Let’s keep the issue simple so that it does not become too involved

The Bank of England is making a great mistake in clamping down on borrowing so late in the economic cycle when it should really have been addressed far earlier. Their proposal for mortgage ‘stress testing’ is badly thought out and will inevitably be subject to the law of unforeseen consequences by penalising buyers in poorer areas of the country

Firstly the BOE dropped interest rates to artificially unrealistic levels and held them in this depressed state for a number of years, whilst ignoring the impact on savers, who were held out to dry

Secondly the BOE imposed no controls (stress testing) early on at the start of the economic cycle on mortgage affordability and took no account of interest rates inevitably returning to their mean. They now seem surprised that anyone who could, took out unaffordable mortgages, at unrealistic long term interest rates, on unrestricted multiples of income. What did the BOE really think would happen with the introduction of cheap money – one doesn’t really need a crystal ball to predict the outcome?

Now both the BOE and politicians are caught in a dichotomy between economic and social considerations, because interest rates cannot be raised without the inevitable social fallout when mortgage repayments rise and existing home owners cannot afford their repayments. We are told that a 0.5% rise in rates will cause problems for 750k mortgagees and no politician likes the prospect of political suicide such as this

Nevertheless this is the present reality, so what is to be done?

The simple facts are

  • Any housing bubble will be driven by London and the South East in the main, although there are other pockets throughout the country as well
  • Other areas in the county are either stagnant or have falling house prices

The question therefore is how to curb one without affecting the other.

With this in mind, we need to ask what element under state control affects housing irrespective of location and remains pliable. Surely the answer is the rating system and by controlling the rates it is surely remarkably simple to influence the housing market, as well as raising money from wealthy areas to support those that are less fortunate

The current rates system has a cap at the highest band H, which equated to a house price of £320k as at April 1991 (or approximately an average of £1.05m today)

Therefore by definition anyone with a house valued at more than band H is getting a ‘free ride’ by not paying the same proportion of their house value as those lower down the scale; furthermore, the greater the house value the more inequitable the whole situation becomes

Possible Solution

Adopting the following simple approach would allow the weighting to be in favour of those areas in the country where house process have stagnated whilst potentially curbing possible housing bubbles in areas such as London

Change the rating system to be a single percentage for all domestic properties (say – 0.3%) over the entire country and use the latest Land Registry purchase as the base value of the property

  • Easy to implement & collect
  • Simple to change the percentage if necessary
  • Automatic adjustment every year according to Land Registry records – no challenge to RV possible
  • Accommodates asset rich/cash poor who have owned their house for many years
  • Everyone pays the same percentage on the last purchase price of their house

Naturally there will be objections but on balance this is probbaly the simplest and fairest solution to a difficult issue. After all if one can afford to purchase an expensive house then you should be able to cover the running costs; alternatively don't buy the property, it really is very simple


Mansion Tax Acceptable Idea With Shambolic Presentation

Tags: , | Categories: Bank of England | UK Government

Nick Boles (Planning Minister) seems to have let the cat out of the bag about migrants accounting for almost half of the housing demand in the UK

But then we all knew there was a clear link anyway, despite denials by previous Governments and any reasoned debate being shut down by the PC brigade with accusations of racism whenever the argument went against them

Is this more about a flawed immigration policy over the past 10-20 years rather than flagging house building? An immigration policy which everyone now acknowledges was wrong; although, rather late in the day after any potential damage has been done

The solution being put forward is to develop large swathes of the English countryside (further 2-3%) in order to redress the balance.

Mr Boles mantra seems to be '.. everyone has a right to live somewhere that is not just affordable but that is beautiful and has some green space nearby ..' and that this is a '.. basic moral right, like healthcare and education ..'

Get real Mr Boles! This is another crackpot idea from a transitory politician who does not have to live with the long term results of his policies. The countryside is a finite resource and one cannot keep eroding it every time there is a problem in another area that politicians do not really wish to address, because eventually it will be exhausted - and then what? Or do you really care because by that time you will have made your mark and be long gone ...!

Quite apart from the fact that one is potentially removing productive land out of growing crops. Taking this approach to it's logical conclusion it results in housing at the expense of food - not an advised policy. Or does Mr Boles intend to rely upon food imports to compensate for any shortfall; so that the country can be held to ransom in the future?

But the problem is this approach may be a solution to todays issues, however, without a radical change in the immigration policy the problems will simply recur again in 10 or 20 years time. At the end of the day there is not enough green space to be concreted over every time politicians try for 'quick fixes' rather than addressing the underlying problems. The country really needs sustainable well though out solutions and NOT quick fixes to these issues which take the easy way out!

Furthermore, nothing has been said to address the huge inflow of foreign nationals under the EU 'open door' policy or chucking out those who are here illegally and have overstayed their welcome; other than to offer yet another amnesty because they cannot be found and our border controls are either hopeless or massively under resourced

Every aspect (housing, food, population etc.) forms part of the equation and must operate in harmony, otherwise the whole thing is out of balance and one ends up sacrificing one aspect to satisfy the demands of another. This is what politicians simply fail to grasp and is also in part why the UK & rest of the world is such chaos at the present time.

Tags: | Categories: UK Government