Monday, Aug 11, 2008
Repayments outstripped new loans by almost £700m in June
FT: Dramatic cut seen in mortgage lending
"According to data from the Bank of England, the net withdrawal of mortgage lending by building societies is unprecedented; not even in the darkest days of the last property recession did net lending become negative."
Posted by mountain goat @ 04:35 PM (995 views) Add Comment
13 Comments
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1. Stevie Dee said...
Hey mountain goat, really good articles you are pulling out today.
2. Stevie Dee said...
http://www.ft.com/cms/s/0/fdfb05ee-673a-11dd-808f-0000779fd18c.html *full article to be found on this link.
3. mark wadsworth said...
Seems fair enough. The banks have been raising capital left right and centre, the building societies have net repayments of £700 million in a month = £8.4 billion a year, seeing as building societies have a smaller makret share and were not quite so reckless with all these securitising thingies, that seems like a) a better way of raising money and b) a good thing, as far as HPC is concerned.
4. drewster said...
Isn't this a good thing? If net lending is negative, then household debt (which in the UK stands at 173% of income!) will start falling again, after so many years rising so fast.
5. Sneaker said...
The trouble is that with a fractional-reserve fiat currency system, if net debt contracts it causes a further multiplied-up contraction according to the multiplicative effect of the money multiplier. A contraction of lending at such a fast rate is a bad, bad thing and forebodes DEFLATION. Everyone is scrambling to raise cash to pay off debts, by selling assets.
6. Eternal Sceptic said...
They must be following long forgotten advice of saving for a rainy day. I would also recommend paying for additional flood insurance and relocating out of the flood plain.
7. peter_2008 said...
£700 million in a month = £8.4 billion a year. At this rate we should be able to pay back the debt in 150 years time. And we will all turn into Yoda. May the force be with you!!
8. paul said...
You know, if the banks *really* wanted to raise more money quickly, they could always up their savings rates and penalize their borrowers - they're already doing one of those of course ...
9. stillthinking said...
This is it. This is the first article as the UK goes into deflation. Net mortgage lending is paid back ummm... how can they ? Amazing. Now here we go.
10. paul said...
stillthinking, I don't follow.
"Net mortgage lending is paid back ummm... how can they ? Amazing. Now here we go."
Can you elaborate? Sorry for my thickness.
11. stillthinking said...
The amount of money is shrinking so sooner or later prices will stop rising and everything will become cheaper, which sounds good. However, your wage must also go down. Your repayments on debt cannot go below zero percent. Debts become much harder to repay. Your wage becomes harder to pay because the company you work for is chasing less money. People become money obsessed because everything is getting cheaper. Transactions stop. Economic activity stops. We enter a recession. Unemployment rises because nobody is spending and nobody is borrowing so no easy money for companies to get. Debts become truly impossible to pay back. House prices truly collapse. Doom and gloom all round.
I didn't mean amazing in a good way. I am just surprised it really is happening. Banks face enormous solvency problems. Government debt increases.
Our economy is based entirely on money as debt and people just stopped taking on new debts. The people with outstanding debts -need- these new loans to enable them to repay the outstanding loans. This is the Japanese problem of the 1990s and they are facing up to the consequences even today.
12. Peeps said...
stillthinking, I can live with deflation, I have no debts, I own my house outright, I have a reasonably secure job and more than £50k in savings. House prices collapsing means I can trade up for less money and I thought that the housing market should have peaked in 2001.
13. Hotairmail said...
If you look at the 'bankstats' release on the Bank of England website, you'll see occasional negative figures for net lending for banks, specialist lenders and building societies going back before the crash. The reason being mortgage book disposals. Can anyone confirm this isn't what has happened here?
Net lending is still positive overall which means people are still becoming more indebted. It means there is more credit money being created - not less. It is just that the growth in lending is not enough to support house prices at their current elevated level.