Payback time

I suppose spitting in the wind is the polite way of putting it. The government’s plans to revive the housing market may be motivated by the noble goal of supporting home ownership and extending a helping hand to a construction industry facing torrid times, but how many of us think they will make a significant difference for the better?

Clearly, Alistair Darling doesn’t. He spent the past week fighting the proposals, fearing they were a waste of money, and concerned that they would be overwhelmed by what he thought would be the worst economic crisis to hit Britain for 60 years.

Is it really that bad? Many people have got rich over the years betting against the Treasury, but given that it is the chancellor’s job to talk up the economy, we should pay attention to Alistair’s gloomy predictions. He can see recession, repossessions and rising unemployment ahead – with his own job likely to be among them.

On the day the government announced its housing rescue package, the Organisation for Economic Co-operation and Development predicted we’d tip into recession over the second half of this year. This was much like bailiffs turning up to take away the punch bowl just as the first guests arrive for a party.

Many people have got rich over the years betting against the Treasury, but given that it is the chancellor’s job to talk up the economy, we should pay attention to his gloomy predictions

For most of us, though, party time is a distant memory. We’re now deep into the hangover phase of the economic cycle, and those of us renegotiating our mortgages are finding fewer deals, higher rates and a bigger slice of our income going on housing costs.

While prices are dropping (and Halifax bank believes it’s the biggest drop in history), homes aren’t any more affordable because credit is so much tighter. It’s little comfort that something is cheaper if money itself is so much more expensive. In July last year lenders advanced a total of £17.2bn to homebuyers. In July of this year, just £4.3bn was lent. When credit is crunched as severely as that, the government’s response doesn’t quite fill the gap.

Indeed, the more one looks at the government’s plan, the less there is that meets the eye. The government’s mortgage rescue scheme will, ministers claim, help 9,000 families, but 45,000 family homes are likely to be repossessed this year, according to the Council of Mortgage Lenders – 66% more than in 2007. This means fewer than one in three new repossessions will be halted, even by the government’s own estimates.

Prospective buyers won’t get the help they need, either. It was announced on Monday that the government’s Social HomeBuy scheme would move 5,000 people into new homes, but when it was first launched in 2006 it was also supposed to help 5,000 people a year. In fact, there have only been 235 sales under the scheme, which is a drop in the ocean compared with more than 30,000 mortgage approvals every month.

It’s little comfort that something is cheaper, if money
itself is so much more expensive

First-time buyers will also have to fend for themselves. The proposal for a stamp duty holiday is commendable, but when it only applies to properties worth less than £175,000, you have to ask if the government knows anything about the market. There are few properties in Greater London for that sum you could fit a family into. What’s worse is that the government has no explanation for how it will pay for this measure – when pressed, the chancellor couldn’t say where the cash would come from. After the palaver over its u-turn on the 10p rate, Labour is rapidly becoming the party known for proposing unfunded tax cuts. If the Liberal Democrats aren’t careful they’ll lose the position as market leader in this field.

What makes the whole spectacle so tragic is that we are seeing the payback for terrible hubris. Gordon Brown thought he’d learned the lessons of the last recession. He believed he was the smartest guy in the room and told us that he’d abolished boom and bust. But he presided over a runaway boom – driven by the housing market – and used that to drive individuals deeper into debt and exploit the rise in asset prices to make people feel more relaxed about rising taxes, because they appeared to be getting better off overall. He then squandered the opportunity those tax revenues gave him.

This is why there was nothing left in the locker to help out hard-pressed homeowners when the bust came. People say Brown’s been unlucky – but he’s only unlucky in the way someone who has bet all his neighbour’s savings on the gee-gees is unlucky. Sooner or later the reckless face a reckoning. Unfortunately, this time it’s a reckoning the rest of us are paying for …