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Sticking it to the taxpayers

I\’m not all that sure that this is all that wise you know:

Homeowners struggling to meet their mortgage payments would be able to sell their homes to the local authority and rent them back as tenants under radical proposals being considered by the government to prevent the misery of repossession.


The scheme would be expensive. Councils would need central government funds to buy the houses. But it could save on the long-term costs of rehousing homeless families and allow councils to increase their housing stock at relatively low prices.

It\’s that last bit….prices are falling and as far as anyone knows, will continue to do so. So local authorities would be stepping in at, well, would they be low prices? Looks like they\’d be higher than they would be a few months into the future.

The other thing is, of course, who is going to determine those prices? Someone, somewhere along the line here, is going to have to take a hit. If there\’s positive equity in the house then the owners would be best served selling and then renting privately. If there\’s negative equity, well, how are we going to set the price? Is it the amount that would be received after a repo? That low amount? Or will it be something higher than that, dumping the loss onto the taxpayers rather than those former owners?

To some extent we are spared the worst of similar schemes that are proposed in the US: UK mortgages are all recourse, meaning that if there is negative equity then the former owner still owes the bank. So this wouldn\’t degenerate into a straight bailout of the lenders.

Just dunno. Without actually going through a market process, how can we determine the market value of those properties?


6 thoughts on “Sticking it to the taxpayers”

  1. The devil will be in the detail, but it doesn’t seem impossible to come up with a system whereby the local authority subsides the renter (and former owner) in bad times and then shares somewhat in the good times.

    Talk about the market price is misleading if people are right that the housing market was a bubble, as that essentially means the market price is not a good indicator of true value.

  2. That sounds like the start of some communist scheme to me. And also typical of the culture we live in. People like me didn’t buy a house because they were over valued so we suffered by living at home, thinking we’ll get a place at a repossession auction. But true to their thinking, ZaNuLabour doesn’t allow for the markets, economics and, most importantly, risk.

  3. Hmm. The main thing in favour of the scheme is that dealing with homeless families is monumentally, crazily expensive – so even if the council does take a hit on house prices (which is still not that likely in the medium term), it’ll still save money compared to allowing people who reach the repossession stage to become homeless.

    The problem is the change in incentives this would bring for everyone else – if opting for reposession means that you’re stuck with a debt and stop being a homeowner, but don’t get thrown out of your home, then many people in negative equity who would otherwise have kept paying the mortgage may well stop doing so.

  4. The council need only buy a couple of flats in a block and install some of its lovelier tenants for the other flats to become noticeably cheaper.

  5. So yet again those of who were prudent during the good times – not over extending ousrelves, paying down/off all debt and saving for a rainly day – are going to get a right royal shafting to pay for those who didn’t and were feckless.

    Yes I know I’m generalising and that not all those in danger of repossession were feckless, but many were and they need a lesson. They were quite happy to play the market and take any upside, well, as the advert says, investments can go up as well as down.

  6. So Much For Subtlety

    The only good thing I can see here is that the State would end up owning the houses.

    Before you jump on that, consider the main alternatives – that the Government bail out the lenders or the borrowers. So essentially they take wads of my money and give it to middle class home owners. At least this way they take my money and give a comfortable home to a middle class former home owners while retaining the title deeds. Who knows, perhaps one day they might re-sell those houses and I might (I am almost rolling on the floor in tears, laughter and anger as I type this) get some of it back.

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