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Bland Unsight

Secured Lending As A Percentage Of Gross Domestic Product

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Since I took an interest in UK housing related matters one of the things that constantly astonishes me is the amount of essentially useless journalism that gets published in the UK. If you tried to get a handle on what had happened and what was happening by reading the broadsheets (excepting perhaps the FT and to a lesser extent The Economist) you would be flying blind. Fortunately with an internet connection, a PC and a little patience it has never been easier to do your own research.

Two other things that puzzle me.

Firstly, the continuing silence from the political class regarding the impact on the economy of the private debts taken on during the pre-crisis boom and the price of the assets (houses, natch) against which those debts are secured. In this regard, a touchstone for me is a book by a bearded leftie, Mark Brown, the Professor of International Political Economy at Brown, Austerity: The history of a dangerous idea, (OUP, 2013), where he argues that what we have is a crisis that arose in the private sector being narrated by present political incumbents as if it was a crisis precipitated entirely by loose public spending.

Secondly, the extent to which what I would characterise as a post-criss stand-off in the UK housing is being treated as a return to normal. You have people who paid too much. They have locked in a price at which they can 'afford' to sell as a result of having taken on bonkers debts. What they are looking for is someone willing to jump into the latrine that they have fabricated for themselves, but the narrative we are being sold is that we have returned to normal. Now if someone chooses not to "disregard [their] own feces" and chooses to live in it, well that's their choice, but I can't see a shared expectation that every subsequent cohort should make the same choice as a return to normal. Living in your own shit is not normal. Taking on monstrous debts is not normal. (Taking on monstrous debts at the zero rate bound in a zombie economy strikes me as just plain stupid, but that's just me.)

I was thinking about a way to capture this gap between what I thought was going on and the gloss put on it by news-cycle commentators and a discussion on another thread prompted me to consider the ratio between outstanding secured loans to private individuals and housing associations (i.e. mortgages on residential property) and ONS GDP measures.

Here's what I found:

Sec%2Blend%2Bas%2Bpercentage%2Bof%2BGDP%

Source: ONS and BoE (Note: OP edited to replace previous graph with current (i.e. nominal) vs current in quotient, h/t FreeTrader)

This was not households responding to lower interest rates (i.e. the same economy can carry more debt at lower rates and hence debt to GDP ratios rise) because we can take SVRs as a proxy for the rate of interest these borrowers were paying and during the boom years SVRs rose. (It probably was households responding to lower mortgage costs as naked interest-only displaces mortgage instruments with a repayment character and loosening of credit underwriting standards leads to a masked and unrecorded escalation of actual LTIs as certification is displaced by self-certification, i.e. liar loans).

SVRs%2Bfrom%2B1995%2Bto%2B2014.png

Source: Bank of England interactive database

For the record the piece that prompted this post was a headline in the Grauniad, Mortgage demand surges as optimism about UK economy reaches 13-year high, which is kind of insane given that the CML issued a press release on 17 March 2015 entitled Subdued pace of house purchase lending continues. Worse still the mismatch between the information presented by the journos and the headline that one supposes was appended by the sub is striking, "During February, 61,760 mortgages were approved for house purchases, compared with an average of 60,750 over the previous six months, the Bank said. Despite the improvement in recent months, demand for home loans is almost 20% below its recent peak in January 2014. " Good graphs in the CML press report.

Anyways, that's what I wanted to share. Not going to be around for a couple of days, so I won't be gardening this thread initially. Peace out!

[Edit: Graph in OP was quotient of nominal (current) / real (constant), fixed so it nominal/nominal - I guess that's what you get for being a smart-@rse, again h/t FreeTrader for the catch.]

Edited by bland unsight

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This was not households responding to lower interest rates (i.e. the same economy can carry more debt at lower rates and hence debt to GDP ratios rise) because we can take SVRs as a proxy for the rate of interest these borrowers were paying and during the boom years SVRs rose. (It probably was households responding to lower mortgage costs as naked interest-only displaces mortgage instruments with a repayment character and loosening of credit underwriting standards leads to a masked and unrecorded escalation of actual LTIs as certification is displaced by self-certification, i.e. liar loans).

Yes, this change is far mrore abot the baking system gouging the economy and the public for more debt. Many have had no choice other than to particiapte or fall prey to the other pile of shysters borrowing on the other side of the bankers' lending pyramid onthe BTL side.

The BOE and govt have been absolutely complicit in all of this and when they they this came out of nowhere and there was nothign they could do or it was not of their overt making they are lying through their teeth.

Worth checking out the VTVJ stats (Net lending) against growth too.

Edited by onlyme2

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I've got Brown's book, although not got around to reading it yet. However I'm guessing that the austerity issue simply ignores the debt servicing costs. Since 2007 in the UK these have been increasing.

http://www.economicshelp.org/blog/3028/economics/interest-payments-on-uk-debt/

uk-debt-interest-payments-total.png

Without default this number will just keep on getting bigger and bigger, to service these loans you have to make cuts from services to pay for previous consumption of services. The austerity argument in some respects is deeply flawed.

http://www.ukpublicspending.co.uk/uk_debt

ukgs_chart4p04.png

Chart 4.04: Interest on National Debt 1692-2015

The real risk from government debt is the burden of interest payments. Experts say that when interest payments reach about 12% of GDP then a government will likely default on its debt. Chart 5 shows that the UK is a long way from that risk. The peak period for government interest payments, including central government and local authorities, was in the 1920s and 1930s right after World War I.

The figures are just getting bigger but perhaps we have plenty of time for this new "normal" to continue before we have a system collapse.

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We have all (baring a few people on this site) been brainwashed by the likes of Sarah Beeny, Kirstie and Phil etc into thinking it's normal to have massive debts from buying property and this suits governments very nicely as people are then virtual slaves which keeps them quiet as they're too knackered after their working day to so anything other than fall into bed. It also stops them thinking.

When/if reality bites and they wake up in a cold sweat wondering how they're going to pay it off if they lose their job or interest rates rise etc it's too late. People are not financially literate on the whole and very much into "keeping up with the Joneses". We all need to stop and think and teach the financial facts of life to our kids so they don't fall into the same trap.

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Since I took an interest in UK housing related matters one of the things that constantly astonishes me is the amount of essentially useless journalism that gets published in the UK. If you tried to get a handle on what had happened and what was happening by reading the broadsheets (excepting perhaps the FT and to a lesser extent The Economist) you would be flying blind. Fortunately with an internet connection, a PC and a little patience it has never been easier to do your own research.

Two other things that puzzle me.

Firstly, the continuing silence from the political class regarding the impact on the economy of the private debts taken on during the pre-crisis boom and the price of the assets (houses, natch) against which those debts are secured. In this regard, a touchstone for me is a book by a bearded leftie, Mark Brown, the Professor of International Political Economy at Brown, Austerity: The history of a dangerous idea, (OUP, 2013), where he argues that what we have is a crisis that arose in the private sector being narrated by present political incumbents as if it was a crisis precipitated entirely by loose public spending.

Secondly, the extent to which what I would characterise as a post-criss stand-off in the UK housing is being treated as a return to normal. You have people who paid too much. They have locked in a price at which they can 'afford' to sell as a result of having taken on bonkers debts. What they are looking for is someone willing to jump into the latrine that they have fabricated for themselves, but the narrative we are being sold is that we have returned to normal. Now if someone chooses not to "disregard [their] own feces" and chooses to live in it, well that's their choice, but I can't see a shared expectation that every subsequent cohort should make the same choice as a return to normal. Living in your own shit is not normal. Taking on monstrous debts is not normal. (Taking on monstrous debts at the zero rate bound in a zombie economy strikes me as just plain stupid, but that's just me.)

I was thinking about a way to capture this gap between what I thought was going on and the gloss put on it by news-cycle commentators and a discussion on another thread prompted me to consider the ratio between outstanding secured loans to private individuals and housing associations (i.e. mortgages on residential property) and ONS GDP measures.

Here's what I found:

Sec%2Blend%2Bas%2Bpercentage%2Bof%2BGDP%

Source: ONS and BoE (Note: OP edited to replace previous graph with current (i.e. nominal) vs current in quotient, h/t FreeTrader)

This was not households responding to lower interest rates (i.e. the same economy can carry more debt at lower rates and hence debt to GDP ratios rise) because we can take SVRs as a proxy for the rate of interest these borrowers were paying and during the boom years SVRs rose. (It probably was households responding to lower mortgage costs as naked interest-only displaces mortgage instruments with a repayment character and loosening of credit underwriting standards leads to a masked and unrecorded escalation of actual LTIs as certification is displaced by self-certification, i.e. liar loans).

SVRs%2Bfrom%2B1995%2Bto%2B2014.png

Source: Bank of England interactive database

For the record the piece that prompted this post was a headline in the Grauniad, Mortgage demand surges as optimism about UK economy reaches 13-year high, which is kind of insane given that the CML issued a press release on 17 March 2015 entitled Subdued pace of house purchase lending continues. Worse still the mismatch between the information presented by the journos and the headline that one supposes was appended by the sub is striking, "During February, 61,760 mortgages were approved for house purchases, compared with an average of 60,750 over the previous six months, the Bank said. Despite the improvement in recent months, demand for home loans is almost 20% below its recent peak in January 2014. " Good graphs in the CML press report.

Anyways, that's what I wanted to share. Not going to be around for a couple of days, so I won't be gardening this thread initially. Peace out!

[Edit: Graph in OP was quotient of nominal (current) / real (constant), fixed so it nominal/nominal - I guess that's what you get for being a smart-@rse, again h/t FreeTrader for the catch.]

If you wanted to put a political slant on it (and hey, it's that time of year), then in many peoples eyes it's clearly all the fault of Fatcher for deregulating the banking system.

Mysteriously though the real increase in lending appears to have started to take off in 1999.

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If you wanted to put a political slant on it (and hey, it's that time of year), then in many peoples eyes it's clearly all the fault of Fatcher for deregulating the banking system.

Mysteriously though the real increase in lending appears to have started to take off in 1999.

I'd argue that what you propose is the exact opposite of politics.

If we construe a financial system that extracts rents by delivering bonkers debts that we don't need and building no bloody houses as our enemy then any party complicit in their ascendancy is our enemy and any party that sustains their elevation is also our enemy, hence both "Fatcher", Blair/Brown and Cameron/Osborne/Clegg are our political opponents and a political slant would acknowledge this.

Supposing that it is a choice between the Red Team or the Blue Team is to accept the capture of your political imagination in the same way that the rise of financial interests is capturing your economic existence. We need one or more of the available political parties to throw off their supine acceptance of the City as font of all tax revenue and all good in exchange for the votes of their electorate. If the road we are travelling is the road towards an ever brighter future for the UK with an ever more absolute extent of our financial capture, then I for one want out.

Calling it politics doesn't make it politics, calling it choice doesn't make it a choice.

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When/if reality bites and they wake up in a cold sweat wondering how they're going to pay it off if they lose their job or interest rates rise etc it's too late. People are not financially literate on the whole and very much into "keeping up with the Joneses". We all need to stop and think and teach the financial facts of life to our kids so they don't fall into the same trap.

Not sure they ever will. They just assume they'll be bailed out. Moral hazard is now endemic in the UK.

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