UK housing crisis needs bazooka

Pretty much every British prime minister in recent decades has tried to fix the country’s lopsided housing market. The United Kingdom builds too few new properties – the number of houses completed last year was about the same as in 2007 - and they are out of reach for younger buyers. Those problems are now compounded by the shocks of Brexit, and the Covid-19 crisis. Fiddling with the mortgage market is a relatively quick place to start.

Perhaps the least expensive solution, hinted at by Johnson in a recent interview, is to unpick post-crisis reforms that require banks to test borrowers’ ability to repay home loans even at much higher interest rates. That would in turn allow banks to make bigger loans - Johnson suggests 95% of the property’s value - making it easier for new buyers to get on the housing ladder.

Scrapping affordability checks altogether looks like a risky move. During the financial crisis, the government was forced to rescue banks that had made large mortgage loans. Moreover, tweaking the rules may not be enough to persuade banks to bring back 95% mortgages. These products also incur higher capital charges because they would leave banks nursing greater losses in a crisis. A more subtle idea is to persuade banks to make very long-dated