Monday, Feb 08, 2010
Mortgage lenders want more state aid
Financial Times: Lenders warn of mortgage shortages
Britain’s banks and building societies have warned that they will have to slash mortgage lending and raise rates on home loans if the government insists on prompt and full repayment of the £300bn they have received in state support since 2008. In a recent paper aimed particularly at policymakers, the Council of Mortgage Lenders set out its case for continuing government support for the Special Liquidity Scheme and the Credit Guarantee Scheme, which must be fully repaid by the ends of 2012 and 2014 respectively.
Posted by quiet guy @ 08:48 AM (1928 views) Add Comment
24 Comments
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1. mark wadsworth said...
Glorious. That has got to rank as the most outrageous use of taxpayers' money of all time. I knew the banks had been bailed out, and that the IMF had put the actual net cost (rather than the gross amount of lending/insurance/new capital) at £130 billion, but £300 billion is staggering - that's a quarter of all mortgage lending!
All things being equal, as and when this is withdrawn/repaid, house prices have got to come down by about a quarter.
2. freemanphil said...
All shortages, absent natural disasters, are a function of price fixing that mis-values a commodity or product. Supply and demand for mortgages would be balanced if interest rates went up to their free market value. Yes, this would mean house prices falling, but, overall, that would solve the housing crisis, because people could once again afford to buy and build houses.
3. hpwatcher said...
Supply and demand for mortgages would be balanced if interest rates went up to their free market value
But then Labour's ponzi scheme would collapse, so it ain't gonna happen.
4. mark wadsworth said...
HPW: "But then Labour's ponzi scheme would collapse, so it ain't gonna happen."
True. But how many prominent Tories are there who are brave enough to deride it as a Ponzi scheme and do something about it - like liberalising planning laws, regulating banks, and, Heaven forbid, moving from taxing incomes to taxing property values?
Willetts got fairly close recently, but he refused to draw the obvious policy conclusions.
George Osborne actually mentioned reckless borrowing and the house price bubble as one of the ills that have befallen the UK economy in his recent eight-point speech, but he mentioned them only once briefly, right at the beginning, and none of his eight points actually address the issue.
So my guess is "none".
5. 51ck-6-51x said...
FMP - I couldn't agree more, I would add my standard proposition of replacing the central bank with a market of competitive issuers.
6. titaniccaptain said...
Sounds like an end game to me........
But if the government does decide to extend the deadline for repayment then once again it will show the level of VI involved in this circus.
High house prices are not beneficial for our children.
7. estrader said...
@ 6 , Yes... "Will someone please think of the children!"
I don't follow the logic, are you implying that what is happening now is good for anyone over the age of 18 or childless people? I don't have any children so I suppose I have nothing to worry about.
8. mrmickey said...
Shouldn't that read "Lenders warn of mortgage shortages at artificially low interest rates".
9. Tick Tock said...
Estrader,
No, high house prices are good for nobody but Banks. (although this seems hard for most to understand)
However, under the current system, every generation will be surely worse off than the previous & this does make the lot of 'the Children' yet worse than our own. What kind of society can survive in the long term stealing from the future to avoid paying for the past, always taking today what tomorrow never brings?
10. growler said...
estrader:-
"our children" is a metaphor for us as a nation in the future.
If we are screwed into spending a disproportionate amount of our money on housing, then we are the losers. We need to regard house price inflation with the same contempt as any other inflation. The supply is "short supply" argument is simply a justification of permitting inflation.
Tax the private 1st home capital gain like any other investment vehicle. Change the law to transfer risk from the owner to the lender if things don't work out right and you get foreclosed. Here in the UK, an incompetent lender who has over-lent can use the courts to get the money back from a borrower who can't pay.
11. titaniccaptain said...
@Estrader
Of course I am not implying high house prices are good for anyone over 18 or childless................but when children leave home at some point they will want to buy a house......I don't want to see my kids beginning their adult lives in debt that need not be there.
Sorry I was not all encompassing in mentioning all other walks of life and age groups.
I also left out it would not be good for people of French decent, persons of restricted growth and anyone who has had to put up with an ingrowing toe nail for more than 3 days.
12. vacuouspolitician said...
"Tax the private 1st home capital gain like any other investment vehicle."
...do you really believe that? ...it will never ever happen.
13. rumble said...
Ah, Freeman and 6s: Denationalisation of Money - Hayek
14. icarus said...
mark w @4 - 'A politician is an animal which can sit on a fence yet keep both ears to the ground' - H L Mencken
'Democracy is the art of running the circus from the monkey cage' - ibid
15. Village I said...
This story was on the BBC and This is Money last Tuesday:
http://news.bbc.co.uk/1/hi/business/8493653.stm
http://www.thisismoney.co.uk/mortgages-and-homes/mortgages-features/article.html?in_article_id=498581&in_page_id=58
16. growler said...
"Tax the private 1st home capital gain like any other investment vehicle."
...do you really believe that? ...it will never ever happen."
It has to. How can it be that a particular source of capital gain is not taxed? Why is it that if I buy an "invesment property" that I don't pay the same tax as for any other "investment"? Because the whole country is geared to a tax-free windfall, there is an all-round vested interest in ever increasing growth.
If houses were to compete with other investments on a level playing field, this aspect of housing - the "make money" side - would have to compete fairly. Now it's a now brainer. If there is growth of 5% - for example - it's banked tax free.
17. Nuskabud said...
God I can't believe what I read on this site......separate hard facts from soft facts.....example of hard fact is that the housing market decline was arrested by intervention ....another hard fact is when markets are tampered with in a non - organic fashion there is normally a very significant response to that tampering somewhere along the line.... soft fact is none of us know when this response will take place ....but it will....
18. icarus said...
growler @ 11.56am said - "an incompetent lender who has over-lent can use the courts to get the money back from a borrower who can't pay". Ditto for credit card companies. According to the current 'Roof' magazine more people are using credit cards to pay rent/mortgage and the signs are there'll be a lot of repossessions by those companies.
The CML's case in the story under review is that wholesale money markets have dried up and the government needs to step in to augment them. If we go back 20 years the wholesale money markets, inter-bank markets and commercial paper markets were used principally for clearing and smoothing operations. Then they started to become sources of funding (from institutions and other investors) for speculative, bubble-inflating activity centred on Wall Street and London (since retail deposits and commercial bank credit became insufficient for this purpose). So what's now happened is that bubbles have deflated and a correction has happened (suppliers of funds to wholesale money markets have fled). So now the government should step in with the money to feed bubbles? I think that's known as a ratchet effect.
19. alan_540 said...
We all know house prices are way too high and until they need to return to an average of 2.5x a single income. Until then our children will be unable to buy on their own without help from parents and/or the current high multiples from lenders. Higher interest rates and unemployment will naturally correct this if it were allowed to happen. Will the next government allow this to happen? Presumably yes, either willingly by good management of the economy & reining back spending, or by outside agencies forcing their hand - gilt crisis/IMF etc. We can only hope that it is done in an orderly manner so that recession does not turn into depression. I don't know what's going to happen in the coming months or years, but I do believe that it has been this government that has gotten us into this mess. I hope that we never return to massive house price inflation because of all the bad things it means for our quality of life. When I bought my first house it was marginally more expensive than renting but we went from a 2-bed to a 3-bed place and our quality of life was better. Today it is cheaper to rent, and I would not be buying at these prices. If all first time buyers could sit on their savings and rent until prices return to normal this might increase the pace of change. I really feel sorry for everyone who is waiting to buy but only see government propping up the market, it must be very frustrating.
20. estrader said...
@11 - "but when children leave home at some point they will want to buy a house......I don't want to see my kids beginning their adult lives in debt that need not be there."
Maybe I am missing something here, aren't we (this site) saying that house prices are too high now? I am under the impression your children aren't ready to leave home yet. People will sell their house below 'market' price because they are forced to (financial reasons), not because it is in the best interest of their childrens future. Expecting the government to do the 'right' thing is one thing but to expect the masses to adopt an altruistic philosophy...well that will never, ever, ever, ever happen. Everybody wants their house to be worth more than what they paid.
21. mark wadsworth said...
Estrader: "Everybody wants their house to be worth more than what they paid"
That's true for most people, but similarly, most parents would like their children to be able to afford a nice house. The Achilles' Heel of the Home-Owner-Ist philsophy is apparent when you ask them why they want to impoverish their children, or whether their children are the sort of low-life scum for whom no new housing may be built near anybody ever.
22. alan_540 said...
Just looked up Halifax avg. house price = £170k and median earnings are about £25k, which gives a multiple of about 6.5x salary, no-one in their right mind would want to buy at those prices, renting has got to be the way to go - if you want some quality of life other than working just to pay the mortgage.
23. estrader said...
@20 - MW, most people believe it’s always the right time to buy a house. I work with someone who is over 60 years old and intelligent yet the concept of house prices falling is inconceivable to him. When I explain why house prices might fall his response is “but they will go back up, you can’t lose with housing”, when I explained that in the late 80’s to 90’s it would have taken over 10 years to get your money back (not even counting interest paid on the loan) his reaction was almost as if I told him I spotted a UFO.
Just to make my point clear on this, I am not debating about what houses should be worth and what is good for “our children”, I am arguing for less Government interference in the market...all markets!
24. vacuouspolitician said...
16. growler said..."It has to..."
Well I have to say that is a very brave call. I just can't see it ever happening. If any party proposed this then they would never get into power...