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.