Jump to content
House Price Crash Forum
richc

Uk Government Paying 25% Of All Mortgage Interest

Recommended Posts

There's an interesting post on the Alphaville blog at the FT which points out how precarious the consumer debt levels remain in the UK.

http://ftalphaville.ft.com/blog/2011/02/10/484851/the-bank-of-englands-big-dilemma/ (excerpt below)

What strikes me is that total household net interest payments totaled only £2.2 billion last year. If you compare that to SMI (government money covering mortgage payments for deadbeat homeowners), which was £570 million last year, that means that taxpayer subsidies make up 1/4 of all net interest payments. Mind boggling.

------------------------------------------------------------------

The Bank of England’s big dilemma

Posted by Tracy Alloway on Feb 10 11:00.

All eyes on the Bank of England ahead of Thursday’s rate decision.

With inflation persistently above the Old Lady’s target, and with a couple Monetary Policy Committee members voicing their dissent over recent rate decisions, there’s an ever-so-slightly heightened chance of a hike. Still though, the vast majority of BoE-watchers expect the central bank to stay on hold. To that end, CreditSights have a Thursday note out on the relationship between the UK economy and interest rates.

The big problem, they say, is that pesky UK consumer:

… The sector with by far the most sensitivity to interest rates is the consumer. A Dramatic expansion in UK households’ debts (particularly mortgages, which tends to be floating or short-term fixed rate) over the past decade, means that consumer disposable incomes have developed an alarming sensitivity to interest rates. In the eight and a half years from the start of the 2000s to the middle of 2008, UK households increased their total debt burdens by 133%. As a percentage of gross household disposable income, total borrowing rose from 99% to 161% … UK households have gone from making net interest payments of £19.4 billion in 2007 to just £2.2 billion or 1.8% to UK household’s gross disposable income. We estimate that a 50 bp rise in interest rates would result in a £7.5 billion increase in interest cost for borrowers, equivalent to a 1% drop in gross disposable income. That increase in interest expense for borrowers would be offset by a rise in interest income for savers. But the marginal propensity to consume for the borrowers will be higher than for the savers, and so any offset will be only partial.

You see the problem? There’s something perversely pleasing about the UK central bank’s hands being tied courtesy of the debt bubble it arguably helped to inflate.

On which point — a bit more from CreditSights:

… UK households are still very leveraged both by historical standards and in comparison to households in other countries. Since the second quarter of 2008, UK households’ total debts have dropped from 161% of household gross disposable income to 151%. In the US household debt is down to 118% from a peak 130% at the end of 2007. While US household debt levels do not necessarily tell us where UK households are headed it is worth noting that between 1993 and 2000, UK consumers; debts to their gross disposable incomes were, on average, only 5% greater than in the US, that gap is now 33%.

We believe that UK consumers will continue to look to reduce their debt-to-income levels. And in the absence of rapid income growth, that will mean further debt repayments. UK households have already reduced their unsecured borrowing by £13 billion over the past year, equivalent to a 7% reduction in unsecured credit outstanding. While unsecured borrowing represents only a tiny portion of UK households’ total debts, 15%, it feeds straight through to consumer expenditure. At its peak in 2008, consumer borrowing was boosting disposable income by 2%, over the past year the repayment of debts have reduced disposable income by 1.4%. We believe that this deleveraging explains why consumer spending is growing so slowly versus what would be suggested by the historical relationship between consumer confidence. year-on-year changes in unemployment and consumer spending.

That leaves the BoE facing an economic recovery that’s (still) extremely dependent on low interest rates, at the same time as sticky and volatile commodities prices.

And it leaves most Britons people facing an interest rate shock or inflation.

(The Bank is set to publish its decision at noon, London time)

Edited by RichC

Share this post


Link to post
Share on other sites

There's an interesting post on the Alphaville blog at the FT which points out how precarious the consumer debt levels remain in the UK.

http://ftalphaville.ft.com/blog/2011/02/10/484851/the-bank-of-englands-big-dilemma/ (excerpt below)

What strikes me is that total household net interest payments totaled only £2.2 billion last year. If you compare that to SMI (government money covering mortgage payments for deadbeat homeowners), which was £570 million last year, that means that taxpayer subsidies make up 1/4 of all net interest payments. Mind boggling.

Was the figure of £570million entirely made up of interest payments, or does that also include the cost of administration?

Share this post


Link to post
Share on other sites

They should change the rules to be buying equity in people's houses... That way the state gets something out of it.

They should change the rules to abolish SMI, that way the taxpayer doesnt get fleeced.

Share this post


Link to post
Share on other sites

Was the figure of £570million entirely made up of interest payments, or does that also include the cost of administration?

I don't know. The official figure is a bit difficult to track down. £570 was referenced in a Guardian article as what was paid out in 2009/2010.

Officially, SMI is equivalent to 25% of NET interest payments, but that's still an amazing figure.

Share this post


Link to post
Share on other sites

I don't know. The official figure is a bit difficult to track down. £570 was referenced in a Guardian article as what was paid out in 2009/2010.

Officially, SMI is equivalent to 25% of NET interest payments, but that's still an amazing figure.

And that figure will grow as more people work out how to game it.

And when interest rates rise, that figure will grow fast. I bet over 50% of all mortgage payments will soon be coming from the taxpayer.

Share this post


Link to post
Share on other sites

So theres somewhere in the region of £1.2trillon (assuming little or no change since 2008) in Outstanding mortgage debt, and £2.2 billion is paid to service this?

ChartB_20080219070203.jpg

Surely if all that were true, 25% of mortgages ( ie 2.5 to 3 million) would be paid for by the govt. IIRC only around 300k recieve SMI.

The 2.2billion fig seems about 90% too low. Though I guess is possible if millions are on discount trackers and paying 0.1% - 0.25% interest!

Why doesnt the govt pay all mortgages if all it costs is £2.2bn.

They spend ten times that on housing benefit for a fraction of the people.

Share this post


Link to post
Share on other sites

I don't know. The official figure is a bit difficult to track down. £570 was referenced in a Guardian article as what was paid out in 2009/2010.

Officially, SMI is equivalent to 25% of NET interest payments, but that's still an amazing figure.

I just wouldn't put it past them to be spending as much in admin costs as they are paying out. Actually, considering who set it up I wouldn't be surprised if it was costing significantly more to administer than they are coughing up.

Share this post


Link to post
Share on other sites

They should change the rules to be buying equity in people's houses... That way the state gets something out of it.

If people aren't paying their mortgage interest, it should automatically be added to the outstanding principal while the state does nothing. Let the bank decide how long it is happy for that to continue.

Share this post


Link to post
Share on other sites

So theres somewhere in the region of £1.2trillon (assuming little or no change since 2008) in Outstanding mortgage debt, and £2.2 billion is paid to service this?

ChartB_20080219070203.jpg

Surely if all that were true, 25% of mortgages ( ie 2.5 to 3 million) would be paid for by the govt. IIRC only around 300k recieve SMI.

The 2.2billion fig seems about 90% too low. Though I guess is possible if millions are on discount trackers and paying 0.1% - 0.25% interest!

Why doesnt the govt pay all mortgages if all it costs is £2.2bn.

They spend ten times that on housing benefit for a fraction of the people.

2.2billion...its way to low....with the average mortgage at about 4.5%, and net lending what...£2billion a month...net interest on those alone would be 90 million, just for 1 months new business.

Share this post


Link to post
Share on other sites

So theres somewhere in the region of £1.2trillon (assuming little or no change since 2008) in Outstanding mortgage debt, and £2.2 billion is paid to service this?

Surely if all that were true, 25% of mortgages ( ie 2.5 to 3 million) would be paid for by the govt. IIRC only around 300k recieve SMI.

The 2.2billion fig seems about 90% too low. Though I guess is possible if millions are on discount trackers and paying 0.1% - 0.25% interest!

Why doesnt the govt pay all mortgages if all it costs is £2.2bn.

They spend ten times that on housing benefit for a fraction of the people.

The total for household interest payments is a net figure -- interest payments on credit cards and mortgages less interest paid on savings accounts -- that's why it seems low.

Share this post


Link to post
Share on other sites

As someone trying to get my head around our current global economic situation, statistics like this just confuse me.

Not so much that this crisis is playing itself out, but more the extent to which governments are prepared to screw the taxpayer to prolong the inevitable.

When was SMI voted on? Presumably it was passed by a majority of MPs? Where was this in the news? Were there any dissenting voices at all?

I'm not naive and I know that governments are in the pockets of powerful elites, but surely there must be some people crying out at the insanity of all this?!

Share this post


Link to post
Share on other sites

The £2bl is a NET repayment figure. It's rare indeed that this figure is even positive.

Hooray, I was starting to think no-one could read, or that I don't understand English anymore.

No idea what interest payments total is, but it's a lot higher than 2bn.

SMI is still a disgrace, but it's not 25% of interest payments.

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.

  • 311 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.