Helping first-time buyers isn’t (mainly) about mortgage lending

This is an addition to my previous post really about how we get ‘generation rent’ into homeownership, if indeed we should. There’s a paradox that the measures you take to ensure ‘responsible’ lending from banks are the measures which prevent more first-time buyers form getting a property. Opening easy credit again could be seen as one answer to the problem of younger people being unable to buy.

That would be the wrong lesson to draw from the financial crisis and its aftermath.

There are some people at the moment who can sustain a mortgage but to whom banks won’t lend. But that’s not really the issue. Looser lending may help in the short term, allowing some more people to buy a home. But in the long term, it’s cheap credit which fuelled the housing boom, drove up prices and locked most first-time buyers out. It’s not something we want to repeat.

As a colleague put it to me once: ‘house prices in Britain rise to the level of available credit in the economy’. More lending means higher prices.

That’s why the IPPR are right to say that there should be limits which ensure lenders act responsibly. I don’t know whether that’s a certain loan to value ratio as they suggest or something else. But, I do think the timing’s important. If limits like this are going to prevent another bubble, they need to be imposed before their effects bite, during a slack period. Once the housing market begins racing away, it’ll be difficult and unpopular to draw it back again with borrowing limits. Better that when it grows again, it does so under more sustainable rules.

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2 Responses to Helping first-time buyers isn’t (mainly) about mortgage lending

  1. Bernard Crofton says:

    At last some good news. Grant Shapps is number three on the list of MPs likely to lose their seats under the boundary fiddle.
    When I remarked on this my (new) wife expressed surprise he is a Lib-dem. We agreed he is more right wing than Pickles if a little more urbane.

  2. Jim says:

    This is also why I think Labour needs to start developing arguments in favour of significantly higher housing supply, not just of social housing but of market housing too. And just as importantly, arguing against NIMBYism in all its forms. This will be difficult, as (1) current homeowners are usually a large and loud voice opposing new local housing development, and (2) most people, even if they’re not homeowners, don’t really like more flats being build in their neighbourhood. But if these arguments continue to win out, then affordability is only going to get worse, and it is the young, the poor and the marginalised who will be hit hardest.

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