Should The Government Throw More Cash At The Home Loan Market?
We reported last week about the interim study from Sir James Crosby, the deputy chairman of the Financial Services Authority (FSA), on the state of the housing and home loan industry in the UK and the likely outcome that recommendation will be for the Government to inject further cash into the ailing housing market, under its special liquidity scheme.
But is this really the best course of action to revitalise the housing and loan market, the Government has already invested £50 billion into the lending sector to ease their problems, yet it does not seem to have made it any easier for a customer to be accepted for a new loan to allow them to purchase a property.
The initial cause of the credit crunch has been the problems with defaults on loans in the US sub-prime sector and to a lesser degree in the UK, which has hit lenders hard. This, coupled with scandals such as the Northern Rock story, have caused lenders to take a much more cautious and some might say sensible approach towards granting loans and mortgages to individuals.
Despite all the bad press regarding the housing and home loan markets at present, we are still essentially a nation of home owners and most people’s financial priority in life is to own their own home, regardless of the current downturn. The main reason why first time buyers are not entering the market is due to the fact that they simply cannot afford to buy a property with prices as high as they are and throwing money at lenders is not likely to alter that situation.
It may be more appropriate for the Government to introduce other financial incentives to boost the housing market, ones which actually have some benefit for those buying a house and taking out a new loan, such as the re-introduction of tax relief on loan interest repayments through MIRAS (mortgage interest relief at source) and the abolition, or at the very least a review of stamp duty.
