Our latest public policy activity has been to commission research to frame the economic risks if HIPs produced a fall in housing transactions. The research was made available simultaneously and free of charge to the pro and anti-HIPs lobbies, to regulators, public policy makers, the media, other lenders and all three political parties.
Oxford Economic Forecasting (OEF), a company that undertakes economic modelling work for HM Treasury, the IMF and the World Bank simulated a modest fall in transactions (10 per cent in year one, gradually rising by 1 per cent per annum) and a medium fall (25 per cent in year one, gradually rising by 2 per cent per annum) versus steady state projections for Gross Domestic Product (GDP), consumer spending, unemployment, government revenues and public sector net borrowing. The impacts were modelled through to 2016 and their conclusion was GDP and government revenues would fall, but unemployment would rise, in either scenario. These results are net of any benefits arising from the introduction of HIPs.
The government itself acknowledges there could be a fall in housing transactions where this compulsory charge lands on the discretionary part of the market. Although Denmark is, for many reasons, a far from perfect precedent, it is nonetheless the only European country to have introduced HIPs and, according to figures published by the European Mortgage Federation, housing transactions in that country were 12.2 per cent lower than their pre-HIPs level after five years, and it took eight years for transactions to return in Denmark to their pre-HIPs levels. It therefore seemed sensible to at least consider the prospect of a fall in housing transactions in the UK following the introduction of HIPs and to think about the economic impact.
Our conclusion from the OEF work has not been to call for HIPs to be scrapped or amended. We can see several advantages that HIPs will bring to the market. Our call has been for there to be a dry run in certain parts of the country where sellers have to pay for a HIP, along the model of the congestion charge in London. If HIPs have a minor or beneficial impact in the regions modelled, then all will be clear to roll out. If they produce an adverse consumer reaction, then there is the opportunity to re-think without major risks being taken with the economy. We can see why this might threaten the commercial interests of the increasingly excitable pro-HIPs lobby, but that cannot dilute the fact that a proper paid-for pilot is responsible, while guessing is not.
Stephen Knight
Executive chairman
GMAC-RFC
