To achieve this requires, as you argue, action on two fronts. Few people would dispute the need for measures that will save home owners from losing their homes, and prevent the market being flooded by a further wave of repossessed properties. So far, so good.
However, your proposal to stimulate demand by extending tax relief to cover all interest on loans taken out during the next three years is a very different matter. This would prove an extremely expensive, open-ended and untargeted subsidy, adding substantially to the already massive cost of mortgage interest relief.
On a cautious estimate of potential take-up, it could well cost pounds 500m a year. If, as is likely, it prompted substantial additional demand, the costs would escalate accordingly. The subsidy would add a further serious distortion to the market, encouraging people to over-extend themselves to get the maximum benefit, and in consequence could well lead in the longer term to more repossessions.
Insofar as there is a case for some short-term subsidy to stimulate demand, it should be restricted to first time buyers, be subject to a ceiling, and be strictly time-
limited, phasing down and out over, say, a five- to 10-year period. To avoid excessive market distortions, the same subsidy formula should be applied to all home owners getting tax relief on their mortgage interest. Over a five- to 10-year period this would bring a dramatic reduction in the cost of mortgage interest tax relief, which, as you have rightly argued in the past, is unjustifiable in its current form.
Finally, to tackle the mounting homelessness crisis and provide a lifeline to Britain's hard-hit construction industry, the Government should immediately release the pounds 5bn or more of accumulated capital receipts that councils currently hold but are not allowed to use, specifically to finance a new programme of house-building and renovation.
More than any other measure, this would have a powerful impact on the wider economy, helping to pull Britain out of the damaging and unnecessarily protracted recession.
MP for Greenwich (Lab)
30 JulyReuse content