Monday, Feb 08, 2010
On life support
BBC Pestowire: The acute vulnerability of the mortgage market
Mortgage banking remains hooked on taxpayer support in a way that most would say is unhealthy. Via the Special Liquidity Scheme, our banks have dumped mortgages on the Bank of England in return for Treasury Bills (the equivalent of cash) worth £178bn; and the Treasury has guaranteed fund-raising by banks to the tune of £134bn through a Credit Guarantee Scheme.
In effect, that is £314bn of credit provided to mortgage providers by us, by taxpayers. The Bank of England wants its money back by 2012.
What do you think would happen if we demanded all that money back tomorrow? It's doubtful that a single new mortgage would be approved for some time. Which is why the recent recovery in the supply of mortgages and in the housing market looks somewhat fragile.
8 Comments
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1. stillthinking said...
The comments on Pestons article are even more pessimistic than this site...and mainly hard to disagree with.
But as some of the commentators suggest, by the time housing comes down, we will unemployed and indebted and millions of babies won't exist because their parents waited for housing. What a f&ck up.
2. quiet guy said...
Nice explanation of the mortgage funding problem by Peston.
"The Bank of England says that the ideal solution would be for the deposits of household and corporate customers to grow by 10% a year"
They've got to be joking. The BoE that has ruthlessly coshed savers wants to kiss and make up. It's a bit late now.
"there is an acute risk of mortgages becoming either scarce or very expensive or both, if the government were to insist that taxpayers get their £300bn back in 2012 or so. And that in turn would almost certainly prompt a further housing-market dip."
So the 2012 deadline will slip, nomatter what the risk?
3. str 2007 said...
So how long can you wait to get a house.
Now if if I was to build one an inject my money directly into the local economy.................................
If only there were some reasonably priced plots for the family man.
4. paul said...
Yes, I read this earlier today - it seems that the Bank of England gave the madman an expensive gun and some bullets to hold to the taxpayer's head to ask for more money.
Either we don't get our money or we give them more money - heads the taxpayer loses, tails the mortgage industry wins. I already know which the bankers will opt for - they have decent salaries and fat property portfolios themselves so saving the mortgage market (which will incidentally keep house prices high) will get their vote "all in the name of saving the economy".
Unless of course, someone (the IMF, a new government, taxpayers) call time on this little game the government is playing to save their own wealth and that of the recklessly overstretched.
5. greenshootsandleaves said...
str2007@3 'If only there were some reasonably priced plots for the family man'
There are! Might lead to a shortage of tarpaulin and straw bales, though.
6. str 2007 said...
greenshoots&leaves
Now why didn't I think of that.
7. Crunchy said...
5. There is no easy way to buck a system that has set out to hijack your basic needs in order to enslave you and expand debt growth.
It's called the system. You don't screw the system, the system screws you. How long would one last living in ones own piece of
woodland in a wooden hut or a caravan miles away from anyone? You are either in the system or a missing person completely out of it.
There are no in betweens.
8. letthemfall said...
I've always admired Robert Preston's analyses, and he emphasises the hiatus in the economy at present. How could the biggest financial crisis since the 30s be overcome in a matter of months? It couldn't. And the pillars of debt, supported for the time being by the Govt, have to come down sooner or later. The only question is how long, but the ill winds are swirling all the time - Greece, Spain, etc. Even Samson couldn't hold this up for ever.