The UK master plan has lost the plot

In September, the Government announced a number of initiatives to help debt ridden homeowners and potential first time buyers. This included the axing of stamp duty on properties under £175,000 and the introduction of “free” five year loans of up to 30 percent of a property’s value. This attention is just what the housing market needs but we’ve been waiting more than a year for this respite and, although it’s a step in the right direction, more must be done.

How did the UK get itself into this mess? The real problems can only be understood if you go right to the beginning. Take, for example the people who were advised that an investment in property would provide a nest egg for the future. The Government said they would push for more supply of housing to get to three million new homes by 2012. So what could possibly go wrong?

Inflation
The slow down in the housing market in 2007 was caused by increases in interest rates by the Bank of England, which were there specifically to cool down the housing market. It worked – the market did cool down and we were looking at house price inflation towards the end of 2007 at about seven or eight percent. The chief executives of many of the world’s leading banks had no idea what their fat cat money men had been investing in. The clever mortgage lenders had caught on to securitisation – selling on a mortgage book and then reusing the money all over again to lend. The risk was transferred to the investor bank from the mortgage lender. However the investor banks were looking at interest rate tickets and the potential security on the assumption house prices would continue to rise. This was not to be.

The defaults on the US Sub Prime lending caused the pack of cards to descend. This is nothing to do with bad lending in the UK, or buy to let being a speculative venture, it is entirely due to the failure of banks to regulate their affairs and the failure of the regulators to understand what was going on. Ordinary homeowners are now being asked to pay the price. Heads should be rolling at some of the banks, and in particular the regulators.

Decrease in spending
There are no more houses being built as demand has fallen through the floor. Developers produced fewer than 30,000 homes in the first quarter of 2008 and the Government announced in September it would bring forward spending from future years to encourage more social housing to be built.

However, there are buyers but they cannot get the funds to buy at a rate they can afford. Of course, the Government has introduced interest free loans but it hasn’t been said how people will pay back the loans. They will surely have to be paid back on top of a mortgage commitment. It’s looking like a home owners will have to give up a massive percentage of their total household income to own a home.

This lack of available funds doesn’t stop at property; it’s having a knock-on effect on the whole UK economy. The number of people going on holiday has dramatically reduced and spending on food has been cut. Energy bills and fuel costs have gone through the roof, and people are spending much less on big ticket items such as furniture. The ripple effect it is having on the economy is evident in poor retail sales figures.

Global problem
I am not hopeful that the Government’s initiatives will even begin to fix these home grown problems. Although it is a global problem, there is a UK fix, we just don’t seem to want to try and fix it. Pouring money into a bankrupt Northern Rock which just wants to reduce its mortgage book as quickly as possible is not the answer. The Government needs to get back to old fashioned prudence and take back some controls of the banks which will help build confidence back again into the banking sector, then they will start lending to one another.

Whatever the Government decide to do, it needs to act fast. Then, perhaps new homes will be built again. Its target of building 240,000 new homes a year in England by 2016 is already under serious threat. Failing to act could result in people with valuable skills moving to other countries such as Australia, where there is more work.

Robert Jordan is the chairman of Cheshire based Jordan’s, a home rental specialists, and founder of www.rent-2-buy.co.uk, a scheme that helps landlords fill empty homes and first time buyers get onto the property ladder.