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It’s not often that a US government is more interventionist in its economy than a UK government, but could forthcoming measures by President Obama to help ‘underwater mortgages’ provoke a call for David Cameron to intervene in the housing market here?
Speculation is now rife in the United States that Obama wants to refinance millions of mortgages held by those in negative equity - Americans call these underwater mortgages and they constitute a startling 25% of all households.
Two ways of helping these homeowners appear to be under consideration:
- for the Federal government to pay lenders to reduce the principal debt on the underwater mortgages, and/or
- to refinance some mortgages through a government body, the Federal Housing Association, which would effectively see the Obama administration offer an additional loan to owners facing negative equity.
In both cases, the US government would benefit in the future when the lender and/or home owner later repays, should the value of the home rise. In theory, if the US market took off, the goverrnment could even share in the profit when house values rose.
The thinking behind this plan, which sounds more European than American, is that the confidence given by a buoyant housing market will encourage higher consumer spending, thus giving growth in the economy before the next US election.
Whether Obama gets Congressional support for such a proposal is his problem, not ours, but as is so often the case, what America considers today, the UK may consider tomorrow.
We have no comparable negative equity problem at the moment, at least until interest rates rise significantly, but the current stagnation in the mainstream UK housing market outside of London and the south east is considered by some to be holding back growth.
The problem for the UK government is that its proposals to loosen planning restrictions and encourage self-building - let alone its more surreal idea to encourage more people to live on houseboats - will take years to produce the larger number of homes it wants.
Even if that happened (and it’s a big if, involving volume house builders deliberately trying to match supply to demand and risking reduced asking prices as a result) it would take us well beyond the 2015 general election, on which the government’s record will be judged.
Little wonder, therefore, that speculation on this side of the Atlantic is that the government may be introducing new measures - perhaps alongside the Localism Act as soon as November - to generate more movement in the UK housing market.
About time too, many will say. And oddly enough, if it happens, we will probably have Obama’s example to thank for putting government housing intervention on the agenda.
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