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UK residential property market faces twin challenge, says CBI

In a new report, Unfreezing the Housing Market, the UK's leading business group says boosting housing activity could be a major game changer for growth and economic recovery. And a well functioning housing market is a critical precursor to long term economic health.

The CBI is calling on the government to rise to the twin challenge with a two pronged solution, which will get the housing market moving in the short term, and help tackle structural failures to ensure long term stability.

Short term recommendations include introducing a Mortgage Indemnity Guarantee (MIG) insurance scheme to enable first time buyers to take out low deposit mortgages and allowing them to access savings locked up in their personal pension pots to boost their deposits.

Recommendations for the longer term include reducing the regulatory drag on house builders, ensuring that the planning system is pro growth to make the building of more new houses possible, and reviewing Stamp Duty.

‘We have to do more to give our young people hope in the future and support their aspirations to be home owners. While we would not want to see a return to overly risky lending practices and unsustainable personal debt levels, it is important that we get credit flowing to those who need it most,’ said CBI director general John Cridland.

‘We could reduce the risk of higher loan to value mortgages if the government encouraged lenders to take out insurance against the borrower failing to meet payments. We can also jump start the housing market by allowing first time buyers to boost their deposits by borrowing their own pension savings, and ensuring existing owners who want to move house have more options. It's also crucial that the government presses ahead with relaxing some planning rules for "change for use", particularly from commercial to residential,’ he explained.

‘Owning a home has been a natural aspiration for generations of Britons since the 1950s, and should not become the preserve of a lucky few. Without a steady stream of first and second time buyers, the housing market freezes and the whole economy suffers,’ he added.

Housing is a vital part of the UK's economy and infrastructure, and the stagnation seen in house sales has made the economic downturn worse. It accounted for around a third of the 6% drop in GDP during the recession, while the number of first time buyers fell from a peak of 167,400 in 2001 to 36,200 in 2011.

A resurgence in housing activity could help drive the UK's economic recovery, the CBI believes. It is calling for support for existing home owners wanting to move house with special mortgage products designed for home owners in negative equity and the availability of development finance to small and medium sized house builders.

‘In the short term, boosting activity in the housing market and construction sector could be a major game changer for growth. Housing makes a significant direct contribution to economic output and job creation, and also has a big impact on business and consumer confidence and spending,’ said Cridland.

‘We're also urging the Government to deliver a comprehensive, long term strategy to tackle the structural supply and demand failures in the housing market. This must include planning incentives to support housing developments, reducing the regulatory drag on house building, and, in time, reviewing Stamp Duty,’ he added.