorro
        March 22, 2013

        ‘chain coffee shops and nail salons’……..I wonder how many of the newly created private sector jobs are based on this line of business?


        1. A different Simon
          March 23, 2013

          How many Britons have you seen these chain coffee shops employ ?

          1. zorro
            March 24, 2013

            Exactly my point about the nature of these newly created private sector jobs…..


    2. Graham C
      March 22, 2013

      I agree.

      For goodness sake the banks basically have interest free money and still they do not lend so further state intervention will only exacerbate the situation.

      1. Leslie Singleton
        March 24, 2013

        Graham–The banks are not going to lend based solely on funding considerations. Cheap funding might make a bit of difference but over-riding by far are the banks’ views on the creditworthiness of the borrower in the current economy including in the case of house lending whether they regard the collateral on offer as bubble priced so likely to fall in value. If I offer to lend you £1 million, cheaply or otherwise, would you on-lend that to a Robert Maxwell just on the basis of your funding being easily available? You would of course be mad to do so and my funding you cheaply would be neither here nor there. It would help I know if the Government were able to get on top of this, which is hardly Cape Canaveral.

    3. zorro
      March 22, 2013

      ……………… tumbleweed moment………………


    4. Lola
      March 22, 2013


  11. Alex
    March 22, 2013

    “Following a policy designed to get them to fall further, as we experienced during the intense phases of the Credit Crunch, would put people off buying and make the position worse in the short term. ”
    Sorry, I totally disagree.
    I think people are sensibly holding off because houses are still overpriced by historical standards and in affordability terms. They are more affordable using current interest rates, but rates will go up at some point. They are unaffordable in terms of price against earnings. With prices flat and 3% inflation homes are an investment with a -3% return.
    If you want to encourage buyers you need potential buyers to know that any drop that may happen has happened, to bring prices back to affordable levels. And that is probably a 10-20% real terms drop from current levels. Once that has happened, demand will boom. Of course middle-England home owners will have a fit. But maybe their children can finally afford to buy their own home.

    1. A different Simon
      March 22, 2013

      Alex ,

      A 10-20% real terms drop from current levels would not make houses affordable .

      The “wages” which the old 3.5X standard was based on were wages after provision was made for old age .

      People are now paying the money which would have been made provision for old age to banks and landlords for their accommodation .

      Essentially by persuading the Govt to help destroy pensions the CBI enabled their members to get their hands on peoples pensions now without waiting till they get old .

      Given the length of time people are living , during their working life they should be saving something like 28% of their total pay package for their old age .

      A household should be putting 28% of their total pay package away for old age and that in order to enable them to do that they cannot afford a house of more than 2.52 X gross wages :-

      ((100 – 28)/100) * 3.5 = 2.52

      Let’s flood the market with building land and enact a land value tax on the plot and see how low we can get house prices .

      My nephews and niece will never be able to afford a home .

      House price crash – bring it on please !

    2. Deborah
      March 22, 2013

      I agree with Alex

      The market is stalled (outside of London) because few believe the house prices can be sustained at their current value (Outside of London).
      The market continues in London only because, as Mike Stallard says, cash-rich foreigners are are investing in a property bubble.

      This latest “initiative” (or lack thereof) will not improve the situation. House prices need to fall relative to incomes and, one way or another, it will happen.

      As one of those middle-England home-owners who will lose out big-time, I do not relish the prospect. But it really cannot be avoided and, once again, the government is only making matters worse by delaying the inevitable.

      1. zorro
        March 22, 2013

        This is the sensible way of looking at things. One cannot really expect to pay a small sum for a home years ago and see it turn into a paper gold mine, which is what some people seem to think is realistic, thus condemning future generations to expensive and ever rising accommodation costs and choking off their ability to invest or consume.

        I was listening to Gideon when he was talking about people with good jobs not being able to afford to buy a house. That’s probably because they are too expensive compared to the wages that people can achieve. Oh no, wait maybe it’s because people aren’t being paid enough. Perhaps GO needs to consider raising the minimum wage to £40,000 per annum. That should do it, create some inflation as well and inflate away the debt.

        John, you must solemnly promise not to show this post to the chancellor…..just in case.


    3. ChrisXP
      March 22, 2013

      Some Middle-England home owners might have fits, but I won’t. Our house was purchased so long ago that a price drop would have to be absolutely massive to reach what we paid for it. We bought at a time when 2.5 x salary + 1 salary was good enough to get a mortgage, but the interest rate was also high, at (what) 15%. We never asked for house prices to rocket and have never taken benefit because we’ve always lived in the same place.

      We go on about our children not being able to afford their own homes, it would help if the country got them into decent well-paid employment first, instead of showing endless favours to foreign in-comers.

  12. Nick
    March 22, 2013

    It’s all about supply. Nothing about demand eh?

    How many more migrants are you going to add into the mix before you realize there are two sides to the price and affordability equation.

    Supply and demand.

    Put proper migration controls in place so we only get migrants who pay their way, and you solve the demand side. Get rid of the migrants who don’t pay their way, and you solve the demand side.

    It’s far easier

    1. Martin Ryder
      March 22, 2013

      But this is impossible whilst the Conservative Party is led by left of centre liberals and is in coalition with left-wing liberals.

      It is also impossible whilst it is in the interests of the immigration authorities to keep immigration at a high level – without immigrants they do no not have a job. I may be wrong but I doubt very much that the figures given to Mr Redwood by the Immigration Minister recently were much more accurate than the OBR’s growth forecasts. Is everyone who enters and leaves the UK counted and do we know everyone’s intentions for length of stay in the UK – I doubt it.

      I have three grown up children. One has a house that he and his wife can barely afford and requires an over two hour expensive commute to work in the morning and in the evening. The other two live with my wife and I. We are happy to have them but they would rather be independent; however there is no chance of that happening under this government or the next. Well paid jobs are scarce and much sought after by both natives and migrants. In these politically correct times the latter would appear to have the edge where jobs are concerned.

      Still, mustn’t grumble; we live in a free country, don’t we?

      1. A different Simon
        March 22, 2013

        Martyn ,

        In Malaysia and other countries around the world ownership of homes of average price is reserved for citizens of that country .

        I feel we need the same thing here with the threat of confiscation if people try and bend the rules .

    2. backofanenvelope
      March 22, 2013

      Spot on. You cannot import 3 or 4 million migrants without affecting the housing supply. And soon, some of those imported in 1997 will be looking for homes of their own.

    3. Worried...
      March 22, 2013

      Housing is driven supply and demand of credit. Osborne has pumped the supply of credit directly to housing. A bit like giving a dying man a final shot of morphine.

      Incredibly stupid. Might win a few votes, thats what its there for – in power to fix problems – 5 years of kicking the can down the road.

    4. Electro-Kevin
      March 22, 2013

      Nick – It depends what the migrants earn (their contribution in pushing up house prices) Or what they can claim in housing assistance and what the Govt pays welfare landlords on their behalf.

      That we are told they are here to work cheaply so they can’t be bidding up house prices. It means that an awful lot of Govt money must be wrapped up in keeping house prices high in areas of high unemployment/low wages.

    5. zorro
      March 22, 2013

      Well, the proposed bond won’t be much use as £1,000 will not be difficult to raise…… Bogus students raise far more in excess of this to gain entry under Tier 4.

      In fact, it may create a perverse incentive. There may be more pressure on the UK authorities abroad to issue a visa if the ‘sponsor’ stumps up a bond no matter if they are bogus, as they will be considered ‘genuine’ because they have come up with a bond. Believe me, I suspect that this might happen. Even those who facilitate the entry of illegals to the country seem to charge around £10,000 or more for the package and it certainly costs a lot of money to remove these illegals once in the UK…..Perhaps the government might be looking to undercut them.


  13. ChrisS
    March 22, 2013

    Hello John.

    I agree with the government that an active housing market is one of the keys to economic recovery. Like it or not, for 50 years the success of the British economy has been dependent on growth in house prices. In the long term, middle class households will have to ladapt and rely more on trade and the profit from trade rather than the release of equity from their houses to progress.

    However, as a recently retired Independent Financial Adviser, I am increasingly worried about the problems being stored up for those that have taken out new mortgages in the last four years : This is potentially a very serious problem yet I have seen no comment from any politician or financial expert about it :

    Up to 2008, the underlying rate of interest on a mortgage, the rate that would apply when a fixed or discounted rate deal ends, was around 1% above base rate.

    During the financial crisis, the FSA watched silently while lenders rapidly increased the underlying rate to around 4%-5% above base rate. This is no problem while base rates remain low but at some point the Bank of England will have to increase rates back to a more normal 3-5%, at which point those same home buyers will be forced to pay 7% -9% for their mortgage.

    Unless wages rise dramatically, this will prove disasterous and, should there be a reversal in house prices, a further tightening of mortgage criteria or the hapless home owner is in a lower paid job, they will no longer have the option of remortgaging.

    I can see no acceptable reason why the underlying mortgage rate should have been increased by around a factor of 4 while lenders are still able to raise funds at 1% over base. My only conclusion is that the lenders have done it to ensure that their mortgage books are so profitable that they can eventually sell them off to investors for a premium.

    George Osborne is rightly looking to boost the housing industry, however, unless action is taken with lenders, he will be encouraging house buyers to take on large mortgages on terms that are certainly not in their long term best interest.

    1. Mark
      March 23, 2013

      The idea behind increasing the margin is to recapitalise the banks. I think it might have been useful to use some of the margin to repay mortgage principal early. That way, we could have seen say 2% a year repaid – or 10% in total. That would have the advantage of increasing the equity cushion on some of the higher LTV loans. Such a measure could even be applied to interest only loans.

  14. Roy Grainger
    March 22, 2013

    The problem was caused by sub-prime so it is strange homeoptahic thinking which says sub-prime is also the cure. To quote Peter Cook, I have learnt from my mistakes and so I am able to repeat them exactly.

  15. Graham C
    March 22, 2013

    I have a vision of some types of Eastern Europeans buying these properties subsidised by us so that they can be used for either cramming their countrymen in at high rents – or for even worse!!

    I have no confidence that the ‘civil service’ will legislate to stop this type of abuse.

  16. Richard
    March 22, 2013

    High house prices are the reason why the UK economy is not competitive internationally

    Jobs will continue to be outsourced, or the government will be forced to top up wages and through that continue to run massive deficits until they adjust. Many of our competitors have adjusted, we have decided to continue to take on more debt to fight the markets. The markets always win in the long run, keeping house prices above where they should be is completely wrong. The government should be implementing policies to allow them to fall by about 4% in real terms each year, or target a fast quick 30% fall and then bail out those in negative equity which will be cheaper in the long run and get costs back to a competitive level allowing growth to start again.

  17. Brian Tomkinson
    March 22, 2013

    Clearly, this policy has not been thought through, which is sadly par for the course with this government. You cannot possibly believe that “the new scheme will protect against any such danger (of sub-prime style lending) ” when it sounds as though it was invented the night before the budget. I do not share your confidence. As Ronald Regan said “The most terrifying words in the English language are: I’m from the government and I’m here to help.” The most depressing aspect of all this is that all the three main parties are addicted to tax, borrow, spend and waste. The outcome for our country is becoming bleaker and yet people like yourself and Douglas Carswell seem happy to be critical commentators on the sidelines but continue to support the policies you purport to criticise.

  18. Bob
    March 22, 2013

    Since he has a degree in modern history George Osborne might like to read up on the USA’s Community Reinvestment Act which resulted in the sub prime crisis, the credit crunch and the current economic mire that we now find ourselves in.

    He might also like to swot up on the gazumping 1970’s, when if you borrowed to the hilt to buy a property, it only hurt for the first couple of years, and then inflation kicked in and your debt was eroded away year on year until it became a minor part of your household budget, but your house value just kept increasing, which led to the inflated property prices we seen in the intervening years.

    -> Well folks, the LibLabCon Party’s master plan is to inflate the debt away, so climb aboard and hold tight.

    As Robert K suggests above, the government should ponder:
    “What is the government doing that might be part of the problem?” Or “How, by doing less, can the government encourage citizens to do more?”

    Your leaders would do well to run their harebrained schemes past yourself and Mr Carswell before embarking on any further market meddling.

    1. Brian Tomkinson
      March 22, 2013

      Bob, You wrote: “Your leaders would do well to run their harebrained schemes past yourself and Mr Carswell before embarking on any further market meddling.”
      They don’t need to as they know they can rely on their support no matter what.

      1. Bob
        March 22, 2013

        @Brian Tomkinson

        Alright then, run their harebrained schemes past lifelogic and Brian Tomkinson.

        Fixed. 😉

  19. Mike Wilson
    March 22, 2013

    Mr. Redwood – you are trying to defend the indefensible.

    The government has no business underwriting mortgages to try to keep house prices up.

    Why aren’t you prepared to let the market work? A very modest house in Wokingham costs at least £250k. What chance does a young man earning the average wage of £25k have of buying a modest house to put a roof over his family’s head?

    Answer: NO CHANCE.

    Yet your government is determined to carry on where the previous bunch of lunatics left off and try to ensure the next generation is both saddled with our debts and priced out of housing. I am sure that, one day, the next generation will wake up and, when they do, it will not be pretty.

    1. A different Simon
      March 22, 2013

      Mike ,

      I’m also from Wokingham and live in one of those modest houses which I bought some time ago .

      For a young couple aged 30 I think it would take a dual income of around £70k p.a. to be able to afford it .

      This is on the basis of the assumptions that :-
      – they do not have defined benefit pensions and are saving enough to provide for their old age through the use of ISA’s as any pensions reliant on an annuity are just too risky .
      – they don’t intend to have children .

      If they want to have children as well I think they need to be making more than £70k between them at age 30 .

      This may seem an outrageous exaggeration but it just goes to show that those people who are buying the houses now without making provision for their old age aren’t really affording it properly .

      Pretty sad for the next generation who are born here and will never be able to afford even a Barratt box or a broom-cupboard because the banker landowner lobby hold all the cards .

      1. A different Simon
        March 22, 2013

        P.S. ,

        Using the old 3.5X salary to house price ratio it comes out at around £71k p.a.

        This was from the days when people had defined contribution vocational pensions .

        Now they have to make provision themselves . If interest rates go up that £70k p.a. isn’t going to be enough .

        Oh well . Keep fudging the figures .

      2. Mike Wilson
        March 22, 2013

        A different Simon,

        I wonder if Mr. Redwood will respond to my and your points.

        My eldest lad is 24 and, having got a degree in construction management, is busy doing an MA. He has one ambition – to emigrate. He knows he has no chance of having any sort of family life in this country.

        1. A different Simon
          March 23, 2013

          Your lad sounds like the sort of chap the country ought to be trying to retain but he has nothing to lose by giving it a go overseas at his age if he is in good health .

          The difficulty is finding somewhere which will not suffer the same fate . Australia would have been an option 10 years ago but your pounds sterling won’t set you up over there now .

          The global elite control everywhere . They have all the horses in the race . Julia Gillard implemented a carbon dioxide tax in Australia which shows even they are under the thumb . Australia gave us the terrific Mr Harris and we sent them Ms “nobody wants a concrete poor interrupted half way” Gillard . Some thanks for standing shoulder to shoulder through two World Wars ?

          I suspect most people buying a house are cutting corners to do it ; not making provision for old age and where a couple not having life insurance policies for both even when their are children .

          When you have two people at work you have twice the travel costs which can be significant and likely the need for 2 cars . If one is out of work , has a drop in income or falls ill the whole stack of cards falls down .

          All the assumptions at a national and individual level are just so optimistic to the point of becoming heroic . With two people in full time employment being the norm all the contingencies have already been used up .

        2. alan jutson
          March 23, 2013


          Whilst I agree with many of your points, ref house pricing and earnings, clearly enough people are finding a way around it to sustain the existing situation in the market.

          I am also a Wokingham resident, have two daughters, both who own their own houses in the Wokingham area with mortgages.

          Both operated totally different ways to get a deposit for their first home.

          One lived at home (still paid a small sum to the family finances) for many years, and she saved enough for a sizable deposit.
          The other worked like hell whilst still very young to get a foot on the ladder at the earliest opportunity, with the absolute minimum deposit.

          Where there is a will, there is often a way.

          The danger is if mortgage rates rise to their historic mean level of the past 50 years of 8% then very many people and families will be in trouble.

          I and my wife have fully explained this to both, and they understand fully the situation, hence the reason they are using the present low interest rate period to pay back as much as possible, as fast as possible, and to reduce the terms of the mortgages.

          Needless to say they have to go without some other pleasaures in life that others take for granted like new cars, expensive holidays, regular eating out, and masses and masses of new clothes .

          Its all about choice.

          And before you ask, neither had help from the Bank of Mum and Dad, because we did not want to encourage them to overspend and get into a debt that they could not afford.
          Sadly the Chancellor is encouraging others to do exactly the opposite of our advice with this new stupid policy, yet to be worked out.

          1. A different Simon
            March 24, 2013

            Alan ,

            “Whilst I agree with many of your points, ref house pricing and earnings, clearly enough people are finding a way around it to sustain the existing situation in the market.”

            “Its all about choice.”

            I reckon the majority of people are cutting corners in order to do it :-
            – not putting away anywhere near enough for their old age , essentially paying the interest on their mortgage with their pensions .
            – where the house is bought by a couple , not taking out life insurance on each others lives

            If people were compelled to take responsibility for their old age house prices would have to drop and everyone would benefit .

            As it is all that is happening is that unfunded liabilities for peoples old age are being built up at a hell of a rate and will soon come home to roost .

          2. alan jutson
            March 25, 2013

            A different Simon.

            “Most are cutting corners”.

            Would tend to agree.

            But what one would call cutting corners, another would call choices being made.

            I agree with the thrust of your argument, that house prices are perhaps too high, but 125% mortgases (at the time) the Bank of Mum and Dad and now the Chancellors new scheme will simply hold them at this false level.

            In years gone by we had wage inflation to help out purchasers, but this is certainly not the case now.

            As I outlined, we fully explained the situation to both of our Daughters at the time BEFORE they purchased. In their cases it looks loke it has turned out well for the time being, but I certainly do not envy the young of today with some of the choices they have to make.

  20. Peter Davies
    March 22, 2013

    It always makes me feel uneasy when I hear stories of govt intervention – we know they end up having to build Quango empires to check eligibility etc for this type of thing only to find limited takeup in the end – seen it too many times.

    Had they done the right thing in the first placed and forced the likes of RBS and HBOS to restructure by getting rid of the loss making bits the market would have probably be in a better state to lend by now.

    Rather than the focus on new homes, why not remove VAT and relax planning for derelict restorations and industrial brown site conversions? How many empty shops do we have that are probably unoccupied that could be made into decent town centre housing? (I’m sure you talked about this before)

    Incentives such as this would be far more effective than govt underwriting and red tape – I used to think that it was a Tory thing to make the right business conditions by taxing less and removing red tape, clearly they have become affected by the interventionist styles favoured by Lab/Lib (“we must be seen to do something”).

    There are empty unused industrial units all over the UK which could be either knocked down and built on and converted plus there are towns all over the UK with empty solid Victorian houses needing love.

    I seem to remember in Liverpool not long ago the destruction of rows of Victorian Terrace housing (which were well put together) and could have been restored for circa £30k per house rather than starting again.

    1. Martyn G
      March 22, 2013

      Whole streets of boarded-up Victorian 2 up 2 down h0uses remain in Liverpool. The Council is now trying to sell them for £1 to those who undertake to do them up and live in them for s specified number of year so as to bring life back to the deserted streets and restore a working community. I wish them every success after the insane plot carried out by Prescott to demolish them street by street and replace them with even smaller boxes for people to live….

  21. John Eustace
    March 22, 2013

    I guess this measure may be good politics – hard for Tories in marginal seats to get back in if house prices correct before the election.
    But it is terrible economics and makes no long term sense at all. First time buyers would be a lot better served by prices being allowed to find their natural level without constant government and BoE interference.

    1. Bob
      March 22, 2013


      Doesn’t it remind you a bit of the ITC trying to support tin prices?
      That ended in tears too.

  22. Mactheknife
    March 22, 2013


    Government support for people to get on the housing ladder is good. But all the talk about the need for housing is mostly aimed at the south east because this is where there is massive inward investment compared to other areas of the country. This then creates the need for affordable housing.

    As I travel around the UK I see there are many houses available and affordable in our towns and cities in the midlands and north. The issue is jobs. If the government did more to encourage investment in these areas then some of the housing issues may abate. It’s time for some creative thinking by central and local government in this area such as lower corporation tax, lower business rates or a 5 year exemption for companies who wished to invest in these areas.

    People complain about the London and the south subsidising the north, but there seems very little initiative to do something about it and address problems such as housing.

    1. Mike Wilson
      March 22, 2013

      Mactheknife … ‘Government support for people to get on the housing ladder is good.’

      NO IT ISN’T. It just supports house prices that are completely unaffordable for the next generation. Why the hell should the government ‘support’ people to buy overvalued houses? Do explain.

      1. alan jutson
        March 23, 2013



        Just like the Bank of Mum and Dad, they kept prices higher as well , but few understand !

  23. waramess
    March 22, 2013

    There are a number of tough decisions that will have to be made in the months ahead and if they are not taken then the markets will force the decisions upon the government.

    Interest rates are one decision; held at a stupidly low level for so long a run on the pound will force the governments hand; if they want foreign participation in gilts when the rating is further reduced, then interest rates will need to rise and a high premium over the dollar will have to be paid .

    Higher interest rates will mean reposessions will be forced, leading to house prices reducing fast, gilt prices falling and banks and other financial institutions failing, leading to chaos.

    Best to do something slowly in anticipation than to do nothing and hope it will not happen. It will.

  24. Richard1
    March 22, 2013

    A worthy attempt to put as positive an interpretation as possible on this policy, but I can’t believe your heart’s in it. If you were Chancellor would we have got such a policy?(!) It is as you say, an attempt to revive housing lending which, like other lending, is stymied because of the zombie condition of the banks. But this sticking plaster further delays the needed bank reform by attempting to treat the symptoms. The hope that the govt will do proper credit analysis is akin to saying, if the govt were to go back to picking industrial winners, that the govt must do good investment analysis. Conservatives should support policies which enable markets to operate, and leave people to spend their money as they wish, not policies that attempt to manage market outcomes. Are there not enough precedents to show us where that leads?

    Reply : This is not my policy, and n ot one I suggested to them. You should know my advice is to fix the commercial banks and let them do the lending without subsidy or guarantee.

    1. Brian Tomkinson
      March 22, 2013

      Reply to reply,
      This may not be your policy but you haven’t disowned it and continue to support the government that is perpetrating this financial madness.

    2. Richard1
      March 22, 2013

      I certainly agree with that & know that’s your view. I read your piece above as being more supportive than I anticipated.

    3. a-Tracy
      March 22, 2013

      I’m sure this idea isn’t ideal, but what’s the point spending all our time fixing the hole in the boat if we don’t notice that the people in the boat have starved to death!

      Unfortunately and regrettably much of our Countries growth and wealth were based on property speculation and gains instead of through business investment. The quick buck for little effort was all we heard for about 10 years. So if we don’t bring the housing market down gently whilst at the same time encouraging more substantive investments through private industry then the impact will be felt by everybody and be far harder to recover from.

  25. Neil Craig
    March 22, 2013

    Over the last century house prices have risen 4 times compared to the RPI. This is not for technological reasons and can only mean that at least 3/4 of the price of housing is government regulation.

    Confirmation of this is given by the new Chinese Skycity building which, at just under £400 million will house 17,000 people – app £23,000 per person. This is an example of what modular constructionn can achieve if the regulators allow it.

    Currently building companies spend more on lawyers than on bricks.

    As with so many other things causing this recession, all that is needed to provide as much good quality housing is for government to stop preventing it. Government subsidies to partially ameliorate the extra costs produced by government appartachiks is clearly a nonsence.

    1. uanime5
      March 22, 2013

      House prices have risen because demand has been greater than supply. This is due to the market deciding that house prices should be higher, not the Government.

      Also if builders built more flats than houses there wouldn’t be a housing shortage.

      1. libertarian
        March 23, 2013

        There are currently 800,000 empty flats and houses on the UK market.
        If you had tried to sell a house or flat recently you would know that despite record low interest rates there is very little demand

      2. Neil Craig
        March 23, 2013

        And in a real free market economy when demand is greater than supply supply goes up. This is as basic to economics as 2 +2 = 4 and even I am slightly surprised Uan doesn’t know it.

        We have about the lowest house building rates since the industrial revolution.

        QED we do not have a free market and a free market would solve the problem.

      3. Mark
        March 23, 2013

        In 1951 there were 14.1 million dwelling for 50.2 million people.
        3.56 per dwelling
        In the 1950s house prices in real terms fell slightly.

        In 1961 there were 16.6 million dwellings for 52.7 million people.
        3.17 per dwelling
        In the 1960s house prices in real terms rose about a third.

        In 1971 there were 19.3 million dwelling for 55.9 million people.
        2.90 per dwelling
        In the 1970s, house prices oscillated wildly in real terms, ending about 50% higher.

        In 1981 there were 21.5 million homes for 56.4 million people.
        2.63 per dwelling
        In the 1980s, prices were stable in real terms until the MIRAS boom at the end of the decade which pushed prices up another 50%.

        In 1991 there were 23.6 million dwellings for 57.4 million people.
        2.44 per dwelling.

        In the first half of the 1990s prices fell sharply in real terms: in 1995 you could buy for the same real price as in 1972.

        In 2001 there were 25.5 million dwellings for 59.1 million people.
        2.32 per dwelling.

        The Labour boom saw real prices almost triple by the peak in 2007.

        In 2011 there were 27.4 million homes for 63.2 million people.
        2.31 per dwelling.

        The numbers do not support your assertion.

        1. Mark
          March 23, 2013

          Data from ONS (RPI, population)/Nationwide (house price)/DCLG (numbers of dwellings)

      4. alan jutson
        March 23, 2013


        Do most people want to live in a small flat in a high density development ?

        I would have though this was against your thoughts, after all you have supported people living in a larger property than they need and can afford. which has a taxpayer housing subsidy in your past arguments

    2. sm
      March 23, 2013

      House prices have risen as a result of rising debt, rate of increase in debt. Look at some of Steve Keens models.

  26. Worried...
    March 22, 2013


    Borrowing lots of money isn’t a problem. Its having faith that there won’t be a collapse in Sterling, moonshoot of interest rates if the bond/currency markets lose faith in the country. That would be a catastrophe for potential home owners like myself…
    I think with a salary of roughly 130 per year, I should be able to afford a house – but I’m looking over my shoulder and worrying like crazy about the affordability.
    Now, I know I’m reasonably well paid, what makes me very nervous is – how can most people afford houses at current levels, it seems incredible to me, comparing real estate overseas just how expensive it is. London for example, a tiny 2 bed flat I viewed recently – 480,0000, that strikes me as just bizarre.
    The issue is, in this country people are encourage (and the Chanellor has just done this again) encouraged to put their entire net worth into housing.
    This is plain stupid, why not limit borrowing at max 3 x salary, keep a sound money supply and then get rid of stamp duty on stocks – the latter would ensure that people invest properly for their own retirement and can mean reductions in NI tax.
    Now rather than encourage through tax people to look after themselves and as other countries to spread their net worth.

    I have come to the conclusion that George Osborne is actually just plain stupid.

    1. Anonymous
      March 22, 2013

      Or setting a trap for Labour when the take power in 2015

  27. libertarian
    March 22, 2013

    Actually one of the biggest problems with the housing market is that savers get NIL return on their savings due to government manipulation of base rates.

    If savers got a return they could gather a deposit far more easily. Also for all the blather about the housing market how come no one ever mentions Blair ending MIRAS in 2000 ?

    There are currently 800,000 empty cheap homes mostly in the North of England. Its NOT a supply and demand problem, its not a funding problem its a politician inspired meddling problem.

    1. uanime5
      March 22, 2013

      I suspect there are so many empty homes in the North of England due to the lack of jobs there compared to the South of England. If the jobs were spread throughout the UK everyone wouldn’t need to live near London.

      1. libertarian
        March 23, 2013

        Go and open a business in the North and create some jobs then.

        I live in a small town in the south. There are loads of empty and on the market flats and houses ( at the lower price range ) and the local council have approved the building of 11,000 more, not sure who for as no one seems to want the ones we have already

      2. Bazman
        March 23, 2013

        The people in London need to get on their bikes to find a house or see their jobs and benefits cut.

  28. Ralph Musgrave
    March 22, 2013

    John Redwood missed out the main cause of excessive house prices, and it’s very simple: planning restrictions. A Policy Exchange study estimated that planning restrictions added about £40,000 to the cost of the average house. Plus I did my own calculations and came up with about the same figure. See respectively:


    Of course if we had a total absence of such restrictions, then hundreds of square miles of countryside would disappear under concrete. But hey, that’s what John Redwood, and the Tory and Labour Parties want isn’t it? That is they’ve backed mass immigration for the last twenty years.

    They also seem to want to turn this country into ( a very different place-ed). Only trouble is they haven’t told us exactly what the benefits are for us in doing that. And the reason they haven’t told us is because they haven’t a clue whether they’re coming or going.

    Reply I have not backed rapid immigration, fought an election to get the rate down, and now support governemtn policy to do just that.

    1. Lola
      March 22, 2013

      Not entirely. It’s also the unwarranted expansion of money and credit from 1997 to 2008. from memory Brown the Clown tripled money supply which always leads to asset bubbles and misallocation of capital.

  29. rd
    March 22, 2013

    Yea if doubt go Keynesian – madness but par for the course.

  30. Antisthenes
    March 22, 2013

    Why do politicians always use sledgehammers to crack nuts. The housing problem is fundamentally one of supply because of land use restrictions and therefore the high cost of available land. Release a modest amount of new land so as to reduce land costs significantly and thereby reducing house prices to more affordable levels. Existing home owners would take a loss but it would only be one off and it would bring sanity back into the housing market.

  31. behindthefrogs
    March 22, 2013

    This funding needs to subject to the same constraints as the “bedroom tax”. This would ensure that the housing is concentrated on the people who really need it.

  32. Bert Young
    March 22, 2013

    The monitoring of the loan scheme will be in the hands of the local Banks who no longer have the wisdom and local knowledge of the Bank Managers of yesterday . Without local know-how and community relationship , Banks will be more exposed to poor risks and more likely to repeat past mistakes . Tax payers should not be expected to take on this risk and it is foolhardy of the Government to implement the scheme proposed by the Chancellor . Your blog infers you have reservations and I sincerely hope you can discourage support .

  33. John Doran
    March 22, 2013

    When I was a young builder, John, I bought a derelict victorian house which had been condemned as unfit for human habitation. It was truly grim.
    I had the plans drawn, got my approvals, & started work.
    A chap marched up the front path with a clipboard. He had Bromley council written all over him. Here comes trouble I thought.
    He said he was glad to see work starting on this longtime eyesore, & asked to see the plans.
    “Fine, have you got your grant?” he said.
    “What’s a grant?” I replied.
    “Money from Central govt, administered by local authorities to tidy up areas designated as conservation areas” came the reply.
    ” Dont I have to repay it?”
    “No, it’s a grant, not a loan”
    “What’s the catch?”
    “you can’t start work”
    “We’ve already started, look around”
    “You’ll miss out on a substantial sum”
    “How much, do you think?”
    “£X,000,” ( a very considerable % of what I’d paid for the wreck),” & I can get all the paperwork done for you, in less than 3 weeks”
    “Put your tools down”, I said to my chaps.
    & his word was good. That little terraced house got a royal makeover, & we lived there happily for years.

    We did exactly the same again for one of my brothers.

    My point being that I had been in contact with the Estate Agent, solicitors, the Bromley planning office & the building control office, as well as the Architect who had done the drawings. No one knew of the grants available. Not very joined up.

    There are many derelict & run down properties in this UK, & if the govt were serious about bringing down unemployment by encouraging small building firms, in very labour intensive work, then these grants would be easily available, & well Known.

    I tried a similar project 2 years ago. It took a year to get the paperwork done, & the mortgage I had taken out on the property eat a huge chunk out of the grant.
    I finally had to threaten a chap with public exposure to lose him his job in order to get the grant application approved so I could start work.

    Small builders should not get grants & make money in our now communist local authorities.

    There was nothing complicated about the project, but the approvals I had to get filled a file 2″ thick 5cm 50mm. All makework for bureaucrats, in my opinion.

    A portrait of how UK has changed from 1971 to 2011.

    There are thousands of damaged repossessions & flats above shops which offend my eye as I drive around, watching them deteriorate.

    If David Cameron was truly interested in straightening this country up, he could do worse than encouraging such building work. He wont, of course, because he is intent on doubling in 5 years the debt that labour took 13 years to build up.

    Austerity! Cuts! Labour left us in approx £6.5 billion debt. Cameron is on target to get us to £13 billion debt,by 2015, not counting the awful off the books PFI contracts & the unfunded public sector pension bills to come.

    Cameron is not intent on rescuing this country, he is intent on damaging us so badly that we will need a bailout from the EU & the international banking cartel that runs it.

    1. Lola
      March 22, 2013

      No. Grants are just another subsidy. Pretty well all subsidies distort markets. The subsidy will be reflected in the price of the wreck as all profits return to rents.

    2. zorro
      March 22, 2013

      This is a good indicative post of how bureaucracy has strangled this country. Giving grants to renovate existing or unused properties is good and gives local people and tradesmen the chance to do up properties for sale or rent.

      I did ask what JR thought about the housing policy in the previous blog. I really do hope that he is only defending this out of loyalty to the government.


      Reply As always I am giving an independent view. The Coalition government has its own sites to set out their view. Things are not always black or white, and we do need to see the details of any scheme. This is an extended version of Funding for Leanding, a scheme designed to tackle broken banks. I say, mend the banks. That remains my preferred policy. What is so difficult about that for people to understand?

      1. zorro
        March 23, 2013

        Reply to reply – Hopefully, this scheme will be as ineffectual as F for L in its stated aim. As you know, we agree that the banks should have been mended/restructured far earlier. It is also difficult when people fail to understand this……..particularly when it is the Chancellor.


    3. Mike Wilson
      March 22, 2013

      Your debt figures are WAY out!

      Labour left in approx 6.5 billion of debt!!!! Really?

      Errr, when they left power they were borrowing about 6 billion EVERY TWO WEEKS.

      The Tories have carried on the good work.

      Our children and grandchildren will pay it back.

    4. alan jutson
      March 23, 2013


      The simple and immediate solution to encourage renovation /extensive home improvements is to reduce the 20% VAT rate to Zero,


      As in New Self Build, to make a submission for the VAT back on completion of work (a scheme which already exists, but only for new build)

      Thus you save 20% on your refurbishment costs and the Chancellor only pays out on results.
      No time consuming paperwork, no schemes which can be fiddled, everyone a winner.


      Would the EU allow it ?

  34. Normandee
    March 22, 2013

    There is a sense of desperation about these measures, perhaps somebody should be looking at what keeps the house market artificially high and who benefits “follow the money” as we have been advised before. The problem is that artificially high prices are the backbone of the credit market as security, where do you start?

  35. Tom K
    March 22, 2013

    Is this the real John Redwood or an impostor today?

    Are you seriously backing full-one state (£130BN!) interference in markets? Are you saying that banks, having caused the credit crunch by wrongly pricing risk, should be overruled now they have put sensible rules in place? Are you really defending a scheme to (at a mimimum) dangerously further inflate already overblown house prices?

    I must say I’m disappointed, John.

    The best way to make houses more affordable is to get out of the market manipulation business, allow house prices to fall (as they did in the US – and are now rising again) and reboot the economy that way. Should have been done in 2010 and we’d be well out of the woods by now.

    It’s a political stunt that will be very costly to the economy in the long run.

    Reply: My advice to the government is clear – sort out the banks and let them get on with making mortgage advances on commercial terms. I was inviting comments on the government’s scheme.

    1. Brian Tomkinson
      March 22, 2013

      Reply to reply,
      Now that you have received comments, all of which I think seem hostile and opposed to this crackpot scheme, will you openly oppose it too?

      1. Brian Tomkinson
        March 22, 2013

        I’ll take your lack of response to mean that you will not oppose it, thereby confirming my earlier point.

    2. JimF
      March 22, 2013

      “I was inviting comments on the government’s scheme. ”
      Rather like inviting comments on the Emperor’s wonderful clothes.

  36. Denis Cooper
    March 22, 2013

    You don’t have to worry so much about the credit-worthiness of a borrower if you intend to sell the mortgage on, then you really only have to worry about whether you can convince somebody to buy it from you and take it off your hands before it goes bad.

    JR, if the government guarantees that a mortgage will be repaid, will that government guarantee travel with the mortgage if the initial lender sells it on?

    If so, will we not see mortgages being given out to risky borrowers and then quickly sold on as bundles of “UK government guaranteed mortgages” to be traded around the world, until the day that those borrowers start to default and whoever is left holding them invokes that UK government guarantee?

    1. zorro
      March 22, 2013

      I have just had an image in my mind of George Osborne running down the street trying to give out mortgages to men in string vests…..I shall stop there.


  37. Chris Rickard
    March 22, 2013

    The Chancellor’s budget announcements on house building are some of the most irresponsible I can remember seeing from any Chancellor on any subject. As a former housebuilder who still owns a considerable number of shares in housebuilders, he has boosted the value of my shares considerably but done nothing to help the housing market reach equilibrium. Worse – he has totally ignored the rest of the construction industry which has been much harder hir than home building and is a much bigger drag on the economy.

    If the Chancellor wanted to increase house building, he should have acted on reducing the attractiveness of holding onto landanks without developing them, which acts a real constraint on supply. Most of the homebuilders, have received substantial tax refunds from the Gov from writing down landbanks. A bit of tax “stick” to speed up development would have done much more to help balance supply and demand. This is also true of landbanking practices applied by supermarkets. Homebuilders could not have passed on this cost, because, as you rightly observe, new build is only 5% of the market compared to existing housing stock.

    If he wanted to make mortgages more freely available, he should have required the state banks to divest their mortgage arms. RBS & LBG had 40% of the pre-crash UK mortgage market. They don’t lend much at all these days because of the financial strictures of their parent companies. If divested, the parents get a cash injection helping their ability to lend to SME’s and the mortgage businesses need to lend to generate profits for their new owners.

    40% of the pre-crash mortgage market was inner city apartments. This market has now all but disappeared. Helping first time buyers requires affordable homes and the re-invigoration of this market. Instead we have the irresponsible NPPF making greenfield developments more freely available and putting greater strain on existing infrastructure like roads.

    The Chancellor has done nothing to address supply, has massively propped up home prices and skewed the housing market via New Buy and the budget very heavily in favour of new build at the expense of existing homes which could be sold, in the ordinary course, to first time buyers. Those householders will rightly feel aggrieved.

    It is a massively irresponsible budget.

  38. Max Dunbar
    March 22, 2013

    Government desperation to try anything that might revive the economy. It will do more harm than good and we all know that, but the charade will continue. We must accept that house prices will fall further until stable market equilibrium is reached.

    There is also the presumption that people have a “right” to buy a house. They don’t. Renting is in many cases better, cheaper and more flexible. When prices are falling renting makes a great deal of sense; much less responsibility, easier to move on quickly, less of an easy target for greedy and profligate government, re-negotiate rents every six months if necessary (down as well as up), no maintenance costs, etc.

    You also mention immigration as a factor in the housing market. Suffice to say that we have all seen and felt the effects of this disastrous mass movement of, predominantly, economic migrants from poor countries to richer countries such as ours.
    The only irreversible legacy of the last Labour government has been the change imposed on the UK in terms of population make-up. This potential tinderbox is connected directly to economic performance and well-being. That must be the real worry to any government now or in the future.

    1. uanime5
      March 22, 2013

      While renting should be cheaper renting often costs as much as having a mortgage because housing shortages push up rents and house prices.

    2. Bazman
      March 23, 2013

      Live in a rented property Max? No? We’ll leave it that.

      1. Leslie Singleton
        March 24, 2013

        Bazman–Leave it at what?–There are many advantages to living in rented property, as I do. Two word phrase, the second beginning with ‘it’.

        1. Bazman
          March 24, 2013

          In the short term yes. In the long term no way.

          1. Leslie Singleton
            March 24, 2013

            Bazman–No–What does matter considerably is one’s age–I am an OAP and actively do not want to be worrying about tiles off roofs and boilers working and all the rest. If that weren’t enough, if one comes, as I have, to living on one’s own and is soon-ish to pop one’s clogs I reckon it is better not to leave one’s children the burden of coming back to sell the house (as I had to do and it was a very worrying time in that the house had to be left empty–let alone the pure agony of dealing with prospective buyers and how much to ask). Very different of course if have wife and kids in residence and want to ensure they can carry on as seamlessly as poss without you.

  39. Electro-Kevin
    March 22, 2013

    The inflated cost of housing is making our wages uncompetitive with other countries.

    Stamp duty.

    A whopping £8000 to the Treasury on the average priced home. 8 grand for daring to aspire to a grotty flat in a dodgy London suburb. 3% on the WHOLE amount – not just that over the £250k mark.

    There are newspaper reports of £45 k per year business managers unable to get on the ladder.

    If there’s anything preventing first time buyer homes from becoming available it’s that.

  40. Iain Gill
    March 22, 2013

    surprised to see you support this john, it will quickly get unpicked, if it doesnt it will be looked back on as a disaster in a few years

    Reply: My advice is to fix the existing commercial banks and let them do the lending.

  41. forthurst
    March 22, 2013

    This government inherited, from the previous dysfunctional government, dyfunctional banks, a dysfunctional housing market, a dysfunctional public sector and a dysfunctional immigration policy. The government’s response to this mess has been ‘steady as she goes’. This government is feeble and effete as are its leading lights.

    The second hand housing market is in the doldrums: too many houses are not coming on the market as people are hanging on to inherited properties or their previous dwellings for rental. Too many properties are being bought by buy-to-letters. This is partly responsible for the continuing bubble conditions. Meanwhile renters who cannot afford to buy are paying too much rent to save for a desposit and have only two months’ security of tenure. It would be better to discourage buy-to-letters and adventitious landlords from entering the market in the first place; to do this there should be a substantial increase in the notice period for tenants provided they are paying rent and otherwise reliable. The majority of these amateur landlords do not invest in improvements which would help the local economy. Further assistance to deflating the housing bubble can be achieved by halving the existing cap on maximum housing benefit; there is absolutely no reason why English taxpayers should have to subsidise landlords and benefit seekers beyond what is stricly necessary to ensure a roof over peoples’ heads.

    Continuing to promote London as the immigrant and foreign property investment capital of the planet is unsustainable. A substantial no-refundable tax needs to be applied to anyone purchasing a property in this country who is not a British subject and has not been domiciled for at least two years. Furthermore, capital gains tax should be applied automatically to foreign owned property whether owned individually or through a company on its sale.

    The situation with regard to VAT as between old and new property is distorting the market. Bearing in mind much of the cost of a new build is in the land ‘value’, the solution would be to equalise VAT at the higher rate thus bearing down on profits made by selling land. Taxpayers’ bankrolling new house deposits will do more to support and inflate bubble conditions.

    Lastly the banks need to be prepared for a significant house price adjustment. The taxpayer owned banks need to be split up; Halifax could be refloated as a mutual BS. Since the demise of many building societies through demutualisation, banks have attempted to make too much margin on mortgages and been too cavalier in their behaviour to sustain a stable affordable property market. Ultimately new money can be loaned by the BoE to buttress the balance sheets of banks with shrinking property asset portfolios without causing inflation.

    This country is doomed unless it can move away from the idea that building property bubbles and banksterism are the route to economic success. The Germans have a stable rental market which gives tenants security and an economy based on adding value; banksterism and property bubbles do not create added value: there is no export potential in a Mayfair mansion.

    1. Max Dunbar
      March 22, 2013

      Even cautious Germans are not immune to property bubbles. Dresden has had a property boom recently as money has moved from west to east. Rents have followed capital values accordingly.

  42. Gary
    March 22, 2013

    Based on the the budget, Fitch has placed the United Kingdom’s AAA rating on Watch Negative (for future downgrade):

    The budget is a disaster

    1. Brian Tomkinson
      March 22, 2013

      A disaster indeed, but we shall never get our host to acknowledge it or withhold his support.

      reply: I thought I was making clear the issues that the scheme, when they draft it, needs to tackle. I have no intention of supporting subsidy for second homes, risky credit assessment, or large guarantees for overvalued properties where the taxpayer could end up with a loss as surely you saw from my blog piece. I do , however, prefer to read the small print before deciding how to respond. On this occasion I am trying to influence the small print, as the scheme is not finalised and is out for consultation. I am inviting you to help me with that process.

      1. Brian Tomkinson
        March 22, 2013

        Reply to reply,
        Thanks, but I don’t think if Labour had proposed this you would be awaiting the small print before condemning it as foolhardy and reckless.

      2. Mike Wilson
        March 22, 2013

        Reply to reply.

        Have the courage to show your Prime Minister and Chancellor up for the incompetents they are – go on something like the Daily Politics and denounce this scheme.

    2. Major Frustration
      March 23, 2013

      Trust the French – but not unreasonable

  43. Terry
    March 22, 2013

    It is not a mandatory requirement for all British citizens to buy their own homes. Although you’d think that was the case with these politicians. It worked for Mrs T. but now it has been played out for too long. Get over it.

    Indeed, statistics would show that owning your own home is not that important in the richest EU States.
    According to El Pais, the Spanish Daily Paper,

    Home ownership levels
    1. Romania, 97.5%
    2. Lithuania, 93.1%
    3. Croatia, 90.1%
    4. Slovakia, 90.0%

    How about the lowest rates?

    1. Switzerland, 44.3%
    2. Germany, 53.2%
    3. Austria, 57.4%

    Now, what do they tell us? And our Government wants to match those levels in Romania? Regardless of the cost to the Tax Payers and their offspring? Where does this money come from and what happens when the borrowers default?

    Dave and George, by all means use your own money to fund this farce but do not waste anymore of mine. I cannot afford to fund your ill-thought out growth initiatives until you properly cut my tax bill and make huge savings to the economy by shutting down half of Whitehall.

    1. Bazman
      March 23, 2013

      There must be a lot of absurd and pointless regulations on the landlord to see this level of rental in the market in these rich countries or property is so expensive that buying is impossible.

      1. Leslie Singleton
        March 24, 2013

        Bazman–Or perhaps the people in the most successful countries appreciate that houses (except in periods when they are going up instead of depreciating) are obviously wealth destroyers not creators.

    2. a-tracy
      March 24, 2013

      I often wish I was an investigative journalist. I’d love to have the time and resources to investigate living habits across the developed world.

      I wonder what happens in Germany, Switzerland, and Austria when renters retire, do they have compulsory state pension similar to our national insurance, does it pay out enough to keep them in the same rented home they’re rented during their working life? Or are they given State funded apartments? Who owns their rental properties and how do rental rates compare to ours or as a % of their net wage?

      If theres a better way we should research it.

  44. Leslie Singleton
    March 22, 2013

    Once again a post or two seem to have disappeared. Hard to know what happened but two I think almost touching seems strange. Given that one is no longer, or at least I am no longer, able to see as yet unmoderated posts, is it your policy at least to say so if you decide not to publish? Whenever you indeed decide not to publish could you not send the post back so poster knows the position?

    Reply : I usually publish with edits. I rarely dump a whole post, and only do so if it contains a string of unsusbtantiated allegations about individuals or institutions or is just a series of references to unchecked external sites.

    1. Terry
      March 23, 2013

      You too, Les?

      Exactly the same has happened to me. Is this a touch of Big Brother Deja Vu?
      Not in keeping with the true Conservative way of Britishness, is it?

    2. Leslie Singleton
      March 23, 2013

      Thanks for Reply–The problem is of course that we cannot live without you and hate delays in moderation. It seems clear to me that you will have to give up unimportant stuff like going in to Parliament to vote and giving speeches and writing books and helping your constituents and taking off time to sleep and eat and one or two other things and should work full time on these comments. Only kidding and thanks very much.

  45. Arunas
    March 22, 2013

    One of our problems is high private indebtness and the lack of disposable income for people to spend as the result of it. Boosting mortgages will tie up more people’s liquidity in unproductive real estate assets, and will land banks with more underperforming financial assets. What this is going to do to stability of financial system and wider economy…it does not take a Chancellor to foretell.

  46. zorro
    March 22, 2013

    To be fair on John, the title of the piece is called…BEWARE SUB PRIME……A fairly clear statement of intentions…….

    ‘Any government intevrention in the mortgage market, on top of owning one of the UK’s biggest banks, should ensure proper checks on the credit w0rthiness of anyone they help’…….My advice is BEWARE THE STRING VESTS…….They won’t of course, human rights and equality law will kick in with the government taking charge.

    ‘the government will have to ensure sensible credit analysis.’…….. No comment 🙂

    ‘Following a policy designed to get them to fall further, as we experienced during the intense phases of the Credit Crunch, would put people off buying and make the position worse in the short term.’……I do disagree with this comment as have others on the blog.

    I have, however, reread the blog carefully, and I think that JR is politely saying that this policy is highly suspect….


  47. David Langley
    March 22, 2013

    Lets get into some new territory. The government wants to reflate the house building programmes and at the same time have a disciplined and responsible lending programme that it is happy to provide funds for the market.
    How about a novel idea, we create new building societies that will have start up funds from government and private equity. These societies will offer interest rates far in advance of current savings such as 5%. The societies will lend under government schemes to those starting off with their first homes and also those moving up the market. The disciplines required to regulate the societies will ensure that competent lending will ensure there are no loans to the unable to pay which will satisfy the lenders as used to be. Banks and other lenders will be unauthorised to lend for anything other than commercial properties. Funds will flow into building societies from the disgruntled savers and be used to provide mortgages to responsible borrowers. Banks will have to gain profits from their commercial dealing as it used to be and societies will be prohibited from lending for anything other than homes. Buys to rent no chance and the results should be a return to sanity and discipline. I remember when this was the perfect way to regulate and manage the house buying and selling game and that savers were offered interest rates that provided security and confidence in saving. Daft but there seems to be some merit in trying to restore what used to be a safe and sane market before greed and stupidity and cupidity set in.

    1. a-tracy
      March 24, 2013

      Good comment Mr Langley.

  48. wab
    March 22, 2013

    Unfortunately every time Osborne makes a speech he seems to have a deep psychological need to come up with a gimmick which wows the backbenchers on the day, but which is actually daft. This time around it was the mortgage guarantee.

    As others have pointed out, one of the real problems in this country is that house prices are too high, and this mortgage guarantee will push house prices up. This is good for Mr Osborne’s friends in the building trade and for rent seekers and for people who wish to sell up and leave the country, but not for anyone else.

    How much is it going to cost per mortgage for the government to be involved in this way? 1000 pounds? 2000 pounds?

    It really is staggering that a Tory government came up with this crackpot idea. It’s definitely the kind of thing that looks like Gordon Brown has his fingerprints all over it.

  49. Monty
    March 23, 2013

    In every previous becalmed housing market, there was a compensation that we saw happening. It was caused by people saying “OK, we can’t afford a bigger house” and enhancing and extending the houses they already live in. It ushered in conservatories, loft conversions, double and triple glazing, kitchen makeovers, bedroom makeovers, greenhouses, barbeques, decking, lily ponds, fancy black and gold railings for the front garden, paint, wallpaper, curtains, Magnolias, Camellias, Water Lilies (died), hanging baskets (hanged), block paving, laminated flooring, carpets, and power showers. All fuelled by folk deciding that as they couldn’t risk the mortgage peril of moving up, they would make the most of the house they already have. But it sustained economic activity,

    And now, I don’t see much evidence we are even doing that. The only domestic growth sector looks like coal and wood burning stoves, for householders who have zero confidence in our national infrastructure. That is why the electricians, glaziers, plumbers, builders, joiners, fitted kitchen and bedroom installers have no order books. This is the dog that should be barking, and isn’t.

    Austerity isn’t primarily something that governments do, it is what the public do. We are already doing it. We have an entire generation of young people who need starter homes, and an entire previous generation who are already in those starter homes and they aren’t moving on. They are staying put, with a roof over their heads that they feel they can afford, for now, and they can’t be persuaded to spend anything unless they absolutely have to.

    They have no confidence.

  50. Christopher Ekstrom
    March 23, 2013

    This government is in a death spiral. All the tinkering around the edges will not stop the approaching collapse. We are witnessing the first openly democratic-socialist UK government in collapse. Cast Iron is finally really suffering & I do think he will snap under the pressure. I urge you to find a new man, call an election, and dirt this out before you are pulled down with them, Mr. Redwood.

  51. David Langley
    March 23, 2013

    Well I have a roof over my head and its paid for. My latest worry is how to keep the place warm and the lights on. We have been posting all sorts of answers to our energy questions and seem to be no further ahead. The gas debacle looks like seeing us blackmailed into higher gas prices. Is there no end to the weakness of government planning. We are mired in procrastination and dithering it seems. A coalition of nobodies without a clue is in charge.

  52. Mark
    March 23, 2013

    I looked at what happened to house prices after the recent crash and the previous one, using the Nationwide regional house price estimates. “Trough” is maximum extent of down since the 2007 peaks, and “1990s” is the range between the peak in late 1980s/early 1990s and the subsequent low. These are nominal numbers (i.e. based on actual prices, not corrected for inflation).

    N IRELAND_________-54.3%____-54.3%____-20.0%
    YORKS & HSIDE______-16.2%____-18.5%____-28.4%
    NORTH WEST_______-16.2%____-17.9%____-12.5%
    WEST MIDS_________-12.2%____-17.5%____-16.6%
    EAST MIDS_________-11.7%____-19.3%____-25.1%
    EAST ANGLIA_______-10.4%____-21.7%____-35.8%
    SOUTH WEST________-9.7%____-18.1%____-28.1%
    OUTER S EAST_______-8.1%____-20.0%____-35.9%
    OUTER MET_________-4.9%____-19.1%____-30.9%

    Interestingly, at the time of the 1992 election throughout the South prices had already fallen by 25-30% from the peak – yet the Conservatives were re-elected. The idea that falling house prices guarantees electoral loss doesn’t stand up to scrutiny. It’s about competence of government.

    Relative to the mid 1990s lows, prices are still about double in real terms (adjusted for RPI inflation) in most of the country (including in Northern Ireland, despite the 54% drop already). In London, prices would need to fall 60% to reach those levels. 40% drops would apply to the North West, West Midlands and Scotland.

    There is a long way to go before mortgage banks can have confidence that house prices are underpinned by fundamental value.

  53. Lindsay McDougall
    March 25, 2013

    Using taxpayers’ money to finance or guarantee mortgage payments – whether deposits or monthly payments – is invariably a bad idea. House prices are now starting to rise again, and not just in London. However, the average price/income ratio is already too high and needs to be allowed to come down.

    The government would appear to have two objectives: (1) To reduce the number of under water mortgages so that people can afford to move, hopefully increasing labour mobility, and (2) Reducing the toxicity of property and property related assets held by certain banks. We never have had a law of full and detailed disclosure of these assets, just an obligation for an honest summary in the annual accounts (checked how?).

    If these are not the objectives, what are the objectives?

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