Jump to content
House Price Crash Forum
clloyd

Why Are The Banks Not Lending?

Recommended Posts

We consistently hear MP's from all parties saying "the banks must start to lend again", but we never here any debate as to why it is they are not lending and whether it is actually state interference that is causing this.

So are the banks not lending because:

  • They have no money?
  • They are actually lending, but have pulled out of the risky lending for which they were previously being criticised.
  • They are lending to the government to pay for the deficit, in the form of buying gilts.
  • They are just playing a cruel joke on everyone to push the country into a depression, with disregard to their own profits.
  • No one actually wants to borrow money as they are already up to their neck in debts (anecdotal evidence suggests many people are being turned down for credit so this can not be completely accurate) .
  • Interest rates are too low, resulting in a lower supply of savers cash & lenders unwilling to lend at these rates.
  • Does QE cause banks to withdraw from lending? For example if the bakers are not sure how much QE (inflation) will happen they will not know how much inflation adjusted capital they will receive back from any loan deal. As a result the very action of creating inflation by QE causing deflation in credit as the banks don't want to lend. Coupled with a long term low interest rate environment and therefore little scope to increase rates if inflation picks up, this would help explain why Japan can print money and not create inflation.

This was a hastily typed out list so apologies if it covers old ground or doesn't make sense but I would be interested to see if people think any of the above are the right reason or if there is another I have missed?

Edited by clloyd

Share this post


Link to post
Share on other sites

It's a quite natural cycle - lend in the good times, restrict credit in times of overcapacity and less appetite for risk.

Remember we have also just lived through the biggest credit bubble the world has ever seen, so unwinding that is to be expected.

If the government wanted to, they could puts all manner of steps into place overnight to force and encourage lending. But they don't. Politicians spouting off the banks must lend is just politics and point scoring.

Edited by Kyoto

Share this post


Link to post
Share on other sites

It has nothing to do with them not having money, because they're more than happy to lend if you've got a 20% deposit.

Banks aren't lending because they don't think they'll get the money back.

They're more than happy to lend if you've got a deposit because it's the borrower taking the risk not the bank.

Share this post


Link to post
Share on other sites

They are lending. At sensible levels to people with a deposit and on lower income multiples.

Another way of putting it, they're happy to lend on what the house is actually worth, but the borrower needs to put in a huge deposit to pay the difference between it's value and the agreed price.. a premium if you will.

Share this post


Link to post
Share on other sites

They are not lending for the same reason that anyone else wouldn't lend. They might not get their money back.

They would be right to have that concern.

The jobs market is the worst i have ever seen it. I am 54. I dont believe the optimism generated from Q3 GDP figures will continue for too many months. I think things have gone seriously bad. Maybe employment is the lagging indicator, but its part of the fundamentals of a healthy credit market I would have thought.

Edited by bricor mortis

Share this post


Link to post
Share on other sites

once they loose all the temporary funding via the BoE they won't have any money.... so they want to keep hold of it as much as possible

Share this post


Link to post
Share on other sites

The bigger question should be why they want the banks to lend more. Well, we all know why, but it would be nice to hear all the VIs try to come up with some plausible lies for once.

Share this post


Link to post
Share on other sites

They've already promised more money than there is in the whole world to depositors. They need to keep hold of as much as possible in case they are asked for it by those depositors.

Share this post


Link to post
Share on other sites

Maybe employment is the lagging indicator, but its part of the fundamentals of a healthy credit market I would have thought.

All this 'Lagging indicator' stuff is mostly just spinning ********. Employment IS the economy

Share this post


Link to post
Share on other sites

They would be right to have that concern.

The jobs market is the worst i have ever seen it. I am 54. I dont believe the optimism generated from Q3 GDP figures will continue for too many months. I think things have gone seriously bad. Maybe employment is the lagging indicator, but its part of the fundamentals of a healthy credit market I would have thought.

Yep, I'm 51 and I'm starting to face the possibility that I won't work again, I was a continental truck driver for 25 years but it's all being done by Romanians and Bulgarians working for £100 a week nowadays. there's nothing else where I live, no industry, no admin...

For me I am just stoical about it. I feel sorry for anyone starting out.

Share this post


Link to post
Share on other sites

All this 'Lagging indicator' stuff is mostly just spinning ********. Employment IS the economy

I know what you mean but it isn't necessarily so. You can sell inventory or be more efficient due to reduced competition in the marketplace, cheaper credit or costs. For example.

Share this post


Link to post
Share on other sites

Its just another one of those vague statements that the media use to dumb people down "the banks are not lending" it should be "the banks are not lending at the same irresponsible levels which led to the credit crises" this negates the need to ask the question as the answer is already known.

"Why are the banks not lending?"

"Why are the banks are not lending at the same irresponsible levels which led to the credit crises?"

Share this post


Link to post
Share on other sites

I know what you mean but it isn't necessarily so. You can sell inventory or be more efficient due to reduced competition in the marketplace, cheaper credit or costs. For example.

Not sure what you mean by - be more efficient due to reduced competition in the marketplace

Think about it like this, the part of the economy that is beneficial is the part where people pay each other to do things

Edited by Stars

Share this post


Link to post
Share on other sites

Not sure what you mean by - be more efficient due to reduced competition in the marketplace

Think about it like this, the part of the economy that is beneficial is the part where people pay each other to do things

I get your drift stars from your previous posts herein but im having dark thoughts about globalisation and jobless "recoveries."

Share this post


Link to post
Share on other sites

The banks are behaving normally. There is little demand for loans. This is hardly surprising considering the amount of leverage built up during the boom and current house prices.

House prices are falling. Buyers are aware of this. Buying with a large mortgage IO or similar makes no sense at all. Prices will correct until first time buyers are able to buy at a reasonable salary / mortgage ratio, which will fall back to the long term average eventually.

The problem is high prices relative to income and a correcting market. There is no problem with the banks.

Share this post


Link to post
Share on other sites

The banks are behaving normally. There is little demand for loans. This is hardly surprising considering the amount of leverage built up during the boom and current house prices.

House prices are falling. Buyers are aware of this. Buying with a large mortgage IO or similar makes no sense at all. Prices will correct until first time buyers are able to buy at a reasonable salary / mortgage ratio, which will fall back to the long term average eventually.

The problem is high prices relative to income and a correcting market. There is no problem with the banks.

:lol::lol::lol:

Share this post


Link to post
Share on other sites

We consistently hear MP's from all parties saying "the banks must start to lend again", but we never here any debate as to why it is they are not lending and whether it is actually state interference that is causing this.

So are the banks not lending because:

  • They have no money?

  • They are actually lending, but have pulled out of the risky lending for which they were previously being criticised.

  • They are lending to the government to pay for the deficit, in the form of buying gilts.

  • They are just playing a cruel joke on everyone to push the country into a depression, with disregard to their own profits.

  • No one actually wants to borrow money as they are already up to their neck in debts (anecdotal evidence suggests many people are being turned down for credit so this can not be completely accurate) .

  • Interest rates are too low, resulting in a lower supply of savers cash & lenders unwilling to lend at these rates.

  • Does QE cause banks to withdraw from lending? For example if the bakers are not sure how much QE (inflation) will happen they will not know how much inflation adjusted capital they will receive back from any loan deal. As a result the very action of creating inflation by QE causing deflation in credit as the banks don't want to lend. Coupled with a long term low interest rate environment and therefore little scope to increase rates if inflation picks up, this would help explain why Japan can print money and not create inflation.

This was a hastily typed out list so apologies if it covers old ground or doesn't make sense but I would be interested to see if people think any of the above are the right reason or if there is another I have missed?

state interference? They wouldn't be lending atall if there hadn't been state interference aka a massive bailout with taxpayers money :P

By 'start to lend again' politicians and boe types seem to be referring back to the good old bubble times. They will never learn. Lending should never return to the levels seen back then. If only the feckwits in charge understood that! debt = wealth eh :ph34r:

Edited by gruffydd

Share this post


Link to post
Share on other sites

Different reasons as mentioned....but one reason is that there is less of a demand for debt, people are trying hard to pay down their debt because they see it makes sense and they will in the end be richer for it....also debt at the moment is very expensive in comparison to the low base rate, and it is not only the interest that is costly the fees and charges are costly too.....when you decide to take out debt you have to workout if it is in your best interest to do so, in most cases it won't unless that debt can make money for you after all costs, very highly unlikely at the moment. ;)

Share this post


Link to post
Share on other sites

many people also realise that a time of record low rates is NOT the time to by a product thats very price is supported by leverage.

Bankers also know this...they already lie and are allowed to lie about the value of their current security base, adding more very likely to fall security to an already lied about base is just going to make matters worse.

And, just who is going to buy housing based Securitizations following whats happening in the US<

The future is with the amount of savings they can attract....and low rates means that the CBs are in direct opposition to this policy..

The banks are, and will remain, between a rock and a hard place until they are able to default on all this unsecured ( secured) debt they hold.

Share this post


Link to post
Share on other sites

Could it be that they've got/will have a lot of money to pay back?

Firstly (and even before we get to the nationalised/part nationalised banks) you've got the Special Liquidity Scheme (300 billion) that they have to start paying back in Jan. Add to that the credit guarantee scheme (think that's another 200 billion) they'll have to start paying back in 2012. You've then got money they have to set aside for all the various taxes at both a national, EU and global level that are coming there way sooner or later. Also throw in the Basel III regulations for increased reserves they must hold to try and avoid a repeat performance of the credit crunch (the B.o.E. say they want even tougher rules), also they'll have to set aside money when they're eventually forced kicking and screaming to separate their retail and investments arms. Oh and last but not least they still have to set aside money for bonuses (banker types can afford a good lawyers if they don't!).

As for the nationalised/part nationalised banks their priority is to free themselves from government control ASAP so they can start paying dividends/large bonuses without facing a Spanish inquisition every time they do.

With all this and more coming their way it’s no wonder they're hording most of the 200 billions of QE money.

Share this post


Link to post
Share on other sites

I'm not sure what is going on. I know two people who want to re-mortage - one is a nurse aged 42 (ring-fenced job) looking for 3.2 times salary - the other is a 35 year old project manager for an IT company (who has worked for them since leaving university). Both of them have at least 50% equity and both have been told 'no' by lenders over the last couple of weeks.

There is something strange going on in the mortgage world at the moment.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 140 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.