Please Explain To Me How We Will See House Price Rises....

[Venger]

Which of the two are best placed to assess the risks involved?

You keep wanting to argue that the borrowers are guilty of failing to correctly discern the risks involved in their borrowing- and I agree- but it seems obvious that the banks are far better placed to assess those risks-given their supposed expertise- so theirs is the greater responsibility.

Suppose a manufacturer of fast sports cars knew of a potentially dangerous instability in their product- we could blame their customers for any resulting crash-on the basis that they should not have purchased a fast car they could not control- but most people would argue that the real fault lay with the manufacturer,since they had knowledge their customers did not.

So yes-we can blame joe public for taking on levels of debt that they might in future find difficult to control- but the real fault lies with those who are making such loans available despite their knowledge of the instability of the economic system.

For every foolish borrower there must-by definition- be an irresponsible lender.

None of my friends or family will own houses then, thanks. We'll continue to rent forever in order those who over-borrowed in past, and tommorrow, don't suffer falls in value/negative equity/repossession.

Those paying higher prices today, keep prices high or indeed rising further still, for all other owners, even if they bought 50 years ago.

Not all banks needed bail-outs. Some got their bail-outs from others in the market, including oil money countries. It's not up to banks to explain to borrowers what is value, what if you lose your job, and all the other risks.

If a banker, I'd be happy to lend big to borrowers if borrower putting down 60-70%+ LTV for a £600K terrace. Got the equity as security, and the borrower to chase in the future if defaults, and can sell the house on again after possession with new profitable loan in system, even when selling for lower price.

It's all the push of HTB2, with just 5%. Borrowers paying high and higher prices today. VI's of Gov and older owners pushing it the most. Although there is the fact banks could always allow the crash in future, and then start lending on much lower house prices, with a big pick up in transaction value, at more normalised rates. They don't have a duty to protect borrowers from borrowers' own decisions to pay high prices.

BTW I don't blame Porsche for Paul Walkers car crash of the other day - despite that memo. One and two. Clarkson was talking to Jamiroquai about J's love of 911s, and Clarkson said he didn't like them because of losing the rear-end, like it's waiting there just trying to kill you. He asked audience how many people here have 911s. No hands raised. Clarkson: "See, they're all dead."

[tomandlu]

Must be the banks' fault, not individual responsibility/freedom to chose on part of buyers/borrowers.

Feel free to blame the borrowers, but the problem can only be fixed via regulation of the lenders.

[19 year mortgage 8itch]

Which of the two are best placed to assess the risks involved?

You keep wanting to argue that the borrowers are guilty of failing to correctly discern the risks involved in their borrowing- and I agree- but it seems obvious that the banks are far better placed to assess those risks-given their supposed expertise- so theirs is the greater responsibility.

Suppose a manufacturer of fast sports cars knew of a potentially dangerous instability in their product- we could blame their customers for any resulting crash-on the basis that they should not have purchased a fast car they could not control- but most people would argue that the real fault lay with the manufacturer,since they had knowledge their customers did not.

So yes-we can blame joe public for taking on levels of debt that they might in future find difficult to control- but the real fault lies with those who are making such loans available despite their knowledge of the instability of the economic system.

For every foolish borrower there must-by definition- be an irresponsible lender.

There are so many cultural references making the banks out to be predators that it is incredulous that a body of people can forget such a collective memory and so many jump in feet first. So many people now literally swimming with the sharks.

Is the solution to pull the shark's teeth out? Or Tell people to get their shit together and get out of the water. Because 2) has been the message and no one is listening.

[tomandlu]

There are so many cultural references making the banks out to be predators that it is incredulous that a body of people can forget such a collective memory and so many jump in feet first. So many people now literally swimming with the sharks.

Is the solution to pull the shark's teeth out? Or Tell people to get their shit together and get out of the water. Because 2) has been the message and no one is listening.

The trouble with 2 is that, for everyone who gets out of the water, there's some other idiot happy to jump in. The banks would presumably prefer to lend to people who might actually pay the debt back, but instead they're scaring off anyone with more than two-braincells to rub together. As a consequence, they're lending more and more money to people who are less and less able to ever pay it back. This is the inevitable consequence of unregulated credit-expansion.

[onlyme2]

Must be the banks' fault, not individual responsibility/freedom to chose on part of buyers/borrowers.

there is also the facator that there is NO freedom of choice in a closed, controlled system that limits supply and availability of a necessary good - accommodation.

Some poeple will not have a choice of where they live fr work / personal reasons maybe and are then totally affected by the local availability of housing stock for either rent or purchase. Bad / risky decisions can be made for many reasons, many overborrow becuase they are being forced to.

[gimble]

Must be the banks' fault, not individual responsibility/freedom to chose on part of buyers/borrowers.

Most UK banks have hundreds if not thousands of highly qualified accountants, actuaries, lawyers, economists and traders who collectively provide data and advice to the management who, based on these inputs, determine the bank's lending policy. On the other side of this lending policy is the general public, Joe Bloggs looking to buy a house to keep him and his family dry and warm, who can barely add up let alone understand compound interest. When the bank tells Joe Bloggs he can borrow X hundred thousand pounds its implicit to Joe Bloggs that the deal is sensible. After all, look at the nice smiley family on their brochures, walking into their new house beaming with joy. They're a nice sensible family. Look at the big solid building that the bank is in - nice sensible building. The staff are smart and courteous, nice and sensible people. Why the hell would non-HPC reading Joe Bloggs suspect that the bank is putting him into a precarious position where he risks financial ruin?

edit: I apologise to any Joe Bloggs out there who may find this somewhat patronising.

Edited December 11, 2013 by gimble

[19 year mortgage 8itch]

The trouble with 2 is that, for everyone who gets out of the water, there's some other idiot happy to jump in. The banks would presumably prefer to lend to people who might actually pay the debt back, but instead they're scaring off anyone with more than two-braincells to rub together. As a consequence, they're lending more and more money to people who are less and less able to ever pay it back. This is the inevitable consequence of unregulated credit-expansion.

If the sharks started ripping peoples legs off, I'm sure the selective amnesia would quickly recede and the supply of idoits would soon dwindle.

[The Knimbies who say No]

Most UK banks have hundreds if not thousands of highly qualified accountants, actuaries, lawyers, economists and traders who collectively provide data and advice to the management who, based on these inputs, determine the bank's lending policy. On the other side of this lending policy is the general public, Joe Bloggs looking to buy a house to keep him and his family dry and warm, who can barely add up let alone understand compound interest. When the bank tells Joe Bloggs he can borrow X hundred thousand pounds its implicit to Joe Bloggs that the deal is sensible. After all, look at the nice smiley family on their brochures, walking into their new house beaming with joy. They're a nice sensible family. Look at the big solid building that the bank is in - nice sensible building. The staff are smart and courteous, nice and sensible people. Why the hell would non-HPC reading Joe Bloggs suspect that the bank is putting him into a precarious position where he risks financial ruin?

edit: I apologise to any Joe Bloggs out there who may find this somewhat patronising.

Well, assuming Joe Bloggs can read as far as the 'Key Facts Illustration', he will see that the mortgage is being conducted on an "information only basis", rather than an advised basis, and that the decision whether to proceed is up to him.

edit to add, it's somewhat tangential but having recently been exposed to the world of infant formula pricing, the costs of dealing with the behaviour of the serially irresponsible seem well represented here. It's practically a fixed price cartel, no discounts or offers apply to formula because of the risk of people feeding whatever is cheapest into their baby(which is apparently not reccommended- a single brand should be used). So everyone pays more than they would have to otherwise if supermarkets could price it competitively.

edit clarity.

Edited December 11, 2013 by The B.L.T.

[Venger]

there is also the facator that there is NO freedom of choice in a closed, controlled system that limits supply and availability of a necessary good - accommodation.

Some poeple will not have a choice of where they live fr work / personal reasons maybe and are then totally affected by the local availability of housing stock for either rent or purchase. Bad / risky decisions can be made for many reasons, many overborrow becuase they are being forced to.

I'm too old to put up with this "no choice" nonsense, having spent many years being forced to rent by overpayers, who apparently are now all innocent. Around here they're paying new peaks of quarter million pounds for a humble terrace, and £300K+ for a run down semi, and half-a-million pounds for a decent Edwardian semi. Overborrowing puts you at risk, and you accept that when you decide to enquire about borrowing and pay.

These idiots paying higher prices, borrowing more to do so, are leaving me no choice but to keep renting, damaging my position, and that of my non-owning brothers and sister... who are top flight young professionals, who seem to do nothing but work 6-7 days a week, rent and save best they can, and get nowhere for all their trouble. Outbid by some entitled people with no choice and a crummy job paying preposterous sums, and defended by people I can only assume are mostly home-owners themselves.

When the bank tells Joe Bloggs he can borrow X hundred thousand pounds its implicit to Joe Bloggs that the deal is sensible. After all, look at the nice smiley family on their brochures, walking into their new house beaming with joy. They're a nice sensible family. Look at the big solid building that the bank is in - nice sensible building. The staff are smart and courteous, nice and sensible people. Why the hell would non-HPC reading Joe Bloggs suspect that the bank is putting him into a precarious position where he risks financial ruin?

Banks are there to sell money. Their parents/grandparents should have told them some life lessons about debt/hpcs. They're free to get an education. So really people who watch X-Factor and don't read a thing who want to over-borrow come above all those who do know something about math and markets, who should be boosted to the top because "they only wanted a home" (whatever the stupid high asking price). I don't get this argument about banning advertising because it's very seductive. Got nothing but admiration for those doing good copy in advertising. So people who don't hesitate before borrowing hundreds of thousands of pounds, who think renting is dead money, who want house prices to go up even more, are the ones to be protected. OK.

[cybernoid]

edit to add, it's somewhat tangential but having recently been exposed to the world of infant formula pricing, the costs of dealing with the behaviour of the serially irresponsible seem well represented here. It's practically a fixed price cartel, no discounts or offers apply to formula because of the risk of people feeding whatever is cheapest into their baby(which is apparently not reccommended). So everyone pays more than they would have to otherwise.

Ultimately all of these discussions are about the choice between living in a society where everyone is treated like an idiot and stifled for their own good or living in a more free society where more choice is possible but with the risk of idiots damaging themselves. It is left versus right, big state versus small state, nanny state versus personal responsibility, oppression versus freedom.

Ultimately it is sad that there are idiots who do themselves harm and equally sad that there are a minority that prey on idiots and use them for their own ends, but the alternative is worse.

Also consider that if idiotic actions no longer result in harmful consequences to those being idiotic, the idiot feedback is removed and it becomes cost free to be idiotic. Idiocy here refers to the borrowers. Idiocy harms society, we need smart people, smart people need to thrive or we'll end up sitting in rags being all rather understanding with one another singing kum ba ya whilst starving to death because the crops failed again due to farmers receiving hugs and compensation when they screwed up the harvest again instead of deserved economic hardship. *hugs*

[gimble]

So people who don't hesitate before borrowing hundreds of thousands of pounds, who think renting is dead money, who want house prices to go up even more, are the ones to be protected. OK.

Yes, I think so. If you don't then we get what happened in 2008 and everyone pays. I presume you're familiar with the subprime lending crisis and all that? Sophisticated financial corporations lending huge amounts of money to ignorant consumers... if the consequences when the loans go bad are confined only to the parties involved then I wouldn't have a problem but we know that's not the case and it never will be.

[19 year mortgage 8itch]

Yes, I think so. If you don't then we get what happened in 2008 and everyone pays.

you think that's a threat?

If you're young and don't own any assets, you're already paying.

What's one more spin of the dice? There's risk it'll make things worse but as it stands the status quo offers no risk of things improving.

Edit: gimble, you're a homeowner?

Edited December 11, 2013 by 7 Year Itch

[gimble]

Well, assuming Joe Bloggs can read as far as the 'Key Facts Illustration', he will see that the mortgage is being conducted on an "information only basis", rather than an advised basis, and that the decision whether to proceed is up to him.

edit clarity.

But who knows more about the risks that Joe Bloggs is exposed to, himself or the bank? I'd argue the bank does and therefore we're right to complain that the housing bubble and the potentially dire consequences are more the fault of the banks than the public. Like someone pointed out before, if you buy a car with a serious safetly problem who is more at fault - the car manufacturer for making the car or the consumer for buying it?

Back in the 60s Ford made a notorious car, I think it was called the 'Edsel'. The petrol tank was between the rear bumper and the rear axle and as a result minor prangs to the rear of the car caused the tank to rupture and there were many fatalaties and serious injuries when the cars combusted. The Ford board were aware of the problem and decided that it was cheaper to pay out compensation than to recall the vehicle. In your world it's the fault of the consumer for not checking that the vehicle was safe. I disagree, the resposibility is with the company selling the unsafe product.

[gimble]

you think that's a threat?

If you're young and don't own any assets, you're already paying.

What's one more spin of the dice? There's risk it'll make things worse but as it stands the status quo offers no risk of things improving.

Edit: gimble, you're a homeowner?

no. what makes you think that?

[gimble]

you think that's a threat?

If you're young and don't own any assets, you're already paying.

What's one more spin of the dice? There's risk it'll make things worse but as it stands the status quo offers no risk of things improving.

Edit: gimble, you're a homeowner?

I should clarify - I think people should be protected from too much debt by not being allowed to take it out in the first place. I'm not saying that once someone is in trouble because they can't meet their debts, then they should be protected. no no no. that's not what I meant. sorry if that's what it sounded like.

[The Knimbies who say No]

Yes, I think so. If you don't then we get what happened in 2008 and everyone pays. I presume you're familiar with the subprime lending crisis and all that? Sophisticated financial corporations lending huge amounts of money to ignorant consumers... if the consequences when the loans go bad are confined only to the parties involved then I wouldn't have a problem but we know that's not the case and it never will be.

The decision to make everyone pay was a purely political one, there was no need to put everyone on the hook. Goodwin is scooping £300k per annum, some from from the poorest taxpayers in the country, as a direct result of the actions of Government. Then we get those defending the balouts just so happening to be the same people citing that action as a means of strengthening their arguments about protecting reckless borrowers, "since everyone pays (because we decided to make it so)".

I'd love to hear what you would tell a close friend or family member who asked you for advice regarding taking out a jumbo mortgage. Something along the lines of "Fill yer boots, it'll be ok!"?

[gimble]

The decision to make everyone pay was a purely political one, there was no need to put everyone on the hook. Goodwin is scooping £300k per annum, some from from the poorest taxpayers in the country, as a direct result of the actions of Government. Then we get those defending the balouts just so happening to be the same people citing that action as a means of strengthening their arguments about protecting reckless borrowers, "since everyone pays (because we decided to make it so)".

I'd love to hear what you would tell a close friend or family member who asked you for advice regarding taking out a jumbo mortgage. Something along the lines of "Fill yer boots, it'll be ok!"?

no of course not. I'm saying people should be protected from debt by not being allowed to take it on in the first place. Setting a hard cap on salary multiples for mortgages is what I'd like to see.

[Venger]

The Ford board were aware of the problem and decided that it was cheaper to pay out compensation than to recall the vehicle. In your world it's the fault of the consumer for not checking that the vehicle was safe. I disagree, the resposibility is with the company selling the unsafe product.

Banks provide a source of debt for people. The borrower is the one responsible for how they view the market, and how much they're prepared to pay for a house.

Yes, such cases with new cars and faults, take legal action against manufacturer. Can't see why can take legal action against lender for giving you exactly what you wanted.

With newbuild houses, consumer laws not that good anyway, compared to new-car purchase. If there are issues, take it to the developer / solicitor if missed something on search..... but not the bank who lent you what you were prepared/willing to borrow, to outbid someone else in the market!

"Buying a house is probably one of the most expensive investments a person will ever make, yet people have more rights when they buy a kettle," said Carl Belgrove of the NCC.

http://www.theguardian.com/money/2007/aug/30/property

[(Blizzard)]

Yes, I think so. If you don't then we get what happened in 2008 and everyone pays.

Why?

I think this is just the 'wealth effect' myth in reverse. Falls in housing costs are associated with damaging recessions, because damaging recessions reduce house prices, not the other way around.

Edited December 11, 2013 by (Blizzard)

[The Knimbies who say No]

What an outrageous slur. I blame dead people for their own deaths in a design-related inferno?

[gimble]

Why?

I think this is just the 'wealth effect' myth in reverse. Falls in housing costs are associated with damaging recessions, because damaging recessions reduce house prices, not the other way around.

I was referring to the bank bailouts, QE, 'austerity' etc. not falls in house prices.

[Bloo Loo]

But who knows more about the risks that Joe Bloggs is exposed to, himself or the bank? I'd argue the bank does and therefore we're right to complain that the housing bubble and the potentially dire consequences are more the fault of the banks than the public. Like someone pointed out before, if you buy a car with a serious safetly problem who is more at fault - the car manufacturer for making the car or the consumer for buying it?

Back in the 60s Ford made a notorious car, I think it was called the 'Edsel'. The petrol tank was between the rear bumper and the rear axle and as a result minor prangs to the rear of the car caused the tank to rupture and there were many fatalaties and serious injuries when the cars combusted. The Ford board were aware of the problem and decided that it was cheaper to pay out compensation than to recall the vehicle. In your world it's the fault of the consumer for not checking that the vehicle was safe. I disagree, the resposibility is with the company selling the unsafe product.

I dont think it was the edsel that had that fault...the edsel had a toilet seat on the front grill and bombed...there was a car that blew up in a small rear ender time and again.

saying that, yes the bankers are the experts, they have a responsibility for sensible lending for themselves, for sustainability of the bank, for the shareholders and they perport to be a haven of proberty, therefore they should live up to that for their clients

It is clear they had no care for any of the above...they went, as a group, rogue.

Of course, open the sweetshop and the kiddies are going to fill themselves up....thats why banks are the most highly regulated business there is...because bankers have forever had their hands in the cookie jar and steal from it whenever they can.

[gimble]

Banks provide a source of debt for people. The borrower is the one responsible for how they view the market, and how much they're prepared to pay for a house.

Yes, such cases with new cars and faults, take legal action against manufacturer. Can't see why can take legal action against lender for giving you exactly what you wanted.

With newbuild houses, consumer laws not that good anyway, compared to new-car purchase. If there are issues, take it to the developer / solicitor if missed something on search..... but not the bank who lent you what you were prepared/willing to borrow, to outbid someone else in the market!

http://www.theguardian.com/money/2007/aug/30/property

hmm ok fair point, I think i'm getting your angle.

I just think we can avoid the whole sorry mess by preventing the banks from lending people massive wads to bid up land prices in the first place. Expecting the general public to understand how high lending pushes up land prices and collectively and voluntarily change their behavious is unrealistic, IMHO. regulation is required.

[(Blizzard)]

I'm too old to put up with this "no choice" nonsense, having spent many years being forced to rent by overpayers, who apparently are now all innocent.

There is a risk to not buying just as there is to buying, and no-one (banks or their customers) can sensibly calculate those risks. The casino economy, which forces people to make extraordinary gambles just to live ordinary lives, is the problem.

Ultimately all of these discussions are about the choice between living in a society where everyone is treated like an idiot and stifled for their own good or living in a more free society where more choice is possible but with the risk of idiots damaging themselves. It is left versus right, big state versus small state, nanny state versus personal responsibility, oppression versus freedom.

Ultimately it is sad that there are idiots who do themselves harm and equally sad that there are a minority that prey on idiots and use them for their own ends, but the alternative is worse.

Also consider that if idiotic actions no longer result in harmful consequences to those being idiotic, the idiot feedback is removed and it becomes cost free to be idiotic. Idiocy here refers to the borrowers. Idiocy harms society, we need smart people, smart people need to thrive or we'll end up sitting in rags being all rather understanding with one another singing kum ba ya whilst starving to death because the crops failed again due to farmers receiving hugs and compensation when they screwed up the harvest again instead of deserved economic hardship. *hugs*

Not so. This is an example where no individual can act alone, and so the collective effect is suboptimal. You can choose to buy, or not, but either way you have to gamble.

These are exactly the things that a government should be dealing with, because markets can't.

The only way to fix the problem is to remove both the upside and the downside, and to put an end to housing as an 'investment'. It shouldn't be a crippling cost requiring a lifetimes work, it should be a simple lifestyle choice similar to buying a car.

Edited December 11, 2013 by (Blizzard)

[Bloo Loo]

There is a risk to not buying just as there is to buying, and no-one (banks or their customers) can sensibly calculate those risks. The casino economy, which forces people to make extraordinary gambles just to live ordinary lives, is the problem.

Not so. This is an example where no individual can act alone, and so the collective effect is suboptimal. You can choose to buy, or not, but either way you have to gamble.

These are exactly the things that a government should be dealing with, because markets can't.

The only way to fix the problem is to remove both the upside and the downside, and to put an end to housing as an 'investment'. It shouldn't be a crippling cost requiring a lifetimes work, it should be a simple lifestyle choice similar to buying a car.

Indeed, Government, banks, the media all promoted borrowing as much as you can as a good thing to do...Light Touch was the keyword in 2005...bankers were there to lend lend lend.

These are the experts...cant pay the low rate two deal in two years...no worries, sell up and cash in...

Fear of missing the boat was on a headline, the news, the Government, even in bankers loan advertising. This was a concerted effort to sell loans, to everyone, whatever....and of course, it blew up...

COnsumers were SOLD this mess...the Regulators were deliberately mute....the fault is with the lending business...prudence was shot through the heart...and those who saw through it all were condemned as party poopers....as they are for raising queries with BTC today...