Leading article: A financial cloud that could have a silver lining

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The Independent Online

Construction companies and first-time home-buyers are emerging as some of the chief victims of the current credit squeeze, and yesterday's decision by the Bank of England to hold interest rates for another month offered no cheer to either. Both, unsurprisingly, are lobbying the Government for special help.

Barratt became the latest major builder to announce job losses yesterday, following announcements in previous days from Bovis, Redrow and Persimmon. The only consolation, at least for Barratt, was that it had managed to extend its debt facility until 2011. Even so, the company forecast that house-building would fall this year to its lowest level for half a century – leaving the Government's target of 240,000 new homes a year looking optimistic, to say the least.

First-time buyers find themselves in a different, if related, fix. Interest rates might be lower now than they were at the start of the year, but mortgage rates are higher. Banks are warier of lending to each other; the easy credit available for a decade has dried up. Even where financing is forthcoming, the 100, or even 110 per cent mortgages of the past are gone; a sizeable deposit is required before a mortgage is granted, and credit-worthiness is checked.

In many ways, this represents a welcome return to common sense. So suddenly have lending policies switched, though, that first-time buyers have reason to feel cheated. With house prices still high relative to income, and credit hard to come by, they find themselves effectively locked out of the market. At such a time, special breaks tailored to those wanting to buy their first home might seem tempting as a way for the Government to kill two birds with one stone. A waiving of stamp duty and privileged terms for mortgages are among suggestions for helping first-time buyers and simultaneously loosening up the market.

It is hard to see, though, any way in which first-time buyers – and coincidentally house-builders – could be helped without distorting the market and keeping prices artificially high. Indeed, with house prices falling substantially in most parts of the country, it is not unreasonable to ask why anyone who is not a home-owner would want to become one. Lower prices might be dashing the hopes of existing owners and sapping confidence in the Government's management of the economy, but for first-time buyers they are good news.

There are, though – or could be – other ways in which some good could come out of the current misery. Vincent Cable, Treasury spokesman for the Liberal Democrats, recently suggested that unsold new homes should be sold at a discount to housing associations or charities for use as social housing. A small scheme along these lines already exists, but – as Mr Cable has pointed out – it is pathetically small. The need for much more social housing is incontestable, if only to fill the yawning gap left when Margaret Thatcher gave council tenants the hugely popular "right to buy".

In London, the new Mayor, Boris Johnson, has announced an audit of the estimated 84,000 empty buildings across the city, with a view to having them improved and rented out, mostly as social housing. This will take longer than buying completed homes, but it is an example other authorities should consider emulating. There may be a mismatch between where housing is available and where it is needed, but it is absurd that housing, new or old, should stand empty when demand is so great.

Today's economic climate offers little comfort to anyone. But falling house prices and a frozen market have also created opportunities to tackle the country's endemic housing shortage, albeit in a different, more imaginative, way.

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