Sunday, Feb 22, 2009
Only 10 years late
Telegraph: Gordon Brown to bar 100pc mortgages
Gordon Brown is to prevent banks and building societies offering 100 per cent mortgages in an attempt to usher in a new era of "responsible lending". The Prime Minister and Alistair Darling, the Chancellor, will make the move in a tacit admission that the Government did not do enough to stem the wild lending policies that played a major role in creating the credit crisis.
Posted by quiet guy @ 02:58 AM (1493 views) Add Comment
35 Comments
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1. Puppee said...
well this should help push the property prices down then
2. Letsgetreadytotumble said...
Surely this is Brown 'grandstanding' again.
First I don't think he's got anything like the control he thinks he has, and second, 100% mortgages are a thing of the passed anyway, and are unlikely to happen for the rest of his pathetic reign. So he's just jumping on a bandwagon to con the gullible labour voter.
3. Rockfeller said...
only smart decision brown made.
4. Wadisgod said...
Is this realy how they occupy their time!!!
Forgot a lot of time is spent on Darling's second home expenses claim and cleaning out his £150 a week rooom (first home)
Don't worry 125% mortgages are still allowed
5. Economicvoicedotcom said...
100% mortgages were not the problem per se. It was the 95% mortgages with 30% extra in unsecured borrowing that was the real problem.
6. Highland Property Bubble said...
The banning of buy to let and self-certification, liar, loans must also be implemented.
7. growler said...
Quite a few of the posters on here (me included) have been talking about this for over a year - it's a bit of a no-brainer. It's a step in the right direction, but 100% is too much. And the salary multiplier also needs setting at the right level. FWIW, 90% and 4x ought to be absolute maximums
8. little professor said...
If only Brown had been Chancellor ten years ago, he could have put a stop to irresponsible lending before it got out of hand.
Oh, wait....
9. brickormortis said...
I could not agree more, growler!
The reason I turned my attention to the HPC issue (4 years ago) followed the core issues which I think it would be nice to continue debate over because it seems to me that the media and the rest of the country need to be reminded that were the following not allowed to get out of hand the current problem would be far less serious.
We are not just victims of some crazy global storm that we have no control over.
a) High LTV ratios
b) High Salary Multiples
c) Rising cost of living (council tax hikes coupled with gas, electric and water hikes, rising fuel costs etc.)
d) Interest only mortgages
e) Equity release and tax avoidance on buy-to-let properties by maximising the debt against the property by releasing cash to use as a deposit and perpetuate the craziness. Effectively, gifting the cash rich and not so with an opportunity to own hundreds of houses which they paid little or no tax on.
f) Allowing people to rack up multiple credit card debts and finance to furnish proprties
g) Property p&#n channels
In my (humble) opinion these were the problem. I complained about them then and I still do now. Most of my friends thought I was a crazy idiot. What a disgrace that this was allowed to happen.
10. little professor said...
11. Dan said...
“Last year we set out radical proposals for changing the way we regulate: minimising the administrative burdens of regulation; and ensuring that the realities of regulation, as you experience them on the ground, are transformed -- by moving away from the 'old' blanket approach, of 100 per cent form-filling and 100 per cent inspection that is inefficient and wasteful of your time, to a new approach based on RISK…
And I believe, too, we should consider how we can continue to extend our RISK-based approach, applying the concept of RISK not just to the enforcement of regulation, but also to the design and indeed to the DECISION ON WHETHER TO REGULATE AT ALL… ”
Gordon Brown
Speech to the CBI, 5 June 2006
12. Dan said...
“I want us to do even more to encourage the risk takers”
Gordon Brown
Mansion House speech, 17 June 2004
13. growler said...
@ bricomortis.
Funny enough, wife and I were talking about interest only after I posted. This is something that for sure got us into the "affordability" spiral of property self-inflation. After a few years of these "loan" products gaining acceptance, every slippery salesman soon sold the fools gold. It should be stopped for all property for use as residential dwellings.
14. Nomad said...
And also equity in main residences should NEVER be allowed to be used to underpin further borrowing.
This is a first post - thankyou ladies and gents for all the knowlegeable, and emotional, posts I've been reading for the past months.
15. mdmick said...
Is 100% lending, of itself, a bad thing.
Or is it the fact that the 100% lending is being offered during a period of falling house prices?
And, if someone is a super earner, is it so bad to lend 100% even now?
If a bank uses a 100% policy and wins loads of business (mortgage applications) and a year or two goes by and property prices are still going up then is it really irresponsible when eventually prices falll? Couldn't the business model factor in that 100% mortgages should disappear at that time?
The subprime collapse of collateral ratings was caused by lending whatever% mortgages to people who were risks.
Maybe 100% is not the thing to keep one's eye on but Who is being lent to.
16. braindeed said...
These reductions in ltv will only happen if BTL is outlawed - can anyone see a situation where this would be anything other than political suicide? Does anyone think there will ever be a mandate for the neccessary corrections, or can imagine a scenario that was not terminal in an economic sense?
We can't go back to 2007, any more than Lawsons boom could ever be undone.......the more I reflect on this the more intractable the problems seem to become - come on opptomists, help me out here!!!
17. a saver said...
Unbelievably too little too late, transparently vote-catching that makes GB look even more stupid. Do banks really want to loan 100% anyway?
18. holding out said...
It is irrelevant as 100% mortgages are not being offered to new customers - from the article "It would apply only to new loans." and "Ministers also want to step up the drive to get banks offering "traditional" home loans worth between 75 and 95 per cent of a property's value – a market that has been badly hit by the recession." This all smacks off trying to get the headline of prudent lending when in reality trying to promote more imprudent lending as usual backed up by taxpayer guarantees.
19. stillthinking said...
Salary multiplier should be restricted, which would alter competition for housing to competition to whose deposit is largest.
I wonder if GB has come to the conclusion that as -his- borrowing/printing requirements are so immense, the UK won't be able to support the additional debts of a housing recovery...( I don't think that is true.).
20. martin said...
Let the banks who provide the mortgage have the ultimate decision as to who gets the loan, ensure it is traceable to the bank manager and let them and their employer be held accountable for any defaults. Oh, and ban brokers who only care about getting their cut.
21. braindeed said...
This made interesting reading....http://newsvote.bbc.co.uk/1/hi/magazine/7733794.stm
Cheered me up no end
22. sold out said...
As usual Brown grabs the headlines with a proposal that means nothing.
Nearly all lenders stopped offering 100% morgages months ago.
Everything Brown and NU labour do are either ill thought out policy that they cannot actually deliver (stopping repossessions) or proposals like this,which the morgage market has allready implemented (self regulated).
How this Fool has the cheek to come out with this is beyond me especially whilst under his (non) regulation as chancellor we had the Northern Rock 125% morgage and subsequent 1st Run on a UK bank for over a 100yrs.
Brown should have resigned months ago, he is a disgrace.
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24. sneaker said...
This is just horrible economics:
During a boom, make credit easier.
During a contraction, make credit tighter.
Exactly the sort of pro-cyclicalality that governments are meant to *prevent*.
And to think, Brown dares to pretend to "teach economics" to the opposition. Brown boasting and bragging about how he "saved the world" when he didn't even anticipate the crisis in the first place. How can he be so sure of his abilities? Ah yes, that's right, nobody could have predicted it, and it's all somebody else's flaut.
25. it_is_going_with_a_bang said...
As with most rules and regulations they need to be applied to everyone not just those who pretend they can afford it - or indeed can afford it at that moment in time. The fact is 100% lending is asking for trouble and it creates the wrong mentality regarding housng.
The only real reason it was and is ever needed is because house prices are just far too high. With the right multiples of salary in place 100% lending is not required - we seemed to get on quite well without it IMO.
Problem being he should have impemented this 6 years ago. No prizes for guessing why he didn't.
26. phdinbubbles said...
@14 sneaker
"This is just horrible economics:
During a boom, make credit easier.
During a contraction, make credit tighter."
Quite. Positive feedback amplifying the booms and the busts - basic control theory. There really is no excuse for housing booms and busts - negative feeback would eliminate pretty much any cyclical behaviour - lower the maximum loan-to-income lending maximum during booms (measured in terms of affordability) and raise the maximum limit during busts. It'll never happen of course (think it probably flies in the face of capital adequacy requirements during the busts - but there's no reason why the maximum ratio should be legally lowered as soon as the house price affordability ratio increases beyond thresholds).
27. phdinbubbles said...
Sorry, that should be 'but there's no reason why the maximum ratio should not be legally lowered'
28. peter_2008 said...
Is it just me? GB looks like doing a Nazi salute on that photo. Maybe he would like to be called Our Great Fuhrer.
29. Liddiard said...
I am confused as to what Gordon Brown is saying. Surely Building Societies are currently lending sensibly, why would they not be? If people can afford mortgages then building societies are lending to them. The problem is surely that in 2007 we could not afford mortgages so building socs had to lend 125% to enable us to do so and ignore how much we were earning AND borrow something like 750 billion from overseas to finance that market. In 2000 I believe we borrowed something like 6 billion in 2001. I am just a simple housewife, but surely we can't afford to carry on lending like we were in 2007 so how can house prices not come down, and a long way? So what is Gordon Brown saying in this article? On the one hand he is speaking about "sensible and repsonsible" lending, and that we must save for deposits, and on the other he is saying the government will not help lenders out unless they start lending 95% mortgages to people who can't afford a deposit. The BBC report of Mr Brown's recent speak re- old fashioned banking said that Mr Brown also said:
Mr Brown said the Financial Services Authority would be considering controls on mortgages of more than 100% of a home's value, and so-called high multiple mortgages offering loans of up to six times an applicant's salary.
I keep doing my sums, if we go back to 3 1/2 times income, even if someone earnt £50000 (or 2 @ £25000) that is only £175000 pounds, given that an average 3 bed in Poole area is £235000 that is a sizable deposit for even a high earning family. As I believe it is only the top 1/5th in the UK that earn £50000, the government are speaking about 80% if its two £25000 salaries, that would give £140000 loan, so something is going to HAVE to happen to house prices isn't it? So why is Mr Brown now trying to encourage lenders back to lending 95% mortgages or else they cannot have any funds, whilst speaking about old fashioned lending and failing to realise that lenders currently ARE lending sensibly which is why nobody can afford homes.
30. _woody said...
Goldmans Sachs developed a reputation in The aftermath of the 1930's econoimc crisis, for its overly conservitive approach, doing business in the most austere of securities. A happy outcome of the crisis saw the firm rescue its name from its delinquent offsring and return to an earllier role of strict rectitude and stern conservatism.
History tends always to repeat itself, so financial insritutions will invariably begin to move in a more sustainable direction. Just a pity, the lessons of history are never learnt and that a change in direction did not come sooner, rather than allow a credit bubble to inflate.
31. timmy t said...
If loans had to be repaid to the bank that gave the loan rather than the debt being repackaged and sold on as some "complex financial instrument" then they would be self-regulating. Would you lend someone 100 quid if they were going to pay you back 10 quid a month for a year giving you a 20% return? Would you do that if you knew they couldn't afford 10 quid a month? Would you if you could sell that debt straight away for 105 quid, make a fiver and wash your hands of the dodgy borrower?
32. quiet guy said...
@phdinbubbles
"there's no reason why the maximum ratio should not be legally lowered"
I've been thinking about a related but different approach. Could the government set a legal limit on the lenders recourse on a repossessed property, as a percentage of the income multiplier when the mortgage was taken out?
Example: Governent sets recoverable part of mortgage to 3.5x assessed income. If the banks chooses to lend 4.5x income and things go wrong, then the borrower is only liable for the sum of 3.5x their assessed income - the rest is the bank's problem. The idea here is to find a half-way house between America non-recourse mortgages and our system of financial serfdom for those who buy at the wrong time or fall into other difficulties. The more the banks lend then the greater the bank's risk should be. This would surely make the banks more cautious without setting absolute limits on loans, whatever the circumstances.
33. shipbuilder said...
Hand-wringing about how we got here or who let it happen is pointless. It is the system - textbook capitalism - everyone wants it all to continue as long as their wee bit of the pie impresses the neighbours. The big boys do what they want and it benefits us all. So why are we surprised when they get greedy? And it will happen again and again and again and again.....until we change the fundamentals of the system driving it. Government and 'independent' regulation by government, self-regulation by the bankers - when the people who benefit are the very same as the people in charge why are we surprised?
34. shipbuilder said...
And sorry, but this talk of rules and regulations and legal limits is nonsense, just nonsense......who put these rules in place? Do you honestly think that a government would maintain these regulations if the rest of the world were having a housing boom and we weren't? Do you honestly believe that any other party with a chance of getting into power would have done anything different? Was there are chorus of disapproval during the boom? Nowhere. We really need to wake up and start demanding real changes.
35. James said...
quiet guy - that seems to me to be a very good idea indeed - a great compromise between allowing banks to operate in a free market, but allocating them and not the taxpayer, a greater share of the risk in doing so.