30th March 2011
Dear Mr. Shapps,
With regard to the below, I would appreciate a reply from you personally. I find it wholly unacceptable for a member of your staff to fob me off with a 'I do not have any further comment to make'. This is lazy and not in the spirit of politicians serving the people. It is perfectly reasonable to ask for an explanation of the logic behind your policy.
Thanking you in advance.
Kind regards,
X.
Wednesday 30 March 2011
Second response
30th March 2011
Eleri Jones
Housing Supply
030344 44054
Dear X,
Thank you for your email below.
I appreciate the time you have taken to set out your thoughts on the Government's housing policy. I do not have any further comment to make on the Government's approach to establishing a stable, sustainable housing market. However, you may be interested in the recent announcement in the Budget on FirstBuy. This is a new equity loan scheme which will be co-funded by Government and house builders together providing around £400m to help over 10,000 aspiring home owners to get a foot on the ladder over the next two years in England.
Yours Sincerely,
Eleri Jones
Housing Supply
030344 44054
Second attempt
From: X
To: eleri.jones@communities.gsi.gov.uk
Subject: RE: Response to email entitled: Your discussion with banks regarding lending to prospective First Time Buyers
Date: Wed, 2 Mar 2011 18:33:45 +0000
Dear Ms. Jones,
Many thanks for your response and the time you have taken to reply to my questions. However, I'm afraid I find the answer to be replete with irreconcilable aspirations. Judging by the tone of your response (which I suspect is more a compilation of soundbites from the Housing Minister than your own concoction), its content reflects the (to my mind incoherent) message Mr. Shapps would like to pass on to the public rather than a sustainable policy. As such, I would like to ask for further clarification on the following:
1) Your e-mail says: "The Government would like to see a prolonged period of house price stability. This does not mean permanent price stagnation, or price reductions, but it would be beneficial for the future health of the market and people’s ability to access and move within it, if prices were to rise, on average, no faster than earnings." My question: If current policy aims to preclude stagnation and reductions and to promote rises in line with increases in earnings, then this would entail propagating the current average house price to average wage ratio. As this ratio is currently still around the same as it was at the peak of the housing bubble (Q3/Q4 2007), in what way does such a strategy help FTBs?
2) Your e-mail says: "Achieving a stable housing market depends above all on the return to economic and financial stability which the Government is seeking to achieve through debt reduction". My question: If debt reduction is a priority (as, indeed it should be given that it was overborrowing that caused the crisis in the first place), then in what way does a strategy of precluding price falls (even modest ones) and propagating the current average house price to average wage ratio help FTBs? Rather than reducing indebtedness, this turns a few years of overborrowing into a generation of overborrowers. Mr. Shapps risks turning the problem of over-indebtedness into a permanent one.
3) Your e-mail says: "This will help to keep interest rates low, improve credit availability and free up lending to FTBs and others". My question: To what extent and in what way does the Housing Minister think credit availability should be improved for FTBs? Contrary to what Mr. Shapps seems to think, credit is readily available. If one has a permanent job (or three years' certified accounts if self-employed) and a deposit of 20% or more, one can still borrow 3-3½ times annual income. This is sensible, sustainable lending. A case could well be argued for banks lending to people with lower deposits (say, 10-15%, but not less than 10%), and on this I would support Mr. Shapps. However, one should not omit to consider the fact that lending is largely restricted by affordability - if the asking price of a FTB house is 6-7 times annual salary, the bank won't be giving you a mortgage, even with a 20% deposit. The problem here lies in the prices, not the lending practices.
Aspiring to a stable housing market is admirable, but in view of the above, I would suggest that Mr. Shapps is on course to create serious socioeconomic problems. To propagate over-indebtedness will result in a permanent culture of people spending a far higher proportion of their income on their mortgage, which itself will result in reduced contributions into private pension schemes, reduced spending power, a weaker currency (if the price tag doesn't come down the perceived value of the money itself comes down - as we have already seen over the past three years or so) and risks mass repossessions when interest rates rise to normal or high levels. With regard to the latter point, the government's aim of keeping interest rates low is understandable, but simply unsustainable; there will be times when they must rise, and at such times those who have burdened themselves with the levels of debt Brown turned his blind eye to and Shapps is intent on propagating will be in serious trouble.
Rather than the incoherent standard PR cut-and-paste response, I would very much appreciate an explanation as to how Mr. Shapps's strategy will create the stability alluded to in your e-mail and help FTBs (one of Mr. Shapps's supposed aims).
Thanking you in advance for your clarification.
Kind regards,
X.
To: eleri.jones@communities.gsi.gov.uk
Subject: RE: Response to email entitled: Your discussion with banks regarding lending to prospective First Time Buyers
Date: Wed, 2 Mar 2011 18:33:45 +0000
Dear Ms. Jones,
Many thanks for your response and the time you have taken to reply to my questions. However, I'm afraid I find the answer to be replete with irreconcilable aspirations. Judging by the tone of your response (which I suspect is more a compilation of soundbites from the Housing Minister than your own concoction), its content reflects the (to my mind incoherent) message Mr. Shapps would like to pass on to the public rather than a sustainable policy. As such, I would like to ask for further clarification on the following:
1) Your e-mail says: "The Government would like to see a prolonged period of house price stability. This does not mean permanent price stagnation, or price reductions, but it would be beneficial for the future health of the market and people’s ability to access and move within it, if prices were to rise, on average, no faster than earnings." My question: If current policy aims to preclude stagnation and reductions and to promote rises in line with increases in earnings, then this would entail propagating the current average house price to average wage ratio. As this ratio is currently still around the same as it was at the peak of the housing bubble (Q3/Q4 2007), in what way does such a strategy help FTBs?
2) Your e-mail says: "Achieving a stable housing market depends above all on the return to economic and financial stability which the Government is seeking to achieve through debt reduction". My question: If debt reduction is a priority (as, indeed it should be given that it was overborrowing that caused the crisis in the first place), then in what way does a strategy of precluding price falls (even modest ones) and propagating the current average house price to average wage ratio help FTBs? Rather than reducing indebtedness, this turns a few years of overborrowing into a generation of overborrowers. Mr. Shapps risks turning the problem of over-indebtedness into a permanent one.
3) Your e-mail says: "This will help to keep interest rates low, improve credit availability and free up lending to FTBs and others". My question: To what extent and in what way does the Housing Minister think credit availability should be improved for FTBs? Contrary to what Mr. Shapps seems to think, credit is readily available. If one has a permanent job (or three years' certified accounts if self-employed) and a deposit of 20% or more, one can still borrow 3-3½ times annual income. This is sensible, sustainable lending. A case could well be argued for banks lending to people with lower deposits (say, 10-15%, but not less than 10%), and on this I would support Mr. Shapps. However, one should not omit to consider the fact that lending is largely restricted by affordability - if the asking price of a FTB house is 6-7 times annual salary, the bank won't be giving you a mortgage, even with a 20% deposit. The problem here lies in the prices, not the lending practices.
Aspiring to a stable housing market is admirable, but in view of the above, I would suggest that Mr. Shapps is on course to create serious socioeconomic problems. To propagate over-indebtedness will result in a permanent culture of people spending a far higher proportion of their income on their mortgage, which itself will result in reduced contributions into private pension schemes, reduced spending power, a weaker currency (if the price tag doesn't come down the perceived value of the money itself comes down - as we have already seen over the past three years or so) and risks mass repossessions when interest rates rise to normal or high levels. With regard to the latter point, the government's aim of keeping interest rates low is understandable, but simply unsustainable; there will be times when they must rise, and at such times those who have burdened themselves with the levels of debt Brown turned his blind eye to and Shapps is intent on propagating will be in serious trouble.
Rather than the incoherent standard PR cut-and-paste response, I would very much appreciate an explanation as to how Mr. Shapps's strategy will create the stability alluded to in your e-mail and help FTBs (one of Mr. Shapps's supposed aims).
Thanking you in advance for your clarification.
Kind regards,
X.
Initial response
Subject: Response to email entitled: Your discussion with banks regarding lending to prospective First Time Buyers
Date: Wed, 2 Mar 2011 17:38:18 +0000
From: Eleri.Jones@communities.gsi.gov.uk
To: x
Dear X,Date: Wed, 2 Mar 2011 17:38:18 +0000
From: Eleri.Jones@communities.gsi.gov.uk
To: x
Thank you for your email of 27 January, 2011, to the Housing Minister, the Rt Hon Grant Shapps MP, on First Time Buyers (FTBs) and issues with the housing market. I have been asked to reply.
I appreciate the time you have taken to bring your views to the attention of the Department. The Government would like to see a prolonged period of house price stability. This does not mean permanent price stagnation, or price reductions, but it would be beneficial for the future health of the market and people’s ability to access and move within it, if prices were to rise, on average, no faster than earnings.
Achieving a stable housing market depends above all on the return to economic and financial stability which the Government is seeking to achieve through debt reduction and its commitment to abolish the structural deficit. This will help to keep interest rates low, improve credit availability and free up lending to FTBs and others.
Mortgage regulation which allows creditworthy borrowers access to homeownership, while preventing repossessions, is also essential to establishing a stable market. Responsible lending and responsible borrowing are both vital - borrowers need to demonstrate financial responsibility and show that they can sustain homeownership, and in return lenders need to support creditworthy homeowners.
The Government recognises that conditions in the housing market are still difficult, but is, however, committed to ensuring that we return to a stable, sustainable housing market that responds to demand.
Eleri Jones
Housing Supply
Department of Communities and Local Government
1/A6 Eland House
Bressenden Place
London SW1E 5DU
030344 44054
Initial correspondence
27th January 2011
Dear Mr. Shapps,
Further to reading a number of articles in recent weeks pertaining to your plans for and views on current supply of mortgages to prospective first-time buyers, I would like to take this opportunity to write to you on the subject.
I myself am a 34-year-old, highly educated self-employed translator/language consultant who has never owned his own home. I have a £100K deposit and have an income of around £45K. Despite the fact that I could afford a small 3-bedroom terraced house in our area, I am averse to buying, as prices have almost tripled since 2001. I don't want to throw away such a large amount of money and take on a large debt for the sake of a small 3-bedroom terraced house.
The articles I have read concerning your views suggest you feel there is currently something of a 'mortgage drought', particularly for prospective first-time buyers. However, in my experience all the major high-street banks are willing to lend 3-3½ times annual salary to those with a 20% deposit and a secure, permanent job (or, in the case of the self-employed, to those who have 3 years' certified accounts). I would argue that this is sensible, sustainable lending - not a mortgage drought. At best one could counter that the 20% deposit requirement should be more like 10-15%.
You persistently raise the issue of the possibility of first-time buyers being permanently locked out of the housing market. I would argue that they are already locked out by inflated prices. The point is that they cannot obtain sufficient mortgage finance because prices are too high, not because the banks are being too 'tight'. Banks will not lend to those who cannot afford the price tag. It is the gap between (on the one hand) inflated prices created by overborrowing and overlending under the previous government as well as low interest rates and (on the other hand) a return to prudent lending practices that are reducing the overall sums lent by banks, not a dearth of mortgage finance per se.
I do understand that for a variety of reasons there is a pressing need to prevent a house price crash, which would expose banks to further risks and threaten economic recovery in the UK. I also understand that I as a hard-working saver will suffer as the balance of wealth is effectively shifted to those who overborrowed (through low interest rates and high inflation). However, there is a balance to be struck between mitigating risk to the banks and trying to propagate the mistakes of the last government, who presided over a bubble that was totally unsustainable. Schemes such as part-buy (which has been around for a fair few years) and whatever scheme it is you have in mind to enable parents to help their children get on the housing ladder do first-time buyers no favours in the long run - prices remain excessive relative to income, would-be buyers take on barely manageable levels of debt, and you propagate a scenario in which buyers and banks are exposed to significant future risk if interest rates are forced up by other economic factors. Spending power is reduced due to higher levels of general indebtedness, which in turn is bad for the high street, business and in turn jobs. If you're serious about preventing first-time buyers from being locked out of the market, as well as about reducing the average age of the first-time buyer, I would humbly suggest that what is needed is to abandon silly schemes that perpetuate the current tremendous gap between average price and average annual salary.
It's a tightrope, but I believe the safest way out is to allow the 'invisible hand' to go some way towards correcting the folly to which the previous government turned a blind eye in order to tell us all Britain was booming and all was rosy.
I would welcome your opinions on the subject. In the meantime I would like to thank you for your time.
Yours sincerely,
X.
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