Commentary: Housing market declines to perk up

Mortgage rescue initiatives were a key part of the Government's package to support the housing market last December, and their failure is one of the reasons why house prices and transactions have still to bottom out. The Joseph Rowntree Trust's investigation into the initiatives, published yesterday, implies that the owner-to-tenant schemes may have been misdirected. They have encountered obstacles among conservative lenders and among the housing associations that were meant to take on the properties, but there has been a more fundamental snag: people still prefer to own rather than rent, even if they are drowning in debt.

The flop of such conversions does not mean that the Government's package has been useless. The lifting of stamp duty until August has helped, and the Rowntree researchers find that some 8,500 to 10,500 households may be saved from repossession in a full year, thanks to the Department of Social Security paying the mortgage interest component of income support direct to lenders, rather than to the individual.

Perhaps more crucially, the political heat generated by repossessions has changed the building societies' attitudes to arrears. There are far fewer repossessions this year than one would have expected from the mounting tide of arrears. At the beginning of last year, 160,000 people were in arrears of more than six months, and there were 75,000 repossessions during the year. At the beginning of this year, some 275,000 were behind in payments by more than six months, but the number of repossessions is likely to tumble. As John Wriglesworth of UBS-Phillips & Drew points out, lenders have the capital strength to clinch generous deals such as payment holidays.

All the fundamentals - a backlog of first-time buyers, affordability, slowing unemployment - point to stable house prices. The doubt is the same as in any asset market: if people expect prices to fall, they will. Lenders now insist that a first-time buyer put up 5 per cent, so it takes nerve to plunge into a market where a further 5 per cent price fall would wipe out a life's savings. If the market goes on dropping this autumn, the Chancellor will have little option but to dust off more radical plans, including extension of housing benefit to low income (but not jobless) owner-occupiers.