Brightsale

Well he did his best.  After his interim report in July was positively tepid in its support for direct Government intervention in the mortgage markets, Sir James Crosby finally got off the fence in his full report (published with the pre-budget report this week).  In fact he went from lukewarm to ‘shock and awe’.  Without direct Government intervention in the wholesale mortgage markets he predicted that it was “very likely” that net mortgage lending would fall below zero in 2009.  Yes BELOW ZERO.  This means that the amount of mortgages being paid off would exceed the sum of new lending.   To put this in context, in the year to Sept 2007, Bank of England data shows that net residential lending totalled £ 84.7 billion.  In the year to Sept 2008 this had slumped to £37.4 billion.  Lending is down a little over 50% and sales transaction volume is down – well yes, around 50%.  So if net lending falls to zero, then transaction volumes go to?  The spectre of a virtually closed housing market looms up before us.

Sir James proposes to lance this terrifying apparition with a good old fashioned dose of nationalisation.  He proposes that the Government should guarantee £100 billion in new mortgage securities (on a temporary basis) in 2009 / 2010.  But the problem is that Sir James has does not actually possess a lance.  The lance is held by Chancellor Darling.  But will he actually use it?  Many in the industry drew heart from Mr Darling’s response to Crosby’s full report yesterday, but the optimism needs to be tempered.  Mr Darling certainly did not say he would definitely adopt this proposal.  In fact he was very clear that he could not adopt it without clearance from the EU.  In fact, looking at the exact language used by Mr Darling he only committed the Government to  “proceed to work up a detailed scheme based on Sir James’s recommendations”.  Given that the budget is not until next March this hardly smacked of a urgent response to a pressing problem. 

Our sense is that Mr Darling is very much keeping his options open, waiting to see how other factors play out before deciding what actually to do about the mortgage market.  The problem is that the Government’s balance sheet is ballooning at an alarming rate.  Adding another £100 billion in the form of Government-backed mortgage would be a massive decision, and EU approval for such aid is by no means guaranteed. 

And then there is the issue no one seems to have noticed.  Many Westminster watchers are shortening odds on a Spring 2009 General Election.  Were this to occur and Chancellor Osborne took over would he feel similarly constrained to implement Crosby’s bail out?  Given what both he and David Cameron have been saying about the Government fiscal “irresponsibility” surely the answer is no.   

We support measures to ensure the stable and proper functioning of our mortgage markets.  Without them, Britons could become virtual prisoners in their own homes in 2009 and 2010.  But homeowners and estate agents have to prepare themselves for the fact that 2009 could be very difficult indeed.  They must not be lulled into a false sense of security and believe that Sir James has definitely ridden to the rescue.  Homeowners who need to move in the next 12-18 months should get their properties on the market now and should price them sensibly.  There are still mortgage-approved buyers out there, but undue delay or unrealistic pricing could yet mean tangling with a real dragon next year.  There is no time for delay.

Stealth taxes have been a cornerstone of the Labour government’s fiscal policy for 11 years now. Stamp duty increases have been one of the most reviled in Middle England, and so it is with pleasure that we note Chancellor Darling’s seeming new willingness to consider allowing purchasers to (at least) defer Stamp Duty for a period. In our view, it would work best – at least in terms of getting transactions going again – if it were time-limited. At the moment, people who really should be moving home for economic or personal reasons are simply deferring the decision in the face of monthly price declines. Every month that goes by, these would be buyers (assuming they are trading up) are being vindicated in their decision to wait by falls in the market. If a purchaser knew that he/she only had (say 12 months) to complete a purchase to take advantage of a Stamp Duty holiday it might do something to balance up the ‘one way bet’ of simply waiting for property to get cheaper and cheaper.

In many ways, Gordon Brown’s parlous political position is a blessing for the housing market. Had he been stronger, he might have been more inclined to tough out the current downturn. As it is, he simply has to pull some serious rabbits out of the hat to have any chance of reviving his premiership. A well targeted move which breathed life back into the housing market would be an eye-catching way to start. He was a tinkering Chancellor himself, so let’s hope he encourages his successor to ‘tinker’ in a positive way for once.