Clegg's policy to take money from pensions to pay for mortgages is madness

It's housing market madness, writes the IEA's Philip Booth

It is difficult to think of a policy that is as ill-conceived on so many levels as the coalition's announcement on Sunday to allow parents to guarantee their children's mortgages.

Housing is unaffordable today not because buyers are unable to secure yet more credit against the value of their house but because supply is constrained. Not long ago, the average house would have changed hands for three-to-four times average earnings; today, the vast majority of buyers have to pay five-to-seven times average earnings. If you pump more finance into a supply-constrained system, there can be only one result - yet higher prices.

Views differ on the causes of the financial crash and how to deal with the problems that the economy faces today, but one reaction of the government has been to bind banks up in ever-more regulation. Whether that is right or wrong, it is a deliberate policy decision in order to ensure that banks do not fail at the expense of the taxpayer in the future. This has made banks more risk averse. The response by the government has then been to directly take on the risks that the banks have refused, through schemes such as funding for lending or the proposed business bank. This is a bizarre policy. Banks are constrained in their own business models in order to prevent them failing at the expense of the taxpayer and, instead, the taxpayer is now taking on the risks directly.

Clegg's proposal to guarantee mortgages with pensions is another such instance of incoherent policy. In addition to the regulation of bank's capital discouraging banks from risky lending, the FSA is increasingly trying to rein in the provision of mortgage finance at high earnings multiples or high loan-to-value ratios. The government's new proposal seems to work precisely in the opposite direction. Clegg seems to be reasoning that, if everybody can secure their debts on everybody else's assets, then everything will be okay. Is that not the logic that gave us the financial crash in the first place?

Even in terms of the practical details, Clegg's plan seems crazy. Any pensioner who has already reached the age at which they can take their pension is entitled to secure their children's lending on any lump sum they choose to keep as an asset. As such, this proposal is only relevant to future pensioners. If a potential pensioner secures their child's mortgage on a lump sum which legislation prevents them from accessing until at least age 55 what will happen if the child defaults on the mortgage?

Presumably, either the lump sum will have to be taken early - which will cause havoc in terms of the relationship between the lump sum and the rest of the fund which is strictly controlled to prevent tax avoidance - or some complicated contingent loan arrangement will have to be set up. This will all require reams of legislation.

Clegg might also want to ask how many prospective pensioners are so well pensioned that they would be happy to put their pension pot at risk in this way. And, in turn, how many of those prospective pensioners would not, in any case, have a house against which they (or their children) could secure an additional loan for their children if they were so minded?

This is a completely crazy policy which actually works against many of the other things that the government is doing (in some cases probably wrongly) to try to create a more stable financial sector. Parents with assets should have no trouble securing loans for their children if they wish to do so. If banks and parents wish to freely enter an arrangement whereby a pension lump sum is taken into account when negotiating a loan, then so be it - but let's not have the government specially encourage it. The fact that policy proposals in the housing finance area are becoming more and more bizarre ought to focus people's attention on the real problem - the affordability of housing. We cannot make housing more affordable unless supply can respond to demand. Some readers may object to the policy consequences of liberalising development restrictions. However, we should be clear about the housing affordability consequences of not doing so.

Mortgages are advertised in a Halifax window. Photograph: Getty Images

Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs.

 

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Are there “tens of thousands” who still don't have their Labour leadership ballot paper?

Word has it that swathes of eligible voters have yet to receive their ballot papers, suggesting there is still all to play for in the Labour leadership contest. But is it true?

Is there still all to play for in the Labour leadership contest?

Some party insiders believe there is, having heard whispers following the bank holiday weekend that “tens of thousands” of eligible voters have yet to receive their ballot papers.

The voting process closes next Thursday (10 September), and today (1 September) is the day the Labour party suggests you get in touch if you haven’t yet been given a chance to vote.

The impression here is that most people allowed to vote – members, registered supporters, and affiliated supporters – should have received their voting code over email, or their election pack in the post, by now, and that it begins to boil down to individual administrative problems if they’ve received neither by this point.

But many are still reporting that they haven’t yet been given a chance to vote. Even Shabana Mahmood MP, shadow chief secretary to the Treasury, still hasn’t received her voting pack, as she writes on the Staggers, warning us not to assume Jeremy Corbyn will win. What’s more, Mahmood and her team have heard anecdotally that there are still “tens of thousands” who have been approved to vote who have yet to receive their ballot papers.

It’s important to remember that Mahmood is an Yvette Cooper supporter, and is using this figure in her piece to argue that there is still all to play for in the leadership race. Also, “tens of thousands” is sufficiently vague; it doesn’t give away whether or not these mystery ballot-lacking voters would really make a difference in an election in which around half a million will be voting.

But there are others in the party who have heard similar figures.

“I know people who haven’t received [their voting details] either,” one Labour political adviser tells me. “That figure [tens of thousands] is probably accurate, but the party is being far from open with us.”

“That’s the number we’ve heard, as of Friday, the bank holiday, and today – apparently it is still that many,” says another.

A source at Labour HQ does not deny that such a high number of people are still unable to vote. They say it’s difficult to work out the exact figures of ballot papers that have yet to be sent out, but reveal that they are still likely to be, “going out in batches over the next two weeks”.

A Labour press office spokesperson confirms that papers are still being sent out, but does not give me a figure: “The process of sending out ballot papers is still under way, and people can vote online right up to the deadline on September 10th.”

The Electoral Reform Services is the independent body administrating the ballot for Labour. They are more sceptical about the “tens of thousands” figure. “Tens of thousands? Nah,” an official at the organisation tells me.

“The vast majority will have been sent an email allowing them to vote, or a pack in one or two days after that. The idea that as many as tens of thousands haven’t seems a little bit strange,” they add. “There were some last-minute membership applications, and there might be a few late postal votes, or a few individuals late to register. [But] everybody should have definitely been sent an email.”

Considering Labour’s own information to voters suggests today (1 September) is the day to begin worrying if you haven’t received your ballot yet, and the body in charge of sending out the ballots denies the figure, these “tens of thousands” are likely to be wishful thinking on the part of those in the party dreading a Corbyn victory.

Anoosh Chakelian is deputy web editor at the New Statesman.