James Max - James Max is a broadcaster, columnist and business expert

Fix the housing market and you’ll fix the economy

It seems obvious. Fix the housing market and we fix a huge piece of the UK economy. The latest round of useless data has been published. I am not a fan of how it is interpreted by the media but I am in favour of fixing a market that is broken. I don’t advocate a return to massive house price rises but your investment should, at least, be keeping pace with inflation. Chances are it isn’t and that’s a problem.

Inflation remains steady at 4.5% and the better measure if you are a homeowner is RPI that remains at 5.2%. We certainly don’t have anything like that return in the housing market and it’s time for action. I have been lucky enough to interview the housing minister, Grant Shapps, the MP for Welwyn Hatfield on my LBC Radio Show. He knows action is required. So far, the government has done little to assist the market. I am not a fan of intervention but that’s what is required.
First of all. Stamp Duty must go. Or at least be reduced to 1%. It is an attack on capital and worse than that in a stagnant market it prevents people from moving freely from one home to the next. When people move they spend. It would be a significant boost to the economy to encourage people to move as and when they wish. The biggest problem in the market at the moment isn’t really pricing. It’s a lack of sales and purchases.
But that’s not all. The retail banks are behaving appallingly. People on mortgages are being taken to the cleaners whilst new borrowers or people remortgaging are having a torrid time. It is time to bring back MIRAS. Mortgage relief on mortgage payments. Not to encourage buy to let investors. Just for your primary residence. And only if you live there. In addition to that we need a savings plan that, in addition to ISA’s , provides a tax-free method of saving for a deposit. I was never a fan of 100% mortgages and it’s right that we should encourage sensible lending. If that’s the case then those who make the effort to save should be assisted and encouraged to do so.
But there is more. Banks. Retail banks in particular need to play their part. Personally I think there is room for two new mortgage products. The first one would be a 5, 10 or maybe 15 year fixed rate. That length of money is available in the money markets, so why not extend certainty to borrowers? I’d be prepared to lock into a slightly higher rate of interest if I knew my payments would be fixed for a period of time. All this messing about with two and three year deals is not only expensive for the consumer it’s also very unsettling.
And there’s another idea I have too. The principle of lending is not only based on asset value paying off the debt should the borrower default but also on affordability. Banks have lent money to first time buyers. They perceive them as a risky prospect and ask for a higher rate of interest. As first time buyers often borrow a larger amount, compared to the value of the property they get stung again. The higher the rate of interest the more difficult to service that debt. So the cycle begins. It’s unfair too. So. Why not have a mortgage made up of two elements? Up to 50% loan to value could be at a very low rate of interest reflecting the low risk of that loan (are housing prices really likely to drop by more than 50%? No…) and then have a higher rate of interest for the other piece of the loan – up to say 90%. That means the borrower will see the cost of their debt come down and also banks would reduce the risk of a large bulk of their loan.
When times get tough government must act with policies that help. Lenders must act responsibly. In my view the government has been slow to act on planning, development, tax incentives and other measures to get the market moving. Meanwhile lenders have been greedy, slow, intransigent and stubborn in respect of offering the right products to their customers.
Meanwhile we have a market that is sluggish and homeowners are confused. Action is required. The time for that action is now.

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