The politics are as tricky as the economics. How does a cash-strapped government revive the housing market and deliver itself a fourth general election victory in the midst of a recession? And how does a relatively inexperienced chancellor and a prime minister living in the shadow of a more illustrious predecessor restore their fortunes against the odds, and the polls? Answer: With a relatively low-cost but high-profile tax change. It's been done before.
Now – just as no one ever got married for the sake of the married couple's tax allowance – you would think that nobody would undertake such a major commitment as the purchase of a property simply for the sake of a tax break. Surely that, too, would be a case of the tail wagging the dog? And yet the property market has shown time and again a surprising responsiveness to relatively small, but eye-catching, initiatives.
The last experiment, in the early 1990s shows a remarkably precise effect. The effective moratorium on stamp duty announced by Chancellor Norman Lamont in December 1991, right in the middle of the last housing crash, saw a jump in new mortgage approvals from about 70,000 to about 90,000. Lamont had temporarily lifted the threshold for stamp duty from £30,000 to £250,000, in those days a big enough sum to buy a mansion, and it worked. The boost came just in time to deliver victory for Lamont's party and John Major in the April 1992 general election – the last time a government won an election in the midst of a slump. Major escaped Thatcher's shadow just as Brown would love to escape Blair's. Then, when the old threshold of £30,000 was reimposed in the autumn of 1992, the number of first- time buyers subsided with it. Then, when the threshold was raised again, to £60,000 in the March 1993 Budget, the number of new mortgages jumped again, to more than 100,000. Mortgage market magic, so it would seem.
And yet there is a stark difference between then and now. Mortgages were easier to obtain then, even though interest rates were higher. Now, after a decade of cut- throat competition that drove rates down and offered borrowers unparalleled choice, the 100 per cent mortgage has disappeared, along with Northern Rock's ill-fated and too-good-to-be-true 125 per cent "Together" product. Nowadays lenders demand large deposits up front and will no longer entertain what we have learnt to call "sub-prime" borrowers. If there were any "Ninja" ("no income, no job, no assets) home loans going in Britain, they have long since disappeared. Mortgage approvals are down a startling 70 per cent on their peak last year. At this rate of decline the British first-time buyer will become extinct before the polar bear.
The key, as the Government recognises, is to revive the market for mortgage-backed securities. One way of doing that would simply be to buy them. A softer option would be to persuade the Bank of England to extend its Special Liquidity Scheme, where banks exchange their unloved mortgage-backed securities for a loan of government securities, which they then use to lend to homebuyers.
But do we really want to revive the housing market by artificially recreating the conditions that got us into this pickle in the first place? Do we want higher house prices? Or are we going to be realistic and agree with Mr King who said that an adjustment in the property market was "not a process we can, or should try to, stop".