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House Building Boom


With the introduction of top slice guarantees for mortgages and interest free schemes for new home buyers, the Chancellor stands accused of fuelling a house price boom rather than a house building boom.


Will this not encourage another sub prime disaster where borrowers cannot meet payments when interest rates rise? Would it not have been better to reduce SDLT? Would it not have been better to make more funds availability for affordable housing? Surely intending buyers want to see house prices reduce not rise.


It does indeed appear that the Government has taken a gamble with these policies. If house prices fall too much then they will lose, if they rise too much then their critics will be proved right. Yet it is a gamble that is likely to pay off.


Mortgage repayment ability and property quality is far superior to that of Sub prime. Interest rates are likely to remain historically low for sometime yet. We have just seen a 30% fall in house prices in real terms. Many would be buyers are paying more each month in rented accommodation. The fear of default is overstated.


A reduction of SDLT would loose valuable revenue that is easy and cheap to collect. Large scale additional funding of housing through the public sector is just not available. This is the reality of financial constraints.


The Government is therefore gambling on the energy of ownership to provide the confidence to boost activity in the markets. Home buyers do not want to buy in markets that are falling. They wish to see markets rising in order to feel confident to buy. Finance will not become available at higher loan to value ratios until markets start to rise and the good news could be that markets will rise only slowly given low income growth. This is the right background for housing market investment.


The success of the Government guarantee plan is likely over in time to bring insurance company’s into the markets offering insurance indemnities that will fulfil the same top slice guarantee allowing many more people to get into the housing markets. Confidence will be restored.


However it should not be overlooked that this is only one side of the economic coin. Increased interest in the housing markets needs supply to meet demand. We need to make more land available. Not just swathes of green land outside distant market towns. We have to allow redevelopment at higher densities in towns with existing infrastructure where people want to live. We have to ensure that Local Authorities are signed up to the need to identify opportunities and allow more new homes to be built in towns by a reduction in the red tape and regulation that is strangling progress.


If we do not, then the additional demand that might be successfully created will fuel the biggest house price boom we have ever seen.

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