Government should buy homes in danger of repossession

Two former Bank of England economists have published a report in which they urge the Government to step in and buy the homes of people about to be repossessed, in addition to helping those who are falling behind with their mortgage repayments.

In a work entitled “A truly unconventional monetary policy for the UK”, Shamik Dhar and Danny Gabay, who now both work for economic consultancy, Fathom, estimate the cost of such intervention over the next five years at around £50 billion.

Property acquired by the Government under such a scheme would be bought at a discount of between 10% and 20%, with the former owners able to rent back the accommodation and stay in their homes.

At some point in the future, the Government could sell the property either to the private sector or back to the original owners.

The authors of the report believe the plan could underpin the housing market and prevent a disorderly fall in house prices that would further destabilise the UK economy.

Given that the Bank of England’s base rate is at an all-time low of 1.5%, Mr Dhar suggests that other measures to combat the recession may be needed, including boosting the UK’s money supply through quantitative
easing.

According to Mr Dhar, the beauty of his and Mr Gabay’s scheme is that new cash created through quantitative easing would be used to buy the assets that are at the core of the economic downturn.

The Council of Mortgage Lenders estimates that repossessions could rise to 75,000 in 2009 and Fathom is predicting that 375,000 households are likely to be repossessed over the next five years.

Discuss this in the Finance Markets forums

Story link: Government should buy homes in danger of repossession