Mortgage reform threatens the British way of saving

YOU CAN TELL a lot about a country from the way it organises its housing, and also from the way it does its saving. The Germans, for instance, like to keep the two separate. Instinctively nervous of debt, most of them prefer to rent their homes and put any spare cash into bonds or the bank. In Germany, housing is cheap and savings are high.

In Britain, we are much more relaxed about debt, which is why the new rules on mortgages announced yesterday by the Financial Services Authority are likely to prove more important than its chairman, Lord Turner, seemed willing to admit. This is not just because borrowing is the way we buy our homes. Paradoxically, it is also how we do our saving.

For half a century, the clever thing to do in this country has been to gear up to the eyeballs when young, buy as big a property as possible, and rely on rising house prices and wages to pay down the loan. Twenty-five years later, if all goes well, you emerge from the valley of debt with a home that really is your own, and a nest egg for your old age.

It might horrify the average German, but until 2008 the English way of saving by mortgage worked. So robust was it, indeed, that a regular series of house price "crashes," starting from the 1970s onwards, failed to undermine our faith in borrowing to invest in our homes.

But the financial crisis of 2008 was far more than a regular crash, and the message from the FSA yesterday was that the changes it has wrought are here to stay. Even if the markets were to thaw, the regulator made clear, it will keep up its guard. Today's grim credit conditions, with strict eligibility criteria and high deposits and margins demanded by lenders, are the new normal.

This may well be prudent. Ultra low interest rates have kept repossessions down and the housing market surprisingly steady over the last few years, but nobody knows how long this balancing act can be sustained. What sticks in the craw - and to many will make the new rules seem unfair rather than prudent - is that the whole way we organise our housing so obviously favours one generation at the expense of another.

If you are over 50, the chances are that your university was paid for by the taxpayer and you probably bought your first home for the sort of money that, in nominal terms, would now get you a car. You may even, like me, have been able to claim mortgage tax relief, and you will almost certainly have made a decent profit, just out of living under your own roof.

Today, by contrast, the average age of a first-time buyer is approaching 40, and even then they are likely to have had help from the bank of mum and dad. For those without family support, owning a place of their own is rapidly becoming an impossible dream. Instead, they are condemned to be ‘generation rent', trapped in short-term accommodation while their elders enjoy the security and profits of home ownership.

The obvious way to help ‘generation rent' would be to make housing cheaper by increasing the supply. But even to deal with the pent-up demand of the last few years, we would have to build three or four times as much as we are managing at the moment.
 
The forces of NIMBY-ism would never allow it, and not just because it would mean the loss of green fields. Cheaper housing would spoil the financial planning of far too many baby boomers to be politically acceptable. Even rejigging the rental market, so that at least tenants could have security of tenure as their counterparts do in Germany, would upset the boomers, because so many of them have invested in buy-to-let.

These are among the reasons why, as readers may have noticed, I do not have much faith in the present government's rather half-hearted attempts at reform. The problem with housing is not mortgages, but politics. Everyone knows the system is dysfunctional, but too many voters have a vested interest in it – emotional, financial or both - to allow serious change.

I am a baby boomer myself, and like most of my generation I have done well out of home ownership. But when I look across at how they do it in Germany, I feel a sneaking envy on behalf of my children. ·