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?