Jeremy Warner: Mortgage plan may be smarter than it looks

Outlook: Brown’s mortgage relief plan is smarter than it looks. On the face of it, underwriting lenders who allow those who lose their jobs to defer their mortgage payments for up to two years is an outrageous use of taxpayers’ money as well as amounting to unwarranted interference in a necessary housing market adjustment.

Yet in reality, it’s quite unlikely to cost the Government very much financially and if its main purpose is seen as that of bolstering economic confidence rather than propping up the housing market, then it may be quite a good thing. Few people with big mortgages remain unemployed for as long as two years, and even then they are going to have to end up in negative equity for the taxpayer to lose out.

Barring a repeat of the Great Depression, it is most unlikely both these criteria would be met. On the other hand, fear of unemployment is one of the factors which is crimping consumer spending right now. If householders can be convinced they don’t have to worry about their mortgage repayments if they are made unemployed, they might be more prone to rush out and take advantage of the VAT cut to buy the new car or flat-screen TV. So there is both politics and economics in what was announced yesterday – help to struggling mortgage holders and perhaps a boost to spending too.