Though the number of repossessions has diminished a little, to 35,750 in the first six months of the year, the director-general of the Council of Mortgage Lenders has admitted that without the special efforts of the past nine months it would have risen to more than 100,000 this year. Even that figure is only a third of the potential repossessions, if everyone more than six months in arrears is in some danger of losing his or her house.
These figures are not mere abstractions. They provide the most vivid and powerful of all the fears that keep confidence low and prolong the recession, for it is a far greater catastrophe to lose a home than a job. For the past 18 months property prices have been steadily falling, at a noticeable rate, and the mountain of potential repossessions means they will continue to fall until decisive action is taken. One analyst reckons that 1.5 million houses are now mortgaged for more than their market values.
The crisis in the housing market should commend itself to the Chancellor's attention for two reasons. It lies at the heart of the recession, and he can actually do something about it. Much of the present economic debate is conducted on the lines of the debate between Ulysses and his crew as he sailed past the Sirens. The Thatcherites sing from their shipwreck-surrounded reef; the Chancellor, his ears stuffed with wax, keeps steadily on course and can do nothing else. Housing is different. Something must be done, and some things can be done.
There are two main approaches to restarting so crucial a market. Both can be tried. One is to damp down the oversupply, and the expectation of future surpluses, by introducing a buyer of last resort to draw off from the market the surplus of repossessed housing stock. In effect, this would require the sale of repossessed houses to be suspended for the foreseeable future.
This approach was tried last autumn, with insufficient determination and little success. There is no reason why it should not be renewed, but it can and should be supplemented by more direct government action. There are a variety of unglamorous but useful measures that can be taken to ease the pressure on those already caught in the trap: housing benefit can be extended to mortgages; and social-security benefits adjusted to help the newly unemployed home owners.
But it is also necessary to take dramatic action directly to stimulate demand. This newspaper has criticised mortgage interest relief in the past for its distortions of the market. It was one of the factors that caused the boom of the Eighties, and hence the current bust. But it could now be used to undo some of the damage it caused.
The Chancellor should consider whether all borrowing on new mortgages during the next three years ought to qualify for complete tax relief on the interest. The relief would have to apply for the lifetime of the loan, but the period in which new loans would qualify would be strictly limited and could not be renewed without a return to Parliament.Reuse content