Friday, Mar 12, 2010
Mortgage rationing
Telegraph: Fears grow that new mortgage drought could hit house prices
Not something you normally associate with rationing. Do we get a book of coupons? "Other commentators have said that new regulations from the European Union could force UK banks to reduce the size of their balance sheets by as much as £530 billion over the next three to four years.". You never can trust nameless commentators. I find it hard to believe that that the UK can drive down debt and borrowing to that extent.
Posted by stillthinking @ 10:26 PM (1304 views) Add Comment
7 Comments
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1. stillthinking said...
"...most economists predict a return to steady house price growth over the longer term because of a fundamental shortage of housing stock".
Also known as the Bangladeshi Plan.
2. mark wadsworth said...
What's so unrealistic about a £530 billion reduction?
UK household debt went from £700 billion to £1,400 billion during the ten years of the house price boom. None of that was real money, it was just the flipside of people selling each other the same old houses for three times as much as before. If house prices were to halve over ten years, why wouldn't this reverse?
As to "most economists", well they can go and drown themselves or something. Why don't "most economists" point out that we should just allow supply and demand to adjust by freeing up planning laws - keeps house prices down, creates jobs, enables people to start families, creates real assets that are of enduring benefit etc etc?
3. stillthinking said...
The suggestion is that the reduction occurs over three/four years, not ten, and involves paying money back, not borrowing less.
If I am the UK economy, and I borrow 10 pounds a year for 10 years, then I end up in debt at 100. If I have to reduce that outstanding balance to 70, I can't achieve that by just borrowing less. I have to actually pay back the cash. Probably there is some element of revolving doors as we are both borrowers and lenders, but even so. A chunk (30%) of the 700 billion debt is held abroad while we run a persistent trade deficit. There is no money available to pay back, unless we try the opium trick again.
Not real money for the government, real money for the debtors though. This suggestion (which I don't believe is reasonable), is against a backdrop of stagnant lending.
Thanks for the welcome back by the way. I haven'tposted for about a month.
4. mark wadsworth said...
ST, welcome to the topsy turvy world of banking. The line you quote is:
"new regulations from the European Union could force UK banks to reduce the size of their balance sheets by as much as £530 billion over the next three to four years."
1. Banks' balance sheets include about 20% stuff that means something (deposits, mortgage lending) and then huge figures which are all contra-entries - if two banks lend each other £100 billion then the balance sheet of each expands by £100 billion. Let's assume that's not what they mean.
2. Existing UK mortgage and credit card borrowers are repaying interest, capital and so on at well over £100 billion a year. If UK banks simply stopped advancing new mortgages for five years, total mortgage lending would come down by £530 billion give or take. And hence their balance sheets would 'shrink' by £530 billion.
3. If banks choose to repay £530 billion of their own debts (they can bl**dy well repay the taxpayer first) in that period, then fine.
4. Just think what'd happen to house prices if nobody took out a mortgage for the next four or five years :-)
5. tenyearstogetmymoneyback said...
An easy solution would be to ban MEWing or make it far less attractive (e.g. charge stamp duty each time it was done).
I have never understood why someone who has to move (e.g. due to a job change) ends up paying stamp duty while
Mr Feckless can remortgage his house and blow the proceeds on a flash car and holiday (or even worse a BTL deposit)
and not pay anything.
Interesting to read the contrast in the USA with the standard mortgage (as opposed to Sub prime) being a 30 year fixed rate.
6. cyril said...
The reason everyone's hooked on houses is because it's a speculative bubble but if it started to deflate people would soon go off them. Problem is the government has to keep the pot boiling to avoid civil war breaking out in middle England. Also, if house prices went down, the banks would be in the sh+t again.
7. house said...
IMHO I do not think there is going to be any real drought of mortgages. What this means is that if lenders do not over-lend then there will be less competition to purchase a property. This does not mean that prices are going to go down but what it means is that there will be fewer buyers around to purchase these properties and the sellers who do not have to sell will wait until the buyer's turn up. Properties will take longer to sell. This is what happened in the 1990's. The savvy seller will reduce his price and make the corresponding saving by making a lower offer on the property he is purchasing. But these occurrences will be few but will happen.
In Cornwall at present the properties are selling a 2007 peak prices and there appears to be no let up. Most properties (ie.right property) appear to sell very quickly. But the prices are not going up. The pressure is definitely downwards but ressisting very well at present.
Therefore, anyone who has cash in the bank say £150000 would be better off earning 4% to 5% than putting it in the property and see no increase in capital value but experience all the problems of letting and perhaps earn 3% rental yield.
Mark Wadsworth as you are in the financial (Taxaxtion) business do you agree? and anybody else what do you think.