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Prescott attacks 'greedy' banks

Tuesday, 6 May 2008 12:00 AM

Former deputy prime minister John Prescott has attacked Britain's banks and building societies, laying the blame for the present housing market collapse firmly at their door.

Recent research from Halifaxand Nationwide finds house prices fell for year-on-year for the first time in over a decade during April.

Mr Prescott blames this on the banking industry, accusing them of: "Greedily manipulating a stable economic environment created by New Labour to convince borrowers to take out excessive home loans and ramp up house prices."

Mr Prescott was in charge of housing policy between 1997 and 2006 in his role as head of the Department for Environment, Transport and the Regions.

In an interview with Property Week, Mr Prescott argues said: "The banks distorted the market. We [New Labour] gave them stability - the very thing that they had been asking for decades. The instability we have now came from the market itself.

As banks took the decision to relax lending criteria - allowing homebuyers to borrow more, at lower interest rates - Mr Prescott believes the market spun out of control.

"Instead of keeping the supply of money in control, they allowed people to go from two or three times salary, which used to be the building society requirements, to four, five and six times," said Mr Prescott.

"What happened here is just total greed. The banks were the ones that introduced the instability into the market when I was doing everything to make sure government didn't give them instability."

Mr Prescott also believes the recent increases in prices - which have seen the average cost of a property increase by 170 per cent over the last decade - cannot be attributed to the normal rules of supply and demand.

America has a restriction of supply, which the former deputy prime minister argues is more severe than the UK, yet has seen a slower rate of price increase.

Chris O'Toole

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