James Coney  

Property prices must drop to save market

James Coney

James Coney

We should all be worried about a number of conversations regarding the property market that are going on in the corridors of power. 

These concern whether buy-to-let investments should be allowed in pensions, and whether savers should be allow to dip into their pensions to pay for a house deposit.

Separately, the lobby group for equity wants personal housing wealth to be included on a new database that will show every individual’s total pension savings.

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Finally, there is a suggestion from a former adviser to George Osborne that mortgage lending caps should now be lifted.

For each case there is a compelling argument, but together they threaten to undermine the great progress made in pension saving. And, once you strip away the rhetoric, they are all just about keeping the property gravy train going.

We have such a crackpot relationship with housing in this country.

Doing well in the property market wins praise, even though the vast majority of us have done nothing to earn it.

It is one of the most dysfunctional markets, and is constantly propped up by government-backed incentives, from right-to-buy and mortgage interest relief under Margaret Thatcher, to Gordon Brown’s HomeBuy Direct and Help to Buy, introduced when Mr Osborne was chancellor.

Every decade or so we have an affordability crunch, when prices climb so fast that banks and building societies begin to overlook lending constraints to maintain the number of loans – all under the pretence of helping first-time buyers.

In 2007, we had lenders offer seven times income and 125 per cent loans; today, we have 40-year mortgage terms and the rise of the guarantor loan. Anything, but anything, to avoid a fall in house prices.

Meanwhile, despite widespread pensions mis-selling in the 1990s, the death of final salary schemes, and the chronic mismanagement and recent collapse of some company plans, retirement saving is in robust health – largely because each of us has been put in control of our future.

Automatic-enrolment into a pension will turn out to be one of the greatest political strategies of recent times, bringing retirement savings to more than 10m who had none previously.

Figures from the OECD group of developed nations show that Britain’s pension fund assets add up to more than the size of the economy, at 105.5 per cent of gross domestic product.

Only Australia, Iceland, Switzerland, Holland and Denmark do better, the latter with a spectacular 204 per cent. Pensions have their problems, not least the confusion over taxation, but private saving is doing pretty well in Britain.

Given the vast wealth in our retirement funds – about £2.9tn – it is little wonder those in the housing sector who are worried about the market stagnating should view this as a pot to be tapped.

But that is short-termism in the extreme, swapping investment for debt.