I got into a discussion last week about the housing market in a post entitled 'Vince Cable's perverse economics.' There are two different strategies that can be pursued towards the housing market at this stage. You can kick start mortgage lending and promote house building, which is broadly the Government's approach. Or you can go the way of Vince Cable and insist on a return to the mortgage market of twenty plus years ago, lending no more than three times annual income in order to deliberately engineer a collapse in house prices.
Vince Cable's approach is recklessly masochistic. The collapse in house prices that would be necessary to make housing affordable for first time buyers on a three times income basis would push 100,000s into negative equity, repossession and back into the private rental market having lost their deposit. This is regardless of the fact that multiples greater than three times annual income can be afforded (if they can't be afforded then the mortgage shouldn't be agreed.) How do I know it can be afforded? Because people, particularly in the South East and London, are already paying rent that is higher than a three times annual income mortgage!
Luckily the Government is going a different way. They are looking at further measures to rebuild liquidity of wholesale capital markets to ensure that good and affordable mortgages remain available according to The Times this morning. It is the wide availability of affordable mortgages and an increase in housing supply with a range of shared ownership options that gives more first time buyers the opportunity to get on the housing ladder.
Lib Dems complain that they can't get their message across in the media. On this issue it is a blessing rather than a curse.