Curing Britain's Property Price Crash.

The Chancellor of the Exchequer, Alistair Darling, in an interview on the Radio 4 Today programme this morning gave no sign that he was ready to confront the UK housing crisis as I feel sure will still be the case in his conference speech later this morning and that of his Puppet Master tomorrow. The steps being undertaken in the USA over the weekend as reported from an EU perspective are fairly well ( although sometimes inaccurately) summarised in this link. Britain, it is generally acknowledged, has the second gravest property price crunch in the world, yet unlike in the USA with the magic Mr Paulson, the UK government, oh so typically, seems to be doing nothing to address it, content with ignorant BBC interviewers throwing out suggestions of bonus caps in the city and windfall taxes for the energy sector while chucking ever more billions of pounds yet further down the drain for added liquidity for the institutions at fault. In my post of yesterday, immediately beneath this posting, I addressed the problem of the householder in negative equity - particularly in my example number 2, of a family with a mortgage in excess of the value of his home but not yet in default - a potential 'walkaway mortgagee' as separate from one in default and given notice of re-possession. In my view it is the potential 'walkaway' who must first be helped. A decision to quit one's home is grave indeed and places that family in a position of effectively turning their back on the system. It is therefore an action that the government must endeavour to discourage even at great cost. (Re-possessions follow from a considered action of the mortgage holder and form a separate problem). Nobody yet knows how far UK property prices will plunge but it is essential to be aware that a fall of 20 per cent from peak levels requires a rising property market of 2 per cent above inflation for a period of twelve years before the original peak value is once again achieved. That is far too long to expect an ordinary mortgage holder to maintain mortgage payments for zero return. Once 'walkaways' begin they will spread like a plague with all kinds of consequences such as cross-squatting which will make counter-measures practically impossible - effectively anarchy could be an end result. Mortgages have always assumed the equity provided by the mortgagee is the first at risk. In this crisis that has to be changed. I suggest that for houses purchased since Gordon Brown, in the words of incoming BoE Governor King, to paraphrase 'moved the Goal Posts and excluded house prices from the CPI' any loss of value on the resale of such houses be directly proportioned between the first mortgage holder and the mortgagee. This is potentially expensive, but less so if it halts further slides in house prices. As the country is effectively bankrupt such a move will need financing and as a further step to somewhat also put the cost of the greed at the door where it lies I would further suggest the exemption of the first home from capital gains tax be withdrawn.