Thursday, 25 September 2008

We told them so

A number of us pointed out a few months back that if there was going to be a stamp duty holiday or there wasn't going to be someone had to take the decision quickly.

If there's going to be a few months of rumours about whether there will or won't be a change then that will make the housing market seize up anyway, the uncertainty. And guess what's happened?

The British Bankers' Association has now revealed the extent of the damage caused by this uncertainty. The number of home loans approved for new house purchases plummeted in August by 64 per cent, year on year, to a new low of 21,086. As it takes two to three months from a mortgage being approved to the completion of a sale, this suggests that the number of housing transactions, already at the lowest level since records began in 1977, could fall even farther. As the number of transactions falls, so do prices, as sellers have to slash their prices to attract buyers.

This could cost us all billions as bank losses rise, just think of the number of mortgages we own through Northern Rock. And all because the politicians who rule us don't understand the most basic things about markets: what kills them is uncertainty.

It didn't really matter whether they had a stamp duty holiday or not. What did matter was that they made the decision in the early summer, when the rumours started, and stuck to it.

As any businessman knows, it's almost always better to take a decision, even the wrong one, than it is to vacillate.

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