ALEX BRUMMER: A reckless plan risks a return to boom and bust

Daily Mail​

2 days ago

Chancellor Rachel Reeves was working at Halifax Bank of Scotland (HBOS), a major mortgage lender, during the great financial crisis of 2008.
But she appears to have forgotten the key lessons of that searing experience.
HBOS collapsed after embarking on a mad dash to become Britain's largest consumer and mortgage bank. It had abandoned the prudence which should be at the core of safe lending.
As a result, HBOS was forced into a rescue merger with Lloyds-TSB, while Gordon Brown's Labour government propped up the enlarged institution with £20.3billion of taxpayer money.
Yet under new proposals unveiled by Ms Reeves last night amid the grandeur of the Mansion House in the City of London, tough rules designed to keep the financial system safe will be swept away.
Helping young people gain a foothold on the housing ladder is a laudable goal and ending the 'red tape' sounds like a great idea – particularly if it supports the dream of a home-owning democracy first advocated by Margaret Thatcher more than four decades ago.
But those of us old enough to remember the collapse of the housing market in the 1990s – when interest rates soared under John Major's government – and the subsequent catastrophic collapse of Northern Rock in 2007 cannot but be horrified.
Ms Reeves's plan is a slap in the face for prudence.
In the 1990s 'negative equity' – when the cost of mortgages exceeded the value of the homes purchased – saw thousands of buyers abandon their properties and drop the keys back through the doors of mortgage lenders.
Northern Rock collapsed after it junked historic affordability rules and granted buyers 100 per cent-plus mortgages –destroying confidence in its prospects of remaining solvent.
The subsequent run on the bank, not to mention the long queues of customers seeking to withdraw their money, are etched on the national memory.
The then head of the employers' group the CBI, Richard Lambert, argued that it sent a terrible image around the world and made the UK 'look like a banana republic'.
It was hard to disagree.
Yet under the Chancellor's proposed arrangements, borrowers will be able to obtain home loans at up to six times their salaries, a huge leap from the current four-and-a-half times limit.
Prospective home owners could, in future, apply for mortgages with an income of just £30,000, down from £35,000, and with joint incomes of only £50,000.
The Treasury says that these new 'Helping Hand' mortgages – to be administered by Nationwide – are aimed at people with low incomes. True, they might genuinely help aspirational homeowners in some regions of the country.
But they will do little to address the plight of young people in London and other areas of fast economic growth such as Cambridge, where house prices are driven ever higher by the availability of well-paid starter jobs.
Moreover, together with the weaker income and spending checks that Ms Reeves plans to usher in, easy-to-get mortgages are bound to increase the prospect of defaults.
And that, in turn, could damage future lending capacity.
Since taking office, Ms Reeves has been seeking new tools to drive growth.
She believes that prosperity has been held back by rules imposed by the Financial Conduct Authority (the City regulator) and the Bank of England.
Yet there is no escaping the real reason for Britain's vanishing growth and the accompanying assault on jobs: the culprit is the Chancellor and her £40billion tax-raising budget with its crippling rise in employers' National Insurance contributions.
Now Ms Reeves is seeking a backdoor solution to a flatlining economy by reinvigorating the housing market and encouraging consumer credit.
Yet she also risks returning to Britain's appalling record of financial boom and bust.