Many years ago, councils were a major player in the mortgage market, when that market was far less diverse and developed than today. This was the age of the nationalised … well, everything. Airlines, telephones, utilities. The age of exchange controls and winters of discontent, of a series of left-wing governments from Wilson to Callaghan via Heath.
Well, some would have us return to the days of council mortgages. On Monday night the Labour group on Bromley Council proposed a motion asking the government to permit councils to lend “all forms of mortgage”. This, according to Labour councillor Peter Fookes, would stimulate the mortgage market and would not be aimed at the riskier borrowers.
(In the end we Conservatives were joined by the Lib Dems in voting the motion down.)
Councils can already lend mortgages, under section 435 of the Housing Act. The main proviso in law is that they cannot undercut the commercial lenders, and rightly so. In the modern mortgage market there is no need for the state to compete, indeed it could be argued to be morally wrong, especially given the “unique way” government is funded, to borrow the BBC’s terminology to describe a revenue stream guaranteed by the threat of imprisonment.
So if council mortgages can’t compete on rates, then it only leaves the opportunity to lend to riskier cases: the ones commercial lenders won’t touch. Yet why is the taxpayer’s capital fair game? Why should the financially prudent be penalised for the sake of those who have been less than careful? Of course, there will be those people who have genuinely fallen on hard times despite their best efforts, and help already exists for them, even if their possible first port of call – the Citizens Advice Bureaux – are themselves at risk thanks to cuts in government funding.
Councils are not immune to the credit crunch and inflation. 1% on the RPI costs Bromley, for example, £1.3m in the budget. A property market in the doldrums will affect land charges income and receipts from Council property sales and rental income. On top of this, to add a massive increase in exposure to the mortgage markets is a luxury that I suspect few authorities can contemplate.
Perhaps most seriously, though, many applicants for council mortagages may well be those who are an inherently bad risk – those who have real difficulty in handling money and managing their personal finances. Are we really helping them by assiting them in taking on even more personal debt?
