Saturday, May 24, 2008
Simple explanation of rising mortgage costs
BBC News Peston's Picks: The mortgage gap
This should be compulasory reading for FTBs: "The cost of mortgages for many of us is probably still on a rising trend. Here's why. Net lending for mortgages - that's mortgage lending over and above the refinancing of existing mortgages - was £110bn last year (it was a similar amount in 2006 and a touch less in 2005). According to a leading bank, net lending this year will be £60bn."
Posted by quiet guy @ 08:37 AM (567 views) Add Comment
6 Comments
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1. letthemfall said...
Nicely illustrates the fatuity of the "pent-up demand" argument in support of stratospheric prices pedalled by the VIs, cliched in their pronouncements, muddied in their thinking. There is a demand for house-ownership because it has become the average person's ambition, rather than climbing Everest or sailing around the world, say.
But the supply and demand turns on credit, and now that the facility to hide debt in cupboards (aka CDOs) has gone, supply reverts to normal and the demand pushes up the price of credit.
When we criticise the BBC, at least we can remind ourselves that they still employ the likes of Robert Peston, John Simpson, etc.
2. confused76 said...
i agree. a good article.
a reminder that demand is always equal to supply (at a given price) and that there is always pentup demand, as well as pentup supply, alas at the wrong prices
in addition, the artilcle did not mention the mantra "but rents are going up"... another fallacy we too often hear from the VIs
3. waiting for the crash said...
A couple of examples I have picked up in the last few days.
A house for sell near me was on the market for 250k since about August last year. Twice the sold signs went up and down and now back on the market for 230k. Thats an 8% fall in the asking price, wonder where the actual sale price (when it does) will be.
Also a person whose needed to move out of their 1 bedroom London flat paying 1200 on the mortgage because of a job change, can only get a tenant at 600. So subsidising the tenant to the tune of 600. How will they solve that one!
4. uncle tom said...
The underlyng factor here is the divorce of saving and lending.
Over the last few years, the mortgage boom has been increasingly funded by international money maket finance, instead of savings accounts.
The 'plain vanilla' logic of only lending what people have saved has been swept aside, and several hundred billion of the UK mortgage debt is now unmatched by savings.
But where has this money market cash actually come from? We know that money supply has mushroomed, and that until recently, money was available at suspiciously low interest rates.
At the risk of being over-simplistic, it begins to look as though money has been advanced that does not really exist...
5. stillthinking said...
The cash came from China, Japan, Germany. Now it comes from the printing press of the BoE. Previous situation good, current situation inflationary.
6. uncle tom said...
"The cash came from China, Japan, Germany. "
That's the stock answer, but is it entirely true??