Prescott slams ‘greedy’ banks

Former deputy prime minister John Prescott has issued a blistering attack on Britain’s big banks, whom he blames for the collapse of the housing market.

Speaking to Property Week before the publication of his memoirs later this month, Prescott accused banks 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’.

‘The banks distorted the market,’ he said. ‘We gave them stability the very thing that they had been asking for for decades. The instability [we have now] came from the market itself.’

Prescott, who oversaw UK housing policy from 1997 until 2006, believes the banks were wrong to relax lending criteria – typically three times a borrower’s salary – to fatten their loan books.

‘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],’ he said. ‘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.’

Prescott believed the UK’s soaring house prices of the last decade could not be accounted for by the laws of supply and demand.

‘[America] has demand greater than supply, and that’s had an effect on prices,’ he said. ‘Ours was much higher and you have to ask the question: why is that? Then you see that 40% of the increase in prices could not be explained by normal inflation or interest payments.

‘It was clearly greed and it got passed on.

‘[The financial crisis] is very clear in one area of affordable housing shared ownership schemes. Some housing associations are looking at their shared ownership portfolios as there are concerns about the end purchaser’s ability to secure mortgages.’

He said the UK had ‘a mountain of debt’ because housing was a source of consumer demand exacerbated by the right to buy.

‘If you build [social housing] and then say you can have the right to buy, you are just cutting your throat,’ said Prescott. ‘You are reducing the housing supply in the area where you need it, and the gain is going to individuals.’

On a more positive note, Prescott, who started Labour’s sustainable communities programme, believed Britain was well placed to export its regeneration expertise around the world.

‘China is building a thousand new cities, and they realised they would not have enough energy so they are building them to be carbon free,’ he said. ‘That is a hell of a market.

‘We could become the country that knows how to develop and convert sustainability for environmental reasons and for energy.

We would lead the world in sustainability.’