Sean O'Grady: Gesture politics may be just enough to make difference

Share
Related Topics

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".

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Education Recruitment Consultant- Learning Support

£18000 - £30000 per annum + Generous commission scheme: AER Teachers: Thames T...

All Primary NQT's

£100 - £120 per day + per day: Randstad Education Leeds: Description Calling a...

DT Teacher - Food Technology

£100 - £145 per day + Pension and travel: Randstad Education Maidstone: SUPPLY...

Supply Teachers Needed in Thetford

£21000 - £35000 per annum: Randstad Education Cambridge: Supply teachers neede...

Day In a Page

Read Next
 

Why black cats make amazing pets, and take good selfies too

Felicity Morse
Children of a bygone era  

Kids these days aren't what they used to be — they're a lot better. So why the fuss?

Archie Bland
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star