Tuesday, Jul 10, 2007
Mmmm... let's mess with the market and keep things propped up with public money! - An expensive disaster in-the-making!
Telegraph: Chancellor plans mortgage shake-up
A shake-up Britain’s mortgage market is being planned by the Government to help increase the number of affordable homes, Alistair Darling, the Chancellor disclosed last night.
Mr Darling and Gordon Brown are increasingly concerned that a shortage of homes, particularly for first time buyers, could trigger a political backlash against Labour.
Mr Darling said that Labour would issue proposals shortly to boost the supply of long-term fixed-rate home loans for periods of up to 25 years.
Posted by tyrellcorporation @ 09:23 AM (138 views) Add Comment
27 Comments
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1. Dandare500 said...
Surely this just means the mortgage company will put a higher fixed rate just in case something goes wrong in that longer term?
2. royston said...
It's ambitious - and it they could pull it off, it would probably help. But you've got to ask if history suggests they have the competence to pull it off. I fear it does not! If they miss with this, it will be one hell of a mess!
3. royston said...
Hang on a second! Over-abundance of mortgage loans is precisely what caused this mess in the first place. If the government now step in to force even more loans through to property buyers, prices will spike even higher, magnifying the potential for disaster which will eventually happen. Great solution, guys! (- I don't think!!!!!!!!!!!!!).
Anyone think it would be a good idea to make the Treasury independent of politics and to make sure that they are no back door means by which politicians could exercise power over the national finances? I think this is sorely needed. The difficult thing is to figure out how to police it such that politicians couldn't rig it.
4. confused76 said...
INMHO, this press release shows that GB & AD simply have no clue.
25 yr mortages exist already but their IRs are more expensive than on short term (which are also subsidized by the arrangement fees, due to more frequent remortgaging)
a more expensive mortgage montlhy payment would challenge the paradigm of affordability on which the house bubbe is predicated.
so the government has to tell where they want to subsidize the 25 yr mortgages from... maybe (and it would be a great idea) from scrapping the tax break for BTLers? there it is, a nice £2bn p.a. to be used
Any ideas?
5. royston said...
.........like the Shifty Scotsman did with the MPC, I mean!
6. confused76 said...
"Over-abundance of mortgage loans is precisely what caused this mess in the first place. If the government now step in to force even more loans through to property buyers"
Royston,
I do not think you have to read that in AD's statement. Since short term mortgates are sold under market price, and the mortgage industry is fairly deregulated, there is nothing the government can do to increase supply of mortgages.
In fact I think the issue will be one of "redistribution", i.e. restrict access of investors to some form of subsidized mortgage, for fist time buyers. With the few number of FTBs around and the larger number of BTLers, increasing that controlled money supply will actually do nothing to prices. But a question remains, how can the government pay for this?
7. uncle chris said...
The are much simpler steps than destroying the green belt, as there are more than enough houses in the UK.
(1) Requisition all empty housing stock used less than 10 months of the year, including buy-to-sit and holiday homes, and use them for rental or social housing.
(2) Legislate to restrict mortgages to maximum 3.5 multiple of income (with employer checks) and make it a criminal offence (fraud) to exceed this.
(3) Remove BTL tax breaks to level the playing field with FTBs.
(4) Speed up the deportation of illegal immigrants to increase social housing availability.
(5) Make sure people who insist on having 5 or more children live with the consequences of that decision and not foist their problem onto the rest of society.
Desperate measures yes, but we live in desperate times.
8. Uncle Tom said...
A 25yr fix is a prudent way to approach a mortgage, and a small tax incentive could make them the norm.
In principle, this is not a bad notion - but will they get it right...??
9. Realist said...
What a load of guff. While 25 year fixed rate portable mortgages are laudible in themselves as a prudent long term borrowing mechanism, what on earth does this have to do with affordability for first time buyers? House prices are out of kilter with incomes and with interest rates heading up, those prices will come under pressure. When they inevitably drop, houses will become more affordable. Is this man really supposed to be in charge of the economy?
10. stillthinking said...
Perhaps the liberal age is truly over. Bubbles will crash every so often, but there is no getting around the vast number of people who have entered the UK, specifically the cities of the UK. 1970 pop. 55.6 million and 2007 pop. 60.7 million. Thats 5 million in the "government" figures. As migrationwatch have pointed out, the number of primary applicants for UK asylum alone is more than the number of social houses built.
I have used the Picadilly line in London man and boy, and the crush you get today compared with the available seats of the 80s must be reflected in housing demand. There will be a heavy price in livability if London stays a global capital. Without the green belt there would already have been the family flight from the city, as seen in so many US towns.
Maybe there are enough empty houses in the UK, but there are not enough empty houses where people want to live and work.
11. george monsoon said...
And if they pull it off, will we see more FTBs flooding the market to buy, pushing the prices even further out of reach...
I am already priced out. A fixed rate for 25 years sounds fantastic, if the rate is affordable, but come on, I can't even borrow enough now to buy a house, what difference is this going to make to me and all the other FTB's. I think this point has been overlooked. Prices need to fall big time.. thats the first key, then maybe start the 25 year fixed deals when we can afford to buy.
12. sold 2 rent 1 said...
What they are trying to do is eliminate boom and bust by having everyone on 25yr mortgages.
The US had a fairly stable housing market for over 100 years with this model.
Unfortunately it all broke down in the US when many switched to interest only variable rates when IRs crashed to the floor.
It might help to smooth things in the next housing cycle but it cannot prevent a bust in 2008-2010.
Fred Harrison's land tax is even better for the long term solution but it's too late for this cycle.
13. mrmickey said...
The UK is now a different country to what it was 25 years ago even the people look different. There isn't much holding this country together hence the constant moral panic coming out of Westminster. This is just another example of an economy that resembles the Soviet Union rather than a free western economy.
14. Wannabeemigre said...
a 25 yr fixed rate mortgage would be no help in the current housing market but once prices have bottomed out it will help to stop the boom -bust cycle because banks will price the rate at long term interest ie 7-10% so it is a good move-just look at the USA no really bad problems there until the introduction of ARMs- we should also ban interest only mortgages or allow them only with a vehicle that repays the capital
15. planning4acrash said...
Long Term fixed rates are dependent on bond markets, which, in an environment of inflation, will be higher than short-term rates in the expectations of further rises by the MPC. It would be very dangerous to fiddle with bond markets to the extent that long term borrowing is effected. I doubt that the market could stomach such intervention. The only way that we can have good value long term fixes is if the MPC does its job and gets to the top of the interest rate cycle sooner rather than later. Once at the top of the cycle, bond rates will go down and long term fixes will once again become attractive. Having everybody on long term fixes does create an additional problem, the MPC's rate setting will not be able to impact upon domestic spending or inflation. Instead of waiting 2yrs for rates to bite, you would have to wait 25yrs! It seems that, after giving the MPC independence, that the government is keen to destroy the very market mechanisms that justify its rate setting function.
It deeply concerns me that the new government appears to be spitting out random policies in the way that we are accustomed to see from the Tories. Is it that ministers have lost their discipline after years of strong control from Blair? The loss of the quasi tory Blair from an instinctively interventionist Labour Party was always its achillies heel, in this, instinctively Conservative country. Blair has steered a direction for Labour but not fundamentally changed it. If we see much more of this, expect election defeat. I think that this is dangerous because I believe that the Tories have not sufficiently reformed and need at least another period in opposition to get back in touch with the public. Like for example, their comments today about supporting marraige, a good idea in principle, but, put into context, what about the kids who will be penalised because their parents, without the child's say, decided to avoid marraige? Often lower socio economic groups who can't afford 10k to tie the knot, so we see the Tories looking after the rich minority again, standing up for the values of the wealthy, rather than the unspoken words of the child born into poverty. In the words of the tory spokesman, its a vote winner, probably because lower socio groups don't vote as much. Labour's great benefit is its compassion for all groups of society, such as we are seeing in massive renewal of council estates throughout the country, which were allowed to rot during the Thatcher years. Labour are not perfectly compassionate, but, relatively so, when compared to the indifference of the Tories, who, rather than not caring, simply don't have a clue about how the free market often leaves the average working person behind.
To summarise, the problem with Labour is that, instinctively, they do not recognise the limits of state intervention, whilst, the Tories, instinctively don't recognise the benefits of pragmatic, well considered state intervention. We really do need somewhere in the middle. Unfortunately, the Lib Dems are unlikely to fufill that role. Ho Hum.
16. Wario said...
You mean...Communism?
Good call, Comrade!
17. talking rot said...
planning4acrash
It doesn't cost 10K to get married. A license costs GBP 45 which, if I recall correctly, you can claim back if you are on benefits - or did New Liebour do away with this. Sorry, I married over 12 years ago and took this option rather then fork out the vast sums for a single day and put up with the accompanying family strife.
Marriages only cost 10K is you try to emulate Footballers' wives.
While I accept you can torture data until it tells you anything you want, there is global evidence which shows mental and physical health of children is better when parents are married and stay married. Happy marriages require mutual compatibility in Sex, Selfishness and Silver (ie money). Couples with money troubles tend to split. So it makes sense to give married couples a tax break if you want to help children.
There is a reason why most cultures adopted a 1 man - 1 woman marriage rule. It works best.
18. also sold to rent said...
Anyone with smarts who wanted to keep their house long term should have gone onto a 25 year fixed deal in 2003/4. That way you got your house for just about the cheapest it will ever probably be. Even now it's probably a good idea to switch to 25 years fixed as it's one less thing to worry about.
And I'm not sure what 'lower socio economic groups' planning4acrash is talking about, but the one's I know who do get married tend to do it for a few hundred quid at the registry office/pub, rather than 10 grand at a lavish golf resort/las vegas.
19. tyrellcorporation said...
'Labour's great benefit is its compassion for all groups of society' Planning4ACrash
...oh my ribs...no stop it!!!
I didn't see much compassion for the Countryside Alliance March participants! Just legions of State thugs stoving the skulls in of people from the provinces who had the 'audacity' to try and march through Labour's urban heartlands!
The Lib Dems are more left than Labour now so your notion that they are 'in the middle' is totally outdated.
'Often lower socio economic groups who can't afford 10k to tie the knot'
I seem to recall you can get married at a registry office for about £300...
20. Ihopeitgoeswithabang said...
So how does fixing rates actually help the fact that the prices are far too high?
Sounds more like a way of keeping them where they are now which is fairly pointless?!
Worried about a backlash? Well they should be. Very.
Dammed if they do something, dammed if they don't now.
21. planning4acrash said...
I agree that marriage is often the best way, but would hate to see children suffer, who have no choice but to be brought up by a single parent. I don't like the idea of social engineering, people should get married because they love each other, not to gain a tax breaks. The problem with social engineering is that it involves the imposition of the values of one group upon the masses. It benefits some but has consequences. If there are tax breaks it should be per child being brought up, by whoever chooses to nurture that child, not per married couple. I agree that Labour isn't a model for compassion, just that they have a better grasp of it than old etonians who know nothing beyond the upper and middle classes.
My point is, that just as this unthought about Tory plan for marriage will have unforseen consequences for children, who by no choice of their own do not benefit from marriage, so too will there be massive unforeseen consequences from meddling with the morgage market. Both are reactionary positions in complex arena's that haven't been fully thought out. Had Darling said that he would seek a review of the mortgage market in light of the affordability issue, then that would be positive, had the Tories said that they wish to support all children and marriage and will be carrying out research for that end, then I would be happy. It seems that politics is about to descend into a Daily Mail style mud flinging match, back to the old politics.
22. daft boy said...
I know it seems a paradox Planning 4acrash but the Labour party has been public enemy number one for the working class for the last sixty years. I am solid working class and the only meaningful improvements to my life have come about under the tories although i hate to admit it.
23. dohousescrashinthewoods said...
Isn't 25yr fix the norm in the US?
24. dohousescrashinthewoods said...
I have a hunch that marriage is a good thing. Can't really explain it, but as someone said on the radio this morning, it's not "just a piece of paper" as people say, it's a definite, public, witnessed commitment and having that extra "pressure" within the social network is a stabilising influence. I accept some will disagree, but I think it helps to strengthen social fabric by encouraging permanence, rather than allowing things to continually break and re-form.
I am married and my wife would agree that it's bloody hard work. Had we not been married we would have called it quits ages ago, but we are both of the view that you don't give yourself the choice, you get on with it. Not having an exit means you have two options: misery or facing up to things and fixing them, neither of which are attractive at the time, which is why permanence is so important, because you'd head for the exit sharpish when things get tough. (I can't claim we will make it, but it's a work in progress)
I can't claim to have lived in every sphere or understand everyone's situations, but I believe that marriage works, not because it's a bed of roses, but because it creates some inflexibility and (sometimes painfully) encourages people to grow. It's a "character-developing" experience that means you can't just whinge and sod off when you don't get your chocolate cake, you actually have to pucker up and face it.
I think a lot of people today, particularly the under-40s, lack the kind of "character" and "spine" that having to get on with it develops and I may be stretching too far to suggest that it might be part of our problem as a nation - right down to the topic of "I want a house/4x4/holiday so I will get one by any means necessary" - which grates hard against those here who have the discipline and character to avoid foolishness and despair at seeing foolishness appearing to pay rich dividends.
25. speculatorone said...
I am amazed how GB is acting like he is the new man in the job, is full of new ideas, has had nothing to do with any of our current problems and thinks we are all going to be taken in by it.
What is his saying 'Need for Change' I think we need a change, of government!
26. Fedupwithhouseprices said...
We had two children but didn't get married. We stayed together because it was important to us that our children lived with and were bought up by their real mum and dad. We put our children before ourselves. Many of our married friends and relatives with children separated and divorced so marriage means nothing it's your morals and principles that count.
27. talking rot said...
dohousescrash....
Here! Here! (Or is it Hear Hear?)
Sorry. I'm under 40 and so didn't get a proper edumacashun! Good points on marriage though.