IEA Economics Fellow Julian Jessop has appeared on BBC Radio 2 to criticise proposals to subsidise mortgages as interest rates continue to rise, and pay for it through a tax on banks.

Julian said:

“For a start, I think it’s a fantasy to imagine that the costs will be borne purely by the banks – I’m sure they would pass the additional costs onto customers in the form of higher interest rates.

“I’m not sure it’s the right solution to the problem because of what it means for incentives. For a start, the incentives of lenders and borrowers are already aligned, banks don’t want to repossess properties and I think they’d be very keen to offer better terms to borrowers.

“What you’d end up doing instead is sending a terrible signal to borrowers and people more generally, that if you are in trouble, the taxpayer (or the government in some way) will always bail you out. I think that encourages people to take out bigger loans than they can really afford.”

Listen to Julian’s full appearance here (12:16).