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Business Funding More Important Than Mortgages

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Does anyone else get the feeling that the great unwashed are being prepared for the message "business funding is more important than mortgage funding", a precursor to force banks to prioritise business lending above mortgage lending? i.e. productive activities rather than pointless speculation on a fixed supply of assets.

One solution is as simple as setting lower LVT and proven income limits. Banks would soon find that to make any profit, they will need to increase business lending again. Banks would become capital allocators base on risk assessment rather than one large ponzi finance scheme. Some would of course say that risk-based capital allocation is the whole point of banks in the first place, otherwise you might as well have a nationalised bank that is there to run the payments system.

This would probably need bank staff with a whole different set of skills to understand business operations rather than the current system of getting as many mugs as possible to sign up for big mortgages without income checks, payment protection plans, cross selling insurance products etc.

Drifting off-topic already but I know one person that sold personal loans and payment protection. He said it was always easiest to sell to those least capable of affording it. Funnily enough, he is now thinking of leaving that bank, contacting his past customers and helping them with mis-selling claims for the products he sold them.

VMR.

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Does anyone else get the feeling that the great unwashed are being prepared for the message "business funding is more important than mortgage funding", a precursor to force banks to prioritise business lending above mortgage lending? i.e. productive activities rather than pointless speculation on a fixed supply of assets.

One solution is as simple as setting lower LVT and proven income limits. Banks would soon find that to make any profit, they will need to increase business lending again. Banks would become capital allocators base on risk assessment rather than one large ponzi finance scheme. Some would of course say that risk-based capital allocation is the whole point of banks in the first place, otherwise you might as well have a nationalised bank that is there to run the payments system.

This would probably need bank staff with a whole different set of skills to understand business operations rather than the current system of getting as many mugs as possible to sign up for big mortgages without income checks, payment protection plans, cross selling insurance products etc.

Drifting off-topic already but I know one person that sold personal loans and payment protection. He said it was always easiest to sell to those least capable of affording it. Funnily enough, he is now thinking of leaving that bank, contacting his past customers and helping them with mis-selling claims for the products he sold them.

VMR.

PERFECT ANALYSIS. Of course the banks should be about business lending more than Home mortgage lending. Let's have our building societies back! Who on earth thought it good to let them all become banks!!!!!

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Does anyone else get the feeling that the great unwashed are being prepared for the message "business funding is more important than mortgage funding", a precursor to force banks to prioritise business lending above mortgage lending? i.e. productive activities rather than pointless speculation on a fixed supply of assets.

One solution is as simple as setting lower LVT and proven income limits. Banks would soon find that to make any profit, they will need to increase business lending again. Banks would become capital allocators base on risk assessment rather than one large ponzi finance scheme. Some would of course say that risk-based capital allocation is the whole point of banks in the first place, otherwise you might as well have a nationalised bank that is there to run the payments system.

This would probably need bank staff with a whole different set of skills to understand business operations rather than the current system of getting as many mugs as possible to sign up for big mortgages without income checks, payment protection plans, cross selling insurance products etc.

Drifting off-topic already but I know one person that sold personal loans and payment protection. He said it was always easiest to sell to those least capable of affording it. Funnily enough, he is now thinking of leaving that bank, contacting his past customers and helping them with mis-selling claims for the products he sold them.

VMR.

Cable and Osborne have implied this many times in speeches, using phrases such as "malinvestment"

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Of course the banks should be about business lending more than Home mortgage lending. Let's have our building societies back! Who on earth thought it good to let them all become banks!!!!!

The same people who thought it was a good idea to enable them to lend to businesses.

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Cable and Osborne have implied this many times in speeches, using phrases such as "malinvestment"

Perversely, at least while the bubble was growing, the more banks lent to homebuyers, the lower the risk of the loan since the lent money would cause the assets they were lending against to rise in value. What incentive is there for a bank to lend to businesses in this environment ?.

Seems like a radical solution is needed such as a levy on domestic lending to steer the banks towards commercial loans.

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Seems like a radical solution is needed such as a levy on domestic lending to steer the banks towards commercial loans.

Such a levy is in the process of being implemented by market forces, it's called defaulting on mortgages in negative equity. If each one represents a 5 figure sum in lost capital (or even 6 figures), the banks will soon get the idea.

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Recently the single interest rate for mortgages/businesses/money in general has meant you cannot encourage business lending without encouraging mortgage lending.

To be fair to Gordon, I think he would have been happy with flat prices before the election (although some cynics may suggest that the lowering of interest rates and consequent stimulation in mortgage lending and increase in house prices was very welcome to boost Labours election chances).

Now the interest rate modifier is effectively no more. The Tories (like Labour) hope to grow the economy out of recession. But how do you further stimulate business growth without sending the housing market through the roof ?

I believe the answer is in the terms of policies like the SLS. I believe the Tories will modify the terms of these schemes to back business assets and encourage business investment, while probably offering much more brutal terms on mortgage lending. If this happens, coupled with the continuing lack of finance available for mortgage lending in the international money markets makes it likely mortgage lending will remain flat, or even be reduced. If there is an increase in supply of houses on the market, this could lead to significant price drops. Montioring the terms of schemes like the SLS may provide clues as to what the Tories plan for the housing market.

The Tories have already issued policy warnings to BTL'ers and my impression is they have no interest in continuing to inflate the housing bubble, especially as it may burst right on top of the next election. If the market can be brought down 20% or so in the next 2 years people will have forgotten about it in 5 years time.

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PERFECT ANALYSIS. Of course the banks should be about business lending more than Home mortgage lending. Let's have our building societies back! Who on earth thought it good to let them all become banks!!!!!

Thatcher.

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Cable and Osborne have implied this many times in speeches, using phrases such as "malinvestment"

I really do hope that they 'get it' - certainly seems to be a change in emphasis from housing to business coming out of the media reports.

The problem is that so much has been staked on keeping the value of domestic property high that I'm not sure that anything can be done to let the bubble deflate without risking a massive financial implosion. Still, better to try to deflate it than follow the Brown policy of doing everything you can to keep it inflated and then hit the wall further down the line and see it pop anyway, out of any sort of control.

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Does anyone else get the feeling that the great unwashed are being prepared for the message "business funding is more important than mortgage funding", a precursor to force banks to prioritise business lending above mortgage lending? i.e. productive activities rather than pointless speculation on a fixed supply of assets.

One solution is as simple as setting lower LVT and proven income limits. Banks would soon find that to make any profit, they will need to increase business lending again. Banks would become capital allocators base on risk assessment rather than one large ponzi finance scheme. Some would of course say that risk-based capital allocation is the whole point of banks in the first place, otherwise you might as well have a nationalised bank that is there to run the payments system.

This would probably need bank staff with a whole different set of skills to understand business operations rather than the current system of getting as many mugs as possible to sign up for big mortgages without income checks, payment protection plans, cross selling insurance products etc.

Drifting off-topic already but I know one person that sold personal loans and payment protection. He said it was always easiest to sell to those least capable of affording it. Funnily enough, he is now thinking of leaving that bank, contacting his past customers and helping them with mis-selling claims for the products he sold them.

VMR.

I hope so - prioritising business finance over mortgage. Pity the government is not coming out publicly and clear about it, but it is probably due to (understandable) political concerns regarding property owners "attachment" to the value of their homes.

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I believe the answer is in the terms of policies like the SLS. I believe the Tories will modify the terms of these schemes to back business assets and encourage business investment, while probably offering much more brutal terms on mortgage lending. If this happens, coupled with the continuing lack of finance available for mortgage lending in the international money markets makes it likely mortgage lending will remain flat, or even be reduced. If there is an increase in supply of houses on the market, this could lead to significant price drops. Montioring the terms of schemes like the SLS may provide clues as to what the Tories plan for the housing market

We may want to track the terms of the discount window facility instead. There are already four classifications (A-D) of assets that area acceptable with different fees and haircuts for each.

In the scheme you describe above, all the have to do is to keep increasing the fees for the class that includes residential mortgage backed securities.

Of course this means that the government is distorting markets even further.

VMR.

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I'm pretty sure that whilst he doesn't want to see a price crash that could jeopardise the stability of the banks, Mervyn King has definitely taken greatest steps to try and ensure lending to business is the priority even if banks have ultimately and unsurprisingly failed to want to lend to threatened businesses.

Does anyone remember reading recently that the UK banks can now withstand a HP fall of up to 15%? I can't remember the source, and the timing of that fall. Like, could they withstand a further fall next year? Of how much? Would this data be published in these "stress tests"? Do the banks' published annual accounts allow the markets to calculate that?

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Perversely, at least while the bubble was growing, the more banks lent to homebuyers, the lower the risk of the loan since the lent money would cause the assets they were lending against to rise in value. What incentive is there for a bank to lend to businesses in this environment ?.

Seems like a radical solution is needed such as a levy on domestic lending to steer the banks towards commercial loans.

A levy would be the most direct, clear and effective way. The problem is that it would be too clear... politically suicidal for the government. They have to allow a natural adjustment, and be able to blame the real culprits for it - Labour.

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Recently the single interest rate for mortgages/businesses/money in general has meant you cannot encourage business lending without encouraging mortgage lending.

To be fair to Gordon, I think he would have been happy with flat prices before the election (although some cynics may suggest that the lowering of interest rates and consequent stimulation in mortgage lending and increase in house prices was very welcome to boost Labours election chances).

Now the interest rate modifier is effectively no more. The Tories (like Labour) hope to grow the economy out of recession. But how do you further stimulate business growth without sending the housing market through the roof ?

I believe the answer is in the terms of policies like the SLS. I believe the Tories will modify the terms of these schemes to back business assets and encourage business investment, while probably offering much more brutal terms on mortgage lending. If this happens, coupled with the continuing lack of finance available for mortgage lending in the international money markets makes it likely mortgage lending will remain flat, or even be reduced. If there is an increase in supply of houses on the market, this could lead to significant price drops. Montioring the terms of schemes like the SLS may provide clues as to what the Tories plan for the housing market.

The Tories have already issued policy warnings to BTL'ers and my impression is they have no interest in continuing to inflate the housing bubble, especially as it may burst right on top of the next election. If the market can be brought down 20% or so in the next 2 years people will have forgotten about it in 5 years time.

Very good post.

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A levy would be the most direct, clear and effective way. The problem is that it would be too clear... politically suicidal for the government. They have to allow a natural adjustment, and be able to blame the real culprits for it - Labour.

Fee adjustment via the Discount Window Facility asset classifications would be obscure enought to avoid blame.

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Thatcher.

Whilst it goes without saying she's personally responsible for anything bad with society. There were rather a lot of the public who were very keen on building societies demutualising so they could carpetbag cash or share windfalls - obviously Thatcher is to blame for turning them into such greedy self-obsessed morons, as soons as the Tories went and labour came in this mentality all stopped.

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  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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