David Alexander: Housing market can be helped by not interfering

House prices will not rise in 2011. The best existing home-owners can hope for is values not to fall any further. Price rises are dependent on volume of sales and with looming job cuts in the public sector, an increase in VAT and new restrictions on mortgage lending, sales growth in 2011 seems highly unlikely.

Also hampering recovery is the situation with first-time buyers, the initial and most important link in the housing chain. The demand for higher deposits, tighter FSA regulations on mortgages and tougher lending criteria for individual applicants will all combine to keep down, and perhaps even further dampen, first-time buyer demand.

For example, a self-employed mortgage applicant will now have to supply a three-year record of company accounts, which effectively disbars any young entrepreneur whose business is less than three years old from obtaining a home loan.

The one piece of good news is that, barring some unforeseen world crisis, interest rates are likely to remain at their current level for 2011 and perhaps well into 2012. Many small companies are managing to keep their heads above water only because of low interest rates so, politically, an increase is a non-starter.

The UK and Scottish governments can help simply by not interfering. If political initiatives have any effect at all, it is usually to distort the market. They also invariably lead to more bureaucrats, whose involvement filters down in the form of a more expensive and cumbersome buying and selling process.

Home reports are a prime example of government interference achieving exactly the opposite of what was intended. Their intention was to end multiple surveys (or valuations), but market pressure was bringing these to an end just as the legislation was enacted. As was predicted, lenders will not rely on a vendor's valuation for mortgage purposes so, even if just one offer is received for a property, it will be subject to two valuations. If Holyrood wants to help the market in 2011, it could start by abolishing home reports.