Mortgaging the future?

Having flirted with the possibility of restructuring the mandate of the Bank of England, in his budget speech today, George Osborne declined to make any substantial changes. There were some fiddly alterations, such as the way in which the Bank and Treasury communicate. But a switch in the Bank’s mandate from targeting inflation to a system of targeting economic output did not occur. The incoming governor of the Bank, Mark Carney, had discussed publicly the possibility of a GDP target. It seems that a more reflexive conservative focus on inflation has prevailed—the brutal inflationary spirals of the late 1970s it seems have not been forgotten.

Another of Osborne’s announcements with historical resonance was the announcement of the New Mortgage Guarantee scheme, whereby the government would guarantee £130bn of mortgages from the start of 2014 to help get buyers onto the housing ladder. This was precisely the aim of the US government when in 1938 it established Fannie Mae, the government lending agency, set up in the aftermath of the Great Depression to increase the capital on hand for house-buyers.

The question is whether Osborne’s new scheme will face the same conundrum as that which eventually came to be posed by Fannie Mae—does the government want a whole load of mortgage loan debt sitting like a rock on its balance sheet? The answer for the US government was eventually “no” and in 1968 it turned Fannie Mae into a “Government Sponsored Enterprise,” a status that meant it was half private, half public, but wholly off the government’s books. It will be interesting to see how George Osborne’s Treasury accounts for this new, British and very sizeable mortgage liability.