Author Archives: Jock Coats

Have you heard about the Financial Services Authority’s ideas for restricting mortgage credit? One is to ban 100% Loan To Value mortgages, and clearly in a time of uncertainty that would be prudent – you don’t want to be in negative equity by the time you collect the keys to your new home. The other is to restrict all mortgages to three times earnings.

You may also have seen a report on the housing market in the Daily Telegraph recently where Edmund Conway canvassed the opinions of four leading economists. The most shockingly bearish response in “Do not pass go – or expect house prices to rise soon” was from Citigroup’s UK Chief Economist, Michael Sanders, who argued that

everything depends on the amount people can borrow. At the moment the average loan to value for first time buyers is 76pc, compared with the more recent norm of 90pc. If LTVs stay where they are, or are regulated by the Government, you’re talking about an even more severe fall. If you want to get the deposit and mortgage burden for a first-time buyer back to the average of the last 35 years with the current level of LTVs, then house prices need to fall another 65pc from their current level.”

So, the act of restricting mortgage credit could provoke a massive write-down in the value of property in order to enable buyers to afford anything. And if there’s no “new blood” coming into the housing market at the bottom end in the form of first time buyers there can be little turnover further up the market.

Now, one of the biggest objections to a significant Land Value Tax has always been the predictable (and intentional) effect it would have of removing the land value from existing property values. Yet the government is now suggesting just such a massive write-down with no compensation to the households that lose out.

With LVT, however, replacing pound for pound as many as possible of the other taxes people currently pay, they would at least be seeing some benefit from their capital loss in the form of abolishing, say, NI, Council Tax, Inheritance Tax, Capital Gains Tax and some at least of their Income Tax.

Further, those of us who campaign for LVT say that switching the tax base away from incomes and trade and onto land values will encourage enterprise, will encourage people to maximize their incomes from work. Just at a time when anyone and everyone actually creating wealth in this country needs every encouragement to continue doing so to help the economy recover.

Longer term it will also prevent the sort of speculative land value bubble we have seen over the last decade from happening again, leading to more economic stability – a much better way of doing so than trying to regulate bubbles out of existence.

There’s one additional, timely, benefit.