Aug 2008 21

Mortgages: if the experts are struggling, why let councils do it?4

A letter in today’s Times from several council leaders and senior figures in local government makes a request that could have disastrous consequences for taxpayers: they are asking the Government to let councils offer mortgages.

The question in response to that letter is this: if the thousands of experts in banks across the world are struggling to succeed in the current rocky mortgage and housing market, what reason is there to think that councils would do a better job?

A look at the performance record of the councils signed up to the letter suggests that they would do better – and our money would be far safer – trying to get their existing job right before wading into a market they don’t understand:

Manchester City Council: £11 million budget overspend in 2006/07
Bristol City Council: £7.9 million overspend on five school projects in 2007/08
Portsmouth City Council: £4.8m overspend in 2006/07 – and forecasting £12.6m in 2008/09!
London Borough of Lambeth: Overspend of £14m over two years
London Borough of Hackney: Leisure centre goes £30m over budget

And these people think they should be put in charge of providing mortgages that will be underwritten by taxpayers?

It is an even more worrying prospect when you consider that those people they want to give mortgages to are those judged too risky by the banks – so councils would be handing our cash over to the riskiest tranche of borrowers.

It never ceases to amaze me that councils can look at their own books and bewail their dire financial straits year upon year yet the next minute they think it is a good idea to take on more varied, complex and costly responsibilities. They would do us all a favour if they stuck to the job they are struggling at already and tried to get that right.

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  • Hardeep_Singh

    Councils offering mortgages, why? Is it a God given right to own property? If you cannot afford something then why does the council see itself as the flag bearer of a “mortgages for all” policy. Do they not realise that mortgages are most likely to be the single biggest expense taken on by people not only in singular cost but time, it doesn’t just disappear into memory like a day out at the seaside! It drags people and the council into long term positions that neither can really afford to take on. What happens when the risky client wants to move again due to health, work, social or even anit social issues? Would the councils of the UK (almost sounds like the Soviets of the UK – but I digress) swap these mortgages with each other. Would the councils be able to offer security against fraud after all benefit fraud is sky high and all it seems to take is a will to surrender your morality.
    I realise that councils already offer mortgages to clients but at a restrictive rate which is higher than normal but that’s how the financial industry works. Why on earth can’t you balance risk with a higher rate, it helps fliter out those who really can afford it from those who are simply “oh well let’s give it a go” this isn’t a game. If the sepcialists having a torrid time of it then the last thing you want is to open this pandora’s box involving inept councils. Before you know it all manner of other financial services and exemptions will be offered with the tax payer as a voiceless shareholder left holding the can.
    Councils should stick to their fundamental duties and though unsexy as that may sound it’s the most practical stance to adopt in these difficult times. It’s not just the proposal of this service or that but more a reflection of the public sector’s mindset.
    I don’t mind if they want to make fools of themselves but do it without my money and future at stake please.

  • Keith Edmunds

    Firstly Councils cannot offer mortgages at preferential rates to Banks and Building Societies as they are not allowed to by competition law. Secondly if they are to offer mortgages to Defaulters at above competitive rates, which they will have to, the Defaulters will most probably default again, and the Taxpayer will have to pick up the pieces.
    Looks to me like another Labour Government inspired cock-up from a desperate Gordon Brown, who is looking round for policies for his relaunch this autumn; particularly when you look at the indebtedness of these councils. Labour have put them up to this; no doubt, with promises to take care of their debts, if successful. Another example of this Government’s corporatism, duplicity and incompetence.

  • http://www.stevereed.org.uk Cllr Steve Reed

    As one of the signatories to the letter in the Times, I understand the concerns you raise in your objection to it. However, you fail to recognise that when homes are repossessed and families are thrown out on the streets, a significant cost falls on the taxpayer who has to pay to rehouse the family and in some cases to deal with other possible consequences of the trauma of losing a home, such as unemployment or family breakdown. Councils have a duty to rehouse homeless people. Wouldn’t it be better for those affected, and cheaper for the taxpayer, if councils helped those families to stay in their own homes rather than let them become homeless then pay to rehouse them? I also question your assumption that councils would be lending to high-risk borrowers. There is no reason to assume that. People on high incomes with secure jobs are currently unable to get mortgages. The effect this is having on the housing market as a whole – freezing it up, keeping values artificially low, making it impossible to move and therefore damaging labour-market flexibility – are all significant factors in pushing our economy towards recession. If we want to avoid that, with all the damage it would mean for families and taxpayers left to foot the bill for rising unemployment, then we need to start thinking a little more creatively and not simply adopt a knee-jerk ‘no-way’ response. Your concern to protect the interest of tax-payers could, in this case, have the opposite effect to what you intend.

  • http://www.stevereed.org.uk Cllr Steve Reed

    One other point – your article claims Lambeth overspent £14m in two years. In fact, last year, Lambeth’s budget balanced for the first time in two decades, a clear sign that we are in fact getting to grips with the basics. You are reporting a ‘projected’ in-year overspend that will happen only if we don’t take remedial action before the end of the financial year. This is normal in any large organisation and we are currently taking action to rein it in.