From: riaedwards@halls1.cc.monash.edu.au (AUDREY EDWARDS)
Subject: Re: Currency problems
Organization: Halls of Residence, Monash University 
Date: Wed, 14 Oct 1992 01:54:06 GMT

In article <1992Oct13.082515.29786@dcs.qmw.ac.uk> mmh@cs.qmw.ac.uk (Matthew Huntbach) writes:
>From: mmh@cs.qmw.ac.uk (Matthew Huntbach)
>Subject: Re: Currency problems
>Date: 13 Oct 92 08:25:15 GMT

>From: riaedwards@halls1.cc.monash.edu.au (AUDREY EDWARDS)
>>2) More contraversially, mortgage interest relief (a subject I know
>>something of, as a solicitor acting for building societies in the UK).
>>MIR at present is paid on interest only after 6 months of claiming
>>benefits. At that stage, it is likely arrears have built up to sufficient
>>levels to justify an application by the mortgage lender for repossession (
>>the courts have discretion only to delay it for a short period). BS's are
>>at present content to accept the interest payment only, as there is no
>>market for the repossessed houses, and it is looked on favourably by the
>>government. If MIR was abolished, then considerably more repossessions
>>would occur ( the BS's own view based on the statistic that at present it is
>>calculated that over 10% of mortgages are in significant arrears due mostly
>>to redundancy, the drop in house values preventing sale, and the break-up of
>>families.) As there is little council housing left, and very little
>>private renting (especially for families) there is the very real possibility
>>that the abolition of MIR would lead to an great increase in homelessness
>>and the consequent social problems. So perhaps MIR is a very cost effective
>>insurance!

>She meant, of course, the payment of one's mortgage interest by
>the Dept of Social Security, not "Mortgage Interest Relief". One
>obvious unfairness of the situation as it is currently set up
>is that one gets this payment only if unemployed. Thus it is a
>huge disincentive against finding work. Very unfair to those
>who have taken cuts in income but are still struggling on
>trying to pay the mortgage and keep a job.

>Now I really don't see why those who were able at some time to
>con a building society into thinking they were financially
>secure should be given such assistance in acquiring an asset.
>My feeling is that these payments should be made in the form of
>part-purchases by the state in the equity of the house.

Whilst ,"she" (obviously of "cat's mother" fame :-) ) would agree with your 
view that the DSS benefit discourages finding work, the benefit is, in 
many cases far from "assistance to acquire an asset". By the time the DSS 
can start making payments, the arrears are such to render the property a 
liability. The benefit can help to ensure that the person remains in the 
property rather than be repossessed. The cost to society of repossession (
particularly for families) is greater than the cost of the benefit.

I would agree that it would be better to have the state part-purchase any 
equity in the property. But, for the many (like me) who were sucked into the 
housebuying frenzy in the mid-1980s, there ain't no equity to be had. (In 
case, you're worried, my mortgage is being paid!!!) Further, whilst I accept 
that generally people have to accept the consequences of their financial 
dealings, surely the Tory Government of the early and mid-eighties deserve 
some critisism for their brainwashing of the nation about the glories of 
home-ownership!



>>Actually, considering the popularity of MIRAS amongst the general
>>population, I wish you luck in trying to get rid of it!!!

>This time she really does mean MIRAS. The "popularity" of MIRAS
>is really due to people's lack of understanding of the free
>market. A blanket subsidy to anyone buying property simply
>means that they can afford to bid more and prices will rise
>accordingly, thus contrary to the popular belief, it does not
>"help people buy houses". Imagine that the government decided
>it would be good for everyone to own antiques, so instituted a
>scheme in which it would pay half the price of every antique
>brought. Anyone at an auction bidding say #1000 for an antique
>would know that he would only really have to pay #500. He could
>therefore bid twice the amount he could otherwise afford, as
>could everyone else at that auction. The net effect is that the
>price of antiques would double, and the only people to benefit
>would be those owning antiques and wanting to sell. MIRAS works
>in exactly the same way, it is simply a way of doling out
>tax-payers' money to those who already own property.

The problem with abolishing MIRAS (which I readily accept is inequitable, 
for all the reasons you and Mr Holmes have stated) is the effect on the 
present generation of home-owners. 

Whilst the decreases in interest rate have allieviated the problems 
slightly, the recent increase in redundancies and household break-ups 
throughout Britain, has caused an increase in the number of one-income 
families and a crash in the house prices. Thus, houses, which might have 
once been assets, are unsellable (or is that unsaleable?), with people 
barely or not able to meet the mortgage payments (even at their lower 
level). If the abolition of MIRAS was announced, the further downward effect 
on house prices (even due to an illogical psychological loss of confidence) 
would be the final straw for many people, who would just "hand their their 
keys in" (though obviously not ridding themselves of the personal liability 
for the debt). As to the knock-on effect on the lending institutions or the 
general economy I don't know, but I would assume it would not be beneficial. 

Regards,

Audrey.
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