As the credit crunch and resulting recession have gone on it has become ever clearer that it will continue until banks are willing to lend to businesses and households at a rate which reflects the cost of borrowing to the banks and the risk presented by the customer.  It is clear that the sort of lending which took place two or three years ago is a thing of the past, but the fact that first time buyers with deposits of over 10% are still being asked to pay between 5% and 7% interest on a new fixed rate mortgage when there is no chance of interest rates rising that high during the life of the fixed term. In fact most first time buyers are being asked to put down deposits of nearly 40% when there is really very little chance of them saving this kind of money.  It is just a case of the banks looking to make as much profit as they can.  I wonder if this kind of behaviour is doing us all harm in the long-term, by holding back recovery and causing our economy to shrink.

Six months ago I would have said it was anti competitive for the government to force banks to lend at a lower rate and even irresponsible for the government to dictate who the banks should lend to.  However, as time has gone on it has become clearer and clearer that banks are afraid to break ranks and offer good deals.  It might be that the time has come for the government to instruct the banks it has large stakes in to get on with offering fair deals to consumers, even if that means large numbers of customers switch away from other banks.  There is nothing anti competitive in a bank pursuing a policy to raise market share by offering fair deals, if all banks have equal access to cheap credit from the government. 

It is unfair on those trying to buy a property to simply say ‘the days of the masses owning property are over’.  It is the role of government to create prosperous market conditions for its people and without these other social ills will creep into our society.

I say this as a first time buyer two years ago, I calculate that I would not be able to buy a property now even if I had saved all my mortgage payments since I bought my house to make a larger deposit.  My wife and I both have stable jobs and could afford the property at 3.5 times our income, but just wouldn’t be able to get a mortgage as we wouldn’t have a large enough deposit.  It will do great harm to the aspirations of young people in our society if there is little hope of people being able to afford a home before they are 40 years old.

Looking back perhaps the government should have given Northern Rock to Richard Branson he’d have seen sense and looked to increase market share for the bank and to do so would have had needed to provide customers with a good deal.  It seems like, as with the lottery the decision was made for reasons other than the interest of the consumer.