Open Letter to Mr Cameron with ideas on the economy

Dear Mr. Cameron
I am a local estate agent living and working in W10, and have been for the last 10 years. I just wanted to touch base with you about the state of the current market and what I feel is happening on the ground.

Please bear in mind I spend my days talking and spending time with "real people" looking to either sell or buy a home, listening to their fears and what they think is happening.

This is the real state of the market in W10: first we agents were aware that the market had dropped by at least 20% 6 months ago, the press and the government were talking about 10%-15% but finally they caught up with us and are now talking about a price adjustment across the country of 30%. - 35%

In Kensington And Chelsea we are ahead of the game and are already trading at this level, in fact we are back to figures of 2006. So if you want to know what property is worth go to www.nethouseprice.com and see what 2006 levels were and what is today’s price. In the worst case scenario we could go back to 2005 levels 50% off last years peak, but this all depends on lending.

In fact the main problem is lending, I have plenty of buyers who really want to buy. A lot of them are now seeing true value, they know the market has changed, they also know we are in a buyer's market and they can make offers 10 % below asking price. sometimes more. It is a more pleasant environment to trade in then in the last couple of years, not so aggressive, less hype and less guzumping.

So when I listen to Radio 4 and they are saying that buyers do not want to buy and we should just leave the mortgage market alone, they are wrong. The problem is people cannot get mortgages and therefore houses are not selling, so estate agents are pushing prices down until they sell. So if we don't do something soon the market will be back to levels of 2005, which in real terms is probably 40% - 50% down on the peak of last year. At the moment most people who bought their houses in 2006 have a house worth the same as they paid for it then or in some cases less. So it is vital to get the housing market moving again.

The Labour party says that the Conservatives are doing nothing and not coming up with any ideas, so here are a couple that would get things moving; also let's not forget that the whole UK financial market is linked to the property market.

First, property transactions are down 60%-70% on this time last year so the Government is getting very little Stamp Duty. So Stamp Duty either needs to be dropped or suspended for 2 years - this would be a bold move, but only bold moves will achieve anything.
Second, a new law needs to be passed putting a cap on mortgage lending, something like a 90% of the property value, so lenders can never go back to their dangerous lending levels, where in some cases they were lending up to 100% - 120% of the value of properties.

Finally, the Labour Government keeps talking about doing whatever it takes to get the market moving, so they have recently nationalized two banks. Northern Rock and Bradford and Bagley are 100% owned by the taxpayer. So why are they not offering some good mortgage deals? They need to be ahead of the game. If Northern Rock was to offer a 25-year repayment mortgage at less say 5% other banks will follow suit. At the same time why do these banks not offer good overdrafts or loans to business that have a sound business plan or model?

These measures would really get things moving. You might say we can’t do this because of competition rules, but the Government has shown with their recent mergers that all standard rules are out of the window and if Europe objects, so what! As Labour says: extreme times need extreme measures.

I really think that next time the Government says you are not coming up with solution or when your are interviewed on Radio 4 and asked to give examples of things you would do to stimulate the economy, these are real solutions that the public will buy into. Use their words: "Extreme times demand extreme measures"; they will "do everything in their power to help the British people".

The more the market is talked down the worse it is going to get. I am not worried about deflation, I think this is quite short-term. I am still worried about inflation, I can see interest rates rising in the next couple of years. So if you win the next election you will inherit a real mess.

You need to knock Gordon Brown off his pedestal, and you will only do that by offering real solutions that he cannot compete with.

On this point I wanted to talk with you about the next bombshell or the next bust. This is the amount of interest-only mortgages out there

I would say that 80 % of my buyers in the last 5 years have bought property on interest-only loans; this means you pay off the interest on the loan monthly not the capital. When you take out one of these mortgages - which in principle are more affordable than repayment ones - you are supposed to get an ISA and invest into it, so after the term of your mortgage expires, your ISA have grown to levels which will repay your loan.

But there was no regulation on this or even worse no supervision, so I would say of the 80% of interest only mortgagors I am aware of, less than 60% bothered to take out a ISA. No-one checks that interest-only mortgages customers have an ISA or are contributing to it. Meanwhile those who do have lost out with the recent stock market fluctuation so I don’t think their ISAs are worth much (mine definitetly is not). So what is going to happen in 15-20 years when these mortgages come to an end and home owners realize that they have not paid off their house? I can see a real problem brewing. Again this is all about Gordon Brown and his relaxed approach.

I am sure that you and your team are aware of some or all of the above, but from someone who works on the ground and interacts with buyers and sellers every day things are not looking great.

If you would like to discuss these matters further please do not hesitate to contact me.

Yours sincerely

Rollo Miles