You will no doubt have seen the recent reports regarding home repossessions by Northern Rock. This has led to a wider debate on the repossessions all banks are making, especially those that have received substantial amounts of public money in the form of extra capital, and extra loans from the Bank of England. We can all see the heartache losing your home brings, and can imagine the sorrow and difficulties it would bring to us if it ever happened. Less easy to see is what it costs all of us, as taxpayers, when it happens. Families made newly homeless need to be housed and supported, while our neighbourhoods are blighted by empty homes, forlorn "For Sale" signs waiting for an answer.
In the first 6 months of this year, 19,000 homes were repossessed. In the second six months, 26,000 more are expected to be repossessed. The government tells us that they, and us, expect banks to be more lenient because of the support we, as taxpayers, have given them. But if the response of the bankers and shareholders (here and here also) to our help has shown us anything, it is that we cannot expect them to behave in anything but their own crass material self-interests. And their self-interest does not match the interests of society and taxpayers.
However, Labour ministers have repeatedly stressed that they will not be dictating policy to the banks we now own large stakes in. They are running scared from any possible accusation that this is anything but a part-nationalisation, anything other than support, silent support, for the banks and the economy. All they are willing to do is exhort from the sidelines, despite the legitimate interests of all of us, as taxpayers.
Meanwhile, the chancellor is talking about bringing forward massive investments in infrastructure, following the Keynesian route out of a recession. This is something that should be applauded, as injecting that money into the economy is the best hope we have of making the recession short and shallow.
So perhaps a way to put money into the economy at the same time as helping banks and mortgage payers is needed.
The idea is simple: Allow everyone who is paying a mortgage on their primary residence to apply for a two year mortgage holiday. This would involve them only paying the interest on their mortgage for those two years. However, because we don't want to be giving those who have taken on too much a free ride, this will involve a charge on the mortgage holder of a percentage of their mortgage cost. To ensure the banks aren't hit by this, the government will loan an amount equal to the expected repayments to the banks, which will be repaid, with interest, over the next 5 to 10 years.
This plan would ensure those who need help with their mortgage in the economic downturn get it, while the charge will discourage those who don't need it. The banks will, instead of having an uncertain revenue stream from struggling mortgage holders, have a guaranteed income from the government to support them. And the money freed up from mortgage payments will be put into the economy, either through direct spending, or by being deposited in the banks, encouraging them to begin lending to small businesses again.
Note, however, this is only for mortgages on primary residences - on people's homes. It does not cover commercial mortgages, or those houses bought as buy-to-let. Commercial property is a commercial venture, and must stand or fall on its own. The same is true for buy-to-let houses. However, in this case, we must also ensure we support the tenants.
To this end, I also propose that all banks must give first refusal on houses that are being repossessed to the local council. They will be supported with government money to purchase these homes as social housing, giving continuity to tenants. Of course, the price paid must be a fair one, found with reference to the local market.
Finally, when the two years are up, it is hoped that the economy will be moving out of recession. Wages should be rising, enabling those who were previously struggling to meet their repayments. And for those who still cannot afford to meet their commitments, they, or the banks, will face an economy better able to provide buyers for houses.
Originally, I thought this scheme could easily be introduced into the banks that have either been taken over or have received large injections of capital from the government. However, to prevent this from distorting the entire market, and to ensure assistance is provided for the mortgage holders in other banks, I now believe it would be best to ensure this is available across the industry. All banks should be able to benefit from a little more security, and all mortgage-payers in their own homes should be able to benefit from a little more breathing space. And all of us should be able to benefit from more money going into the economy.
This plan is essentially an extension of the mortgage rescue scheme announced at the start of September. Under that scheme, councils or housing associations could buy the home and rent back, buy part of the home, or simply loan money to the owner to allow them to keep up repayments. The version I have set out here, however, can be extended to help more people, forces a real charge on them to ensure reckless borrowing does not go unpunished, and has the benefit of giving a secure income stream to banks. The repayments from the bank to the government will make sure the taxpayer is not out of pocket. And finally, and most importantly, more money will be put into the economy through the spending of mortgage holders assisted, meaning this policy can help us come out of recession, as opposed to only alleviating repossessions. That truly helps every one of us.
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