Critics rain on Government's parade of housing reforms

Politics is an ungrateful business, but even the most hardened ministers may have been hurt by the negative reaction to their housing recovery plan. Things weren't helped by a forecast from the OECD that Britain is about to slide into recession, with the pound slumping to record lows against the euro and dollar.

"You can't ignore the fact that when you are confronted with this kind of depth of despair, and the fiscal packages look like a drop in the ocean relative to the scale of the problem, the market won't pay too much attention," said Steve Barrow, the head of currency at Standard Bank.

The problem is size: at a cost of £1.6bn, the plan represents less than 2 per cent of normal new mortgage lending in a good year, and only about 0.1 per cent of the total economy. Ministers also ignored the fundamental cause of the housing crisis: the drying-up of mortgage lending after the credit crunch.

With mortgage approvals down 71 per cent and another dire assessment of the state of the construction industry from the Chartered Institute of Purchasing and Supply yesterday, this has angered some. The usually diplomatic Royal Institution of Chartered Surveyors was scornful: "The Government has failed to listen and their proposed measures will have little impact on those suffering. Action to increase lending by improving liquidity in the mortgage market is essential as part of a coherent package of measures. Without making it easier to get a mortgage, the Government is doing no more than tinkering around the edges of the housing market downturn."

Many others in the industry have also been looking to the Government to find ways to stimulate the flow of funding for new mortgages, and expressed disappointment that no move on this was announced yesterday. Some in No 10 are thought to be keen on such a plan, but are facing intense resistance from an alliance of the Governor of the Bank of England, Mervyn King, and the Chancellor, Alistair Darling, to their suggestions that the Bank's current Special Liquidity Scheme, which provides about £50bn of funding to commercial banks offering older mortgages as security, at a penalty cost, be extended to new home loans.

A review of the mortgage finance market by the former chairman of Halifax Bank of Scotland, Sir James Crosby, is due in the next few weeks. He has already expressed the view that state intervention might "create more problems than it would solve".

Mr King said last month: "Why should the taxpayer take on the risk of borrowing by individual borrowers, some of whom are risky? The last thing we want to do is to tell lenders it doesn't matter if they monitor the riskiness, the Government will guarantee it. That's not the route to go down." More widely, Mr King has implicitly queried the whole notion of a recovery plan, stating that a housing correction was neither something the state should or could do anything about.

Observers agreed that the £300m HomeBuy Direct scheme, offering 10,000 first-time buyers a 30 per cent loan towards the price of a newly-built property, has potential. However, they also thought that rationing it to only 10,000 people rendered it irrelevant.

David Page, an economist with Investec Securities, said: "The relatively few households that will qualify for the new equity shared scheme could see their effective mortgage rate reduced from 5.99 per cent (the best no- fee tracker rate available) to 4.2 per cent and save perhaps £13,500 in interest payments. Clearly this is a significant stimulus. However, even in June's depressed market, there were 77,000 transactions completed, and so the scale of this stimulus looks too small to have a meaningful influence on the market as a whole."

Some were also anxious to point out that the taxpayer bears most of the risk if the value of the property falls and the buyer chooses to sell. In effect, up to the first 30 per cent of any loss is covered by the taxpayer or the developer who lent the deposit in the first place. But if the value of the house rises, all the gains accrue to the property owner.

There was similar scepticism surrounding the temporary raising of the threshold for stamp duty, although the end to the uncertainty was welcomed. The last time a government tried a "stamp duty holiday", in the early 1990s, it had a markedly beneficial effect on activity in the housing market. Then the threshold was raised temporarily almost tenfold, from £30,000 to £250,000, much larger than yesterday's move from £125,000 to £175,000. While about half of all properties would be covered, with a maximum saving of £1,750, analysts pointed to the £2,000 per month that could be saved simply by waiting on the sidelines and watching prices drop. "As incentives go, this one is pretty lame," was the conclusion of Alan Clarke, a UK economist at BNP Paribas.

The next question for ministers is whether they really are going to end the stamp duty concession after a year, or whether they will extend it into 2010, in the likely run-up to a general election. The average first-time buyer mortgage is £113,500 on a property typically valued at £125,000.

Still, the package of measures does seem to have stimulated some activity. The online estate agent Rightmove reported a 10 per cent increase in traffic on its website. "Potential buyers are obviously seeing what extras they can now get for their money," a spokesman said.

The increases in social security benefits for those hit by the housing crash, bringing forward eligibility for benefits from 39 to 13 weeks, and the £200m mortgage rescue scheme allowing those at risk of repossession to sell all or part of their home to a registered social landlord and then rent it back at an affordable rate, were about the only aspects of the Government's policies to spur anything like enthusiasm, especially from those councils likely to have to deal with a rising tide of homelessness. Jamie Carswell, the housing spokesman for London's borough councils, said: "Without the measures, we risk seeing a huge rise in homeowners becoming homeless through repossession... We think that councils can go even further by offering mortgages ourselves."

The Buyer: Jonathan Collett, 31, solicitor, Herne Hill, south London

What is your current problem?

My fiancée and I are prospective first-time buyers. We are trying to save the deposit that we will need to buy a house in Herne Hill. House prices are not putting us off but we are having to delay buying because of the large deposit required – the current credit squeeze has made getting a mortgage very difficult for us.

Will the measures help?

The stamp duty measure is absolutely irrelevant to us. I was on the edge of my seat waiting for the announcement, really hoping that there would be good news for me and my fiancée, Lauren. But there is no way that, as a young couple, we could find a home for £175,000. I don't know how any young couples living in London and other major cities will be helped by the stamp duty cut.

What more is needed?

We need the high deposit demands to come down. Further government action on stamp duty would help. We will have to pay somewhere in the region of £5,000 to £9,000 in stamp duty, so if the Government had cut £1,750 off that bill, it would make a difference to us. As it stands, we aren't helped one bit.

The Owner: Carol Lewis, 53, Telford

What is the current problem?

I could afford my mortgage when I was sold it in 1990 but then I split with my husband and became ill. I lost my job, which left me unable to meet the repayments. I contacted my lender but they were not very understanding. Finding what my rights were and what help was available was hard.

Will the measures help?

The measures to help people at risk of losing their home, like me, could be a real help, as I am not somebody who borrowed more money than I could afford – the problem has been a change in circumstances. But the aid for those in danger of repossession does not go far enough. It may help 6,000 people, but tens of thousands more are in my predicament.

What more is needed?

Lenders are happy to lend you money and take repayments but when borrowers like me hit problems, they run for the hills. The Government should ensure lenders offer help to people in my situation. Also, one of the main problems I had was finding out what help was out there for me. Once these new measures are in place, the Government must make sure those at risk know about them and how to claim them.

The Agent: Lucian Cook, director of residential research at Savills

What is your current problem?

Estate agents are struggling with a lack of buyers. That, in turn, causes a build-up of stock which doesn't shift and the result is a steady fall in house prices. The people who are in the housing market now are people who really want to sell. All those people who don't have to move are disappearing.

Will the new measures help?

The measures will only be very limited in their effect. Take a look at the biggest move – the stamp duty "holiday". The most it could save a buyer who is purchasing a home for £175,000 is £1,750. That is not a significant amount considering the state of house prices in Britain at the moment, which are still historically high.

What more is needed?

We would have liked measures that tackled the underlying problems. The 30 per cent loan to first-time buyers is more interesting. But the deal relies on developers getting involved, too. There has been a lotof flats built recently, which are favoured by first-time buyers and investors – the groups hardest hit. The crucial factor is whether developers do take advantage of the scheme to get the market moving.

The Developer: Clive Truman, from Regal Homes, Swiss Cottage, London

What is your current problem?

Properties are harder to sell as first-time buyers can't get the money for a mortgage. We aren't making a profit because of the state of the market. A lot of the problem is media-led, with the reporting of "doom and gloom" all the time.

Will the measures help?

It will have a slight effect. The stamp duty holiday sounds good but it stops at £175,000, rather than extending to, say, £500,000, which would have made it more effective.

What more is needed?

I believe there will be a strong market again soon.

Interviews by Rob Lee