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.
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