April Fool’s Day came with the usual spate of joke stories in the press. But the trouble is, it’s getting harder to tell the spoof stories from reality. After you’ve read about an MP’s husband claiming for his furtive TV viewing on her expenses account – not to mention all the other stuff they claim for – you start to believe anything could be true. Tartan sheep (The Times)? Sure. Adverts for a magnetic BMW that latches onto the car in front of you to save you petrol? Tell me more.
But one story I just couldn’t take in was the news that Dundee City Council is planning to offer 100% mortgages to tenants – and some private buyers – who want to buy up council houses in the city, starting from this month. This seems plain daft. After all, wasn’t it careless lending and crazy 100% mortgages that got us into this mess? Hasn’t Gordon Brown himself called for them to be banned? Yet the story’s true. The local authority apparently has £5.5m set aside to fund the scheme, saying that “the initiative is being introduced to stimulate the local housing economy in Dundee, which the current availability of mortgages has not yet achieved.”
Without casting aspersions on Dundee, I fail to see how the council thinks it can single-handedly reignite the local housing market at a time when prices in even the most desirable parts of Britain are still collapsing. More to the point, as the Taxpayers’ Alliance pointed out, if banks aren’t willing to take on the risk of lending to these people, then why should the taxpayer? These individuals, by definition, have no financial assets to speak of (otherwise they’d have a deposit available with which to raise a normal mortgage). That makes them risky prospects at the best of times. To give them the money now, when the underlying collateral (the house) is falling in value, and interest rates can’t really sink any lower, just seems like madness.
But you can hardly blame Dundee council. After all, this move is just a logical extension of the British government’s approach to the crisis so far. This has been to take money from taxpayers (current and future) and penalise people with savings by cutting interest rates in order to subsidise those who ran up huge debts during the good times – from overstretched homeowners to bust banks and building societies. But just as the good councillors of Dundee can’t hope to prop up house prices at unrealistic levels forever, nor can the government hope to cure a crisis caused by overborrowing with yet more borrowed money. At some point that money will have to be paid back – we look at how that might happen, and why it should be good news for gold.