The Moral Primacy Of Debt.

[Guest_northshore_*]

This is simply not true!

The origins of the Social State were rooted in LLoyd George's People Budget of 1908. (Which failed to receive Lord's backing and was eventually passed into statute by Herbert Asquith in 1910).

The core concept was Redistribution of Wealth: taxing the rich as never before. Which, of course, didn't work! The wealthy landowners simply adopted trusts and employed accountants, tax barristers etc and simply sidestepped the affects.........

http://news.bbc.co.uk/onthisday/hi/dates/stories/july/20/newsid_3728000/3728225.stm

The roots of the modern UK Social State were started by Harold Wilson in his 1964 Labour Government.

Unless I'm missing your point, the origins of the Social State were rooted in the difference between the bits of the People's Budget that progressed and those vetoed by the Lords never to return (taxing unearned land rents). It's not that the core concept of redistribution of real 'wealth' didn't work, it's that it never happened. Some (including me) believe that's no accident and makes most discussion about wealth taxes and relative costs/benefits disingenuous.

[R K]

Yet you're at a big forum called House Price Crash.

Perhaps we should close the forum down?

HPC website/forum came out of an FT discussion board discussing house prices, derivatives et al where the concern was what might happen (to the economy) if/when it turned out the bubble burst.

Well the derivative/securitisation bubble did in fact burst with the consequences we are now all familiar with.

HPC happened - the point now is to understand how the post-crash environment is developing and what that means for the economy, markets and house prices.

It's a discussion forum - meaning people bring differing views, opinions, fact, data, links and so on to the ongoing debate. It isn't (although you & others may wish it to be) an activist group against existing home owners or anyone wishing to buy their own home in the future.

Edited June 27, 2015 by R K

[goldbug9999]

It's a discussion forum - meaning people bring differing views, opinions, fact, data, links and so on to the ongoing debate. It isn't (although you & others may wish it to be) an activist group against existing home owners or anyone wishing to buy their own home in the future.

Indeed, I find the idea that someone can be "off message" on this forum somewhat bizarre - we may as well deny reality itself as that is very much "off message" right now.

[Venger]

HPC website/forum came out of an FT discussion board discussing house prices, derivatives et al where the concern was what might happen (to the economy) if/when it turned out the bubble burst.

Well the derivative/securitisation bubble did in fact burst with the consequences we are now all familiar with.

HPC happened - the point now is to understand how the post-crash environment is developing and what that means for the economy, markets and house prices.

It's a discussion forum - meaning people bring differing views, opinions, fact, data, links and so on to the ongoing debate. It isn't (although you & others may wish it to be) an activist group against existing home owners or anyone wishing to buy their own home in the future.

Please keep me on ignore.

[Venger]

From 2008 I've only known you defend house prices, lusting for them not to crash, and wanting ever more HPI.

Count your HPI and keep drawing your pension - for now.

[wonderpup]

They have no Human Right to live in £500K/£1m+ homes without paying what they owe on it, vs others who rent expecting HPC /not willing to pay these prices. It's a market.

They want a £750K mortgage, then let them take it.

Except don't come crying back with excuses like (and don't include me in the us/we/"you and I" excuses either) 'neither of us know what the future will bring / just wanted a home / - if it's obvious prices will fall 20-30% you sell / I don't think I know my motivations perfectly and I can't see the future. What if I develop expensive tastes? I think you and I will be in the minority if we don't / She was fairly sure she wouldn't get divorced. Don't you think all those divorcees thought the same thing when they wed? / thought house prices would 'rise quicker than equities'

Your debt and life decisions are your own.

It's ironic that in your commitment to the idea that debt is always and everywhere the sole responsibility of the borrower you are reinforcing the very moral hazard that led to the inflation of house prices in the first place.

By perpetuating the meme that only the borrower has any responsibility for excessive debt you are fulfilling the role of 'useful idiot' for the banks who will be happy to agree with you.

Perhaps if we did place a higher value on the needs of people in debt and less on the primacy of creditors we would not have arrived at the point where bankers- who can create credit from thin air- felt empowered to do so on a scale so large that they all but took down the entire financial system.

In your haste to attack the debtors you miss the big picture- before a single irresponsible borrower can exist there must first be an irresponsible lender.

Default and debt write down is a vital ingredient in any system of credit since it is only the possibility of such losses that imposes any constraint on those whose profits depend on the creation of debt.

[Prescience]

Unless I'm missing your point, the origins of the Social State were rooted in the difference between the bits of the People's Budget that progressed and those vetoed by the Lords never to return (taxing unearned land rents). It's not that the core concept of redistribution of real 'wealth' didn't work, it's that it never happened. Some (including me) believe that's no accident and makes most discussion about wealth taxes and relative costs/benefits disingenuous.

Oh, real distribution of wealth occurred indeed: via taxing the middle earners to pay for the social state et al, whilst the uber rich sheltered their wealth.

Which is precisely how and why, for example, Gerald, Duke of Westminster sits on leashold and freehold assets of in excess of $12.i billion........

If IHT in all its incarnations had actually worked, then this wealth pot would have been utterly impossible to achieve.

However, more to the point, you posited the social state was introduced to prevent a sort of 20th siecle Peasant's Revolt.

Which clearly didn't happen................ on either side of your proposition.

[goldbug9999]

before a single irresponsible borrower can exist there must first be an irresponsible lender.

And vice versa.

[wonderpup]

And vice versa.

No- it's asymmetrical in the sense that the act of making a decision to lend must chronologically preceed the ability to borrow. What created HPI and the crisis of 2008 can be boiled down to a simple thing- lack of fear on the part of those doing the lending- they had convinced themselves that risk of default had all but been designed out of the system.

The single most important criteria for a stable credit system is a Banking system operating under the threat of default- remove that threat and there is simply no reason not to lend- and given that it is the lenders who create the credit and are handsomely rewarded for doing so it's obvious that once the fear of default is gone so is the restraint on the creation of credit.

[Muddlehead]

Thanks for the kind wishes. But I'm not trying to sew doubt or confusion. I am confused.

I am trying to improve my understanding of the forces likely to affect prices. Presumably that's the main reason for reading and posting here. It's interesting to find out opinions.

I didn't realise my comment about predictability (you highlighted in bold my comment that I'm not convinced it's easy to predict house prices) was unclear. I'll try to clarify:

1) Financial markets aren't necessarily efficient, but certainly they are hard to predict. Only people who have consistently outperformed the market can claim otherwise, and they can't necessarily convince others it wasn't just luck.

2) Financial markets can obviously develop bubbles, and swing from wild over-valuation to under-valuation. But I think an important difference between equities and residential property (especially property in the UK) is a large part of property buying isn't based on analysis of fundamental value.

So property prices seem to be too high, but I think only a minority of people considering buying or selling are considering fundamentals (comparisons to earnings, rental yields). If this is case, then coupled with the extreme government and central bank policy, it seems we can know property is over-valued, and hence property could be more predictable than financial markets.

Many of those who had the choice, sensibly, given their understanding, decided to sell to rent, or postpone buying, only to find the entirely obvious market correction was not allowed to occur, due to the extreme interventions.

So there has been massive support to stop house prices achieving fundamental value, and there are enough buyers who aren't worried that prices are already too high. I expect prices to fall, but I don't know when. People knew property in London was x% over-priced in 2013, now (x+30)% over-priced. Considering flats in London, my experience suggests price haven't moved much in a year. An identical flat next door was on the market at 420,000 last summer, then reduced to 400,000 then gave up. Mine sold for only about 5% off that, so a crash doesn't seem to be materialising at this end of the market, yet. I think under these conditions (prices being set by romantic buyers who disregard fundamentals) I simply don't know when the market will cease to be over-priced, though I do expect a correction at some point.

I think financial markets are very different. There is a much bigger emphasis on fundamental value. Not all market participants focus on it - some may attempt a predict the herd approach, but when equities are over-valued they are much more prone to a sell-off, even short-selling. Maybe equities and property have equally wild swings, but I don't think equities can sustain over-valuation for as long.

So I don't think the FTSE is too high at the moment. I don't have reason to believe the big market participants are wrong in their expectations of future market conditions.

I think property prices are too high. In the absence of props and with an abudance of romantic buyers (liar loans, BTL lemmings etc.) maybe crashes would be predictable (i.e. you'd know roughly when to buy and when to sell). But is it fair to say government intervention is making it harder to predict?

In fact I think if anything the outlook for equities (perhaps more world equities than UK equities, but that's another question) is quite good. Mean reversion suggests they may do better in the next few decades. Or is that just crazy (property crash will mean equity crash)?

This is how my thoughts changed on predictability of house prices over the last few years:

When I was renting (lodging and house-shares) I was neither bullish nor bearish on property, but was bullish on equities. I wasn't looking at house price stats or trends, or making predictions, but remember having a notion that prices weren't really moving. I think my view then was a combination of:

1) Prices may be too high, so will fall, at least in real terms.

2) Prices may be about right, but earnings aren't growing, so prices will struggle even to achieve moderate growth.

In 2012 I was finding that I could get a decent room for around 500-600 per month. I was enjoying sharing with people and my investment returns roughly covering the rent, so why buy?

In 2013 having moved three times in a year I was fed up and decided to buy. I still wasn't bullish on property. I just decided that I didn't want to put up with moving every few months. An alternative would have been to rent a flat, which would have been about 1200-1500 per month, but the disadvantages of that seemed to outweigh the advantages.

The flat I ended up buying had an odd price history. New build in 2004 sold for 210k. Sold for almost 300k in 2007. Six years later they asked for roughly the same price and I got a small discount. It seemed a reasonable price - comparable flats were asking for 250-300. But it seemed unusual (comparing to other flats and general market trends) to be asking for less than previously sold for in 2007. Had they just been unlucky to buy at the top? Are prices just very high variance (only one buyer has to appear/disppear and there can be a big swift in consumer/producer surplus)? Looking at sales in the intervening years it might have gone for 250k, probably not much less (I think the cheapest sales in that period were about 225, which had originally gone for about 185). Do property indices mask big variations in various submarkets (period, conversion, trendy location, etc.) Do blocks go in and out of fashion? Can anchoring explain stickiness and big jumps?

I was paying about 25% more than the 2004 price. Clearly the 2004-2007 movement wasn't driven by fundamentals, but I was encouraged that six years later, if overvalued it was at least less overvalued than it had been in 2007. I wasn't expecting big falls. I attached a lot of weight to a small drop to the 250k cliff edge. A small capital loss, probably outweighed by the saving on rent. If the price fell to 200k buying would start to look like a bad decision, but it would have to go along way below 200k before I faced negative equity. I do remember articles appearing in the winter (not sure if late 2012 or early 2013) proclaiming so and so says property to increase 25% in 5 years, and thinking "are salaries going to be 25% higher in 5 years?" I thought there might be some upside, in line with earnings at best.

I don't remember when I first stumbled upon this website. It may have been as late as March 2014 (that date sticks in my mind as I remember a quiet week at work when I browsed this forum so much it got automatically blocked for a while). But perhaps it was earlier. I found it interesting and thought there were quite a few well-informed posters.

By the spring flats were asking for 350 or more, which I thought was pretty crazy (compared to 250 or so the previous year). I thought these are probably kite flyers. In the summer when the identical flat next to mine asked for 420 I was shocked. I was getting fed up and had been thinking about moving back to the suburbs. The combination of the seemingly crazy asking prices, the reports of the booming market, and reading on hpc about the impending crash meant that thought more and more seriously about selling.

I got four EA valuations at the end of October. That was a really interesting day. Prior to this I had thought I could sell for about 340, maybe 350. The first three suggested asking for 400 and though unsurprisingly vague about actual selling prices suggested I'd get close to those figures. The last one said the first three are wrong: "The market peaked in April and has fallen 8-10% since then. You should ask for 375 with a view to getting 360." I dithered for a few weeks, then decided to put it on the market after Christmas. It took about 10 weeks to get an offer and agree sale. Two EAs (the one I listed with, and one I considered switching to) suggested I reduce the asking price, echoing the views of the fourth valuation, suggesting I aim for something more 365k. But I decide not to do anything. I'm about to take the flat of the market. I've got professional exams on top of my job, and forgetting about selling to prepare for them seems sensible. I've already told the agents twice to give me the keys back (did I mention I can be indecisive?) but they persuaded me to leave it. Then a high offer came after all. Can anything be inferred from this? Did the market fall 10% in summer 2014 then rise 10% by spring 2015? Did it fall, but not by 10% (maybe I would have got a little over 400k if I listed in April 2014)? Are prices actually 10% or more lower, but there is an occasional great fool unwittingly paying much above the next bidder?

The reason I give these details of my experience is certainly by Christmas 2014 I was convinced the market (i.e. the market I was in - the broader London market, excluding prime, the £1million+ and the outer zones) was about to crash. The least bullish of the estate agents (who said I should aim for 360) who said prices had fallen 10% said I don't see any reason for a crash, it's just inevitable that prices will fall a little after the 40% increase in 9 months (he put down this increase to the regeneration in the borough - I think he mentioned spillovers from Battersea Park). I wasn't convinced. I went with the more bullish recommendations, but that was only because I could never get hold of him on the phone (not a good thing for an EA). But I did suspect his valuation might have been right, only his claims about there not being a crash wrong. So maybe I could expect offers of 360k in January, but that could be much lower if it was still on the market in February.

Well, at this juncture I should continue to remind myself of the story of the man who believes he can fly and leaps off a skyscraper. "So far so good" he says as falls past the fiftieth floor. If I thought prices would crash and then nothing fundamental changed, shouldn't I continue to expect a crash? Yes, and I do. But when? I thought the realisation that prices wouldn't go higher and that yields are low, and the expectation of base rates increases would be enough. I suppose landlords who are holding are taking a very long term view, or just truly expect wider inflation and earnings growth, so that rents can go up. I thought surely landlords would sell in significant numbers, but if they don't it leaves prices to be set by buyers who ignore the fundamentals.

[Guest_northshore_*]

Oh, real distribution of wealth occurred indeed: via taxing the middle earners to pay for the social state et al, whilst the uber rich sheltered their wealth.

Which is precisely how and why, for example, Gerald, Duke of Westminster sits on leashold and freehold assets of in excess of $12.i billion........

If IHT in all its incarnations had actually worked, then this wealth pot would have been utterly impossible to achieve.

However, more to the point, you posited the social state was introduced to prevent a sort of 20th siecle Peasant's Revolt.

Which clearly didn't happen................ on either side of your proposition.

It was Wonderpup's proposition, not mine. Regardless, if that proposition was (as you say) positing that the social state was introduced to prevent a sort of 20th siecle Peasant's revolt, I don't see how it necessarily contradicts any theory or fact. I don't think anything contradictory has been said about middle earner vs 'peasant' redistribution, but he/she can speak for themselves on that.

They appear to be contending that the current state is a continued pandering to landed interests under the faux guise of welafre for the masses which amounts to dividing crumbs from the high table. And you appear to be saying the same thing.

[Guest eight]

It's ironic that in your commitment to the idea that debt is always and everywhere the sole responsibility of the borrower you are reinforcing the very moral hazard that led to the inflation of house prices in the first place.

By perpetuating the meme that only the borrower has any responsibility for excessive debt you are fulfilling the role of 'useful idiot' for the banks who will be happy to agree with you.

Perhaps if we did place a higher value on the needs of people in debt and less on the primacy of creditors we would not have arrived at the point where bankers- who can create credit from thin air- felt empowered to do so on a scale so large that they all but took down the entire financial system.

In your haste to attack the debtors you miss the big picture- before a single irresponsible borrower can exist there must first be an irresponsible lender.

Default and debt write down is a vital ingredient in any system of credit since it is only the possibility of such losses that imposes any constraint on those whose profits depend on the creation of debt.

Great post Wonderpup. Real clarity.

[Venger]

No- it's asymmetrical in the sense that the act of making a decision to lend must chronologically preceed the ability to borrow. What created HPI and the crisis of 2008 can be boiled down to a simple thing- lack of fear on the part of those doing the lending- they had convinced themselves that risk of default had all but been designed out of the system.

The single most important criteria for a stable credit system is a Banking system operating under the threat of default- remove that threat and there is simply no reason not to lend- and given that it is the lenders who create the credit and are handsomely rewarded for doing so it's obvious that once the fear of default is gone so is the restraint on the creation of credit.

That is true. Perpetuated too by millions of older VI powers, Tony Abbott-esque types, at the top, who aren't content with simply their homes having risen in value by $1million since they bought the house. Stoked on by Gordon types, who claim to have ended boom and bust. Those who watched over the financial system, being well paid, infatuated by their homes (at the mid-higher end) £50K-£100K+ in value gains year on year as well, not wanting to say anything from HPI smugness.

So is the second part. Lenders/shareholders must face consequences of failure, from making bad loans. Not as it has been this time.. bailouts (although new people in at many of the banks, and shareholders of exposed banks did suffer the consequences) - although banks themselves bailed out. Past tense.

Reliquified in this 5-6 year process as they shrink and smooth out their positions in the market, imposing stronger lending qualifications generally (except those who I expect will be collateral damage on HTB scheme)... not lending to Moneyweek would-be borrower the other day with £100K deposit.

Eagerly lending to older BTLers like Timak's parents in law who had £100Ks of 'dead money' in bank earning 'no interest' - buying expensive BTL.

Near the end of a major credit expansion, few creditors expect default, which is why they lend freely to weak

borrowers. Few borrowers expect their fortunes to change, which is why they borrow freely.

A trend of credit expansion has two components: the general willingness to lend and borrow and the general

ability of borrowers to pay interest and principal. The components depend respectively upon (1) the trend

of people's confidence, ie., whether both creditors and debtors think that debtors will be able to pay, and

(2) the trend of production, which makes it either easier or harder in actuality for debtors to pay. So long

as confidence and productivity increase, the supply of credit tends to expand. The expansion of credit ends

when the desire or ability to sustain the trend can no longer be maintained. As confidence and productivity

decrease, the supply of credit contracts.

-Robert Prechter (Elliott Wave)

Above is true, but also covers much by way of bad/corrupt/VI behaviour during that expansion phase for 2001-2007 on all sides, including creditor side.

Banks had competitive people and they get caught up in BoE NICE and Gordon authorities telling everyone new modern economy with no crashes, and regulation cut to nothing, so bankers chased their own big bonuses, whatever the consequences, and older shareholders also not complaining with shares going up in value against the expansion glory, and their own HPI++++++.

This has occurred already. It's tightened up quite a lot since, despite some big bonuses in the process. There have been changes to lending. Banks been reducing their exposures, and UK banks can now handle MAJOR HPC at some future point (US banks especially in low-mid-high prime, seeing as in reflation they've offloaded to wider market, other non-banks, REITs - older owners chasing yield) and so on. They've tackled 'too big to fail' for the banks, in quite a significant way (not totally got there yet though). PAST is PAST.

If owner/buyer side thinks it's going to be BAILOUT 3.0 PROTECT THE HPI, next recession, they will be surprised.

It's ironic that in your commitment to the idea that debt is always and everywhere the sole responsibility of the borrower you are reinforcing the very moral hazard that led to the inflation of house prices in the first place.

By perpetuating the meme that only the borrower has any responsibility for excessive debt you are fulfilling the role of 'useful idiot' for the banks who will be happy to agree with you.

Perhaps if we did place a higher value on the needs of people in debt and less on the primacy of creditors we would not have arrived at the point where bankers- who can create credit from thin air- felt empowered to do so on a scale so large that they all but took down the entire financial system.

In your haste to attack the debtors you miss the big picture- before a single irresponsible borrower can exist there must first be an irresponsible lender.

Default and debt write down is a vital ingredient in any system of credit since it is only the possibility of such losses that imposes any constraint on those whose profits depend on the creation of debt.

We had that main stage of bailout and debt write-downs and expansion of Government debt balance sheets.

Those borrowing today to buy houses, at these prices, are not innocents. Either are those sat on massive equity wealth, if HPC begins and their homes lose value. They could have sold for fortunes today. There is far more irresponsible borrowing than irresponsible lending going on in this market. Banks will lend to anyone willing to expose themselves at these HOUSE PRICES... have assets/high equity positions/putting down big LTVs to pledge (BTL), good jobs that makes it likely they'll continue to pay mortgage even into a big HPC.

Which is exactly why you don't have a human right to eat- human rights are simply not compatible with a market based system.

You can't really have a system based on ability to pay in which basic needs trump the rights of creditors to get their money.

So I think you can agree with my argument that in our system it is the moral primacy of debt that holds sway whenever the rights of creditors and the well being of debtors come into conflict.

That which we call 'human rights' are at best a subordinate system that seem more akin to a form of erzatz property protection laws than any serious attempt to protect human beings against abuse by large institutions.

Yes- when there's no money at stake our ruling class will be happy to support 'human rights'- but let's not get carried away here and assume even for a moment that your need for shelter could ever be a serious impediment to the bank repossessing your house- because it wont be.

At least you recognise this fact. I have a need to shelter. If I can't pay the rent, the landlord takes action to get me evicted (in most instances).

That happens for renters day after day, even vs the bailouts from 2008-2015 and reflation and new wave HPI as banks smooth out their positions into that reflation (and US banks now sat on more $Trillions in reserves than ever before). No special 'human-rights' for the renters. UK even some of the weakest tenant rights in all developed countries it seems.

If DEBT is the problem REPAYMENT is the solution, or you default and this time the overstretched HPIers / complacent BTLers get repossessed.

House prices can crash, as I hope will be understood in the next stage of the market. It's not just going to be always slogging away to earn £40k-£50K, whilst unmodernised dated semis seeking £300K+ (and getting it from non-innocent borrowers still expecting more and more HPI), and older parents rubbing their chins in houses worth £750K, patting themselves on the back how the state expanded it's balance sheet 2008-15 to protect their HPI, and on their calculators to calculate future HPI+++++ (as some on here are).

Past is past, but some haven't seen the changes that have occurred. Mini HPC and the policy response, has coarsely been assumed to be the reaction to all future recessions/HPCs, as many have doubled down to paying much higher house prices and pushing and falling over themselves to get into BTL to farm young people.

[Guest]

wonderpup, great post.

A lot of the contradictions in Europe and human rights begin to make sense.

One only has to go to an abattoir or factory farm or see Cloud Atlas to see the logical extremes of industrial production and the value of human life.

[Guest]

wonderpup is saying that you do not have human rights such as the right to eat. He is not defending human rights, he is saying they do not really exist.

Human rights are just there to protect your creditors.

[Guest]

Venger, I always enjoy your posts. However I do not want this forum to become a circle jerk. If someone has non HPC views, then let them suffer the consequences. It is okay for someone not to espouse pro HPC views. We're not MSE or mumsnet.

Also always remember that there are maladjusted individuals from four letter agencies trying to subvert the discussion here as a diversion from truth.

[Venger]

wonderpup is saying that you do not have human rights such as the right to eat. He is not defending human rights, he is saying they do not really exist.

Human rights are just there to protect your creditors.

Good in this instance. I've re-read the thread opening post from wonderpup.

In his book about Debt David Graeber makes the observation that anyone who tried to implement a policy that would directly lead to the death of thousands of babies would probably not gain the support of most liberal minded western thinkers- but there is one instrument that could be used to achieve this outcome with near moral impunity- that instrument being Debt.

This is the scenario we see playing out in Greece today as it's health service collapses and millions find themselves unable to access healthcare.

Is it not a curious thing that an EU that would be driven into a legislative frenzy over a flawed design in a car baby seat can be utterly indifferent to the young victims of it's own ruthless pursuit of the repayment of a clearly unpayable debt?

Such is the moral power of debt that it seems somehow ok that people in an EU country are left without even basic healthcare while their EU 'partners' demand ever more 'austerity' measures in the name of debt repayment.

Somehow it seems that Debt obligations trump all other moral values- but why is this the case?

Perhaps one answer might be that debt is so important to the functioning of the system that it must have primacy- or the system will founder- should we allow people to repudiate their debt on the basis of hardship would this not create a moral hazard that would be toxic to the system?

Consider also the following; What are 'Human rights?' On the face of it they are a set of laws that protect the individual from mistreatment by others. But there are some interesting limitations to these 'rights'. For example should your employer make you redundant, exposing you to stress, homelessness or even hunger you have no right to sue him under your 'human rights'. On the other hand should you be damaged at work due to some mechanical failure or other your 'human rights' kick in with a vengence- as a damaged entity you have recourse to the full panoply of the legal process, including, if required, your human rights.

..Our right to sue those whose negligence or malice has inflicted damage upon our person may in the last analysis have less to do with our 'human rights' and more to do with our value as debt servicing agents in a system that seems designed to ensure that most of us will remain in debt until old age.

I'm not interested in other people's debts. I'm not in debt. I want lower house prices. Others have outbid me for years and years, their decision to pay ever higher prices, much of it via debt.

They've had years and years of forbearance and policy intervention.

Owner side owns £Trillions in equity on their side (not the banks side) - so not everyone is a victim who remains in debt until old age. Many an oldie around here bought for £20K and paid their mortgages off 50 years ago, in their 20s/30s, having a life of win.

Later post...

Perhaps if we did place a higher value on the needs of people in debt and less on the primacy of creditors we would not have arrived at the point where bankers- who can create credit from thin air- felt empowered to do so on a scale so large that they all but took down the entire financial system.

In your haste to attack the debtors you miss the big picture- before a single irresponsible borrower can exist there must first be an irresponsible lender.

Default and debt write down is a vital ingredient in any system of credit since it is only the possibility of such losses that imposes any constraint on those whose profits depend on the creation of debt.

They took on that debt. Why would I want to put the big homeowning debtors needs above my own renter-saver HPC position of wanting lower prices? I might as well be asking for big old HPI forever and ever.

We've had massive writedowns, policy simulus and even debts piled on to national balance sheets for future taxpayers to protect the victims - and London and many other prime areas reflated to new peaks.

Greece can repay a certain amount. Subject of writedowns: WSJ

Meanwhile, the face value of Greece’s entire national debt adds up to just $340 billion — which means a total bailout would add about 3% to the total borrowings of the other eurozone countries.

And the real value of Greece’s debts to the global financial system is a fraction of that. Based on current bond prices, financial markets have already assumed about half of Greece’s debts will be written off. The amount investors are still counting on to be repaid is probably less than $200 billion, or around the value of Greece’s current annual GDP.

I want Greece to have a better future, but the socialists don't want VI to suffer any setback to generous pensions/benefits, house valuations, whilst young people can't even afford rents. All back by 'evidence' of 'no money for healthcare and thousands of babies dying' nonsense fearmongering to reforms.

Reforms that could set the path for a far more prosperous future, allowing productive people to have opportunity and rewards from it. It means the victims (which mostly is those who own outright in real life, carrying no debt.. except a few at the margin) have to let go some of their stranglehold of special interest / price protections / easy cushy jobs doing no work and drawing big pay.

'People in debt' - 'Protect them'.

There is only irresponsible borrowing going on in the last few years, not irresponsible lending.

This applies here too.

venger is right

all they have to do is pay what they owe

the government has engineered the economy to make that as easy as it could be over the last 8 years or so and, in addition, also bailed out the lenders directly and via the massive QE programme

so, even though lenders were making dodgy loans (125% IO self cert etc.) and borrowers were leveraging themselves up to levels that many would shy away from, that was a free choice by both parties

that they haven't managed to extricate themselves from that mess of their own making in 8 years of the most favourable environment in which to carry debt that the world has ever seen should be their problem

it certainly shouldn't be the problem of a taxpayer that has lived within her means, settled all her debts on time & in full and who is, by virtue of her using her choosing not to participate in the 2000 - 2007 boom and / or 2008 - 2015 QE fuelled bubble with massive debt on her shoulders, is now in the more favourable position: i.e with no / low debt and near cash unleveraged assets on hand.

it should be swings and roundabouts but, at this playground, there are only swings and some people have been hogging them for far too long.

it is, surely, someone else's turn to have a go now

Times

June 26 2015

Banks have lowered the amount they will lend based on people’s salaries so much over the past year that the average British worker hoping to put down a 10 per cent deposit on an average priced home would be more than £100,000 short, an investigation by Times Money can reveal.

In October last year, the Bank of England introduced new rules restricting the amount of mortgages lenders could offer at loan-to-income ratios of 4.5 times or above. A loan-to-income ratio — or maximum income multiple — dictates how much a buyer is borrowing relative to their annual income. For example, a borrower who earns £50,000 a year who is offered a loan-to-income ratio of four can borrow £200,000.

With some lending x5. Then all the 'victims of irresponsible lending' in this BTL BOOM we're in. No one is forcing them to borrow, putting big money down for teaser low rates at high LTVs. I don't ask any of them to keep sneering to me that they don't trust money in the bank / or tell me / it's dead money earning no interest.

HPC.

[Venger]

Venger, I always enjoy your posts. However I do not want this forum to become a circle jerk. If someone has non HPC views, then let them suffer the consequences. It is okay for someone not to espouse pro HPC views. We're not MSE or mumsnet.

Also always remember that there are maladjusted individuals from four letter agencies trying to subvert the discussion here as a diversion from truth.

Took me a moment to realise what you meant, but yes, there are.

However there are also those who don't accept it takes two to tango, and we've had the writedowns, some shareholders paid, huge losses been carried over onto Gov national balance sheets, and HPI well beyond peak here.

That there are more irresponsible borrowers than lenders in this new market. There are no innocents at these prices around here. And I'm waiting for HPC, not 'placing a higher need of people in debt / taking debt on now to meet these prices.'

And the unreal position of all these homeowners in so much debt in old age. Where they are, that's their own outcome/positions. They've had long wave of HPI for 30+ years and time to make decisions, and policy response over 8 years, so much. Then all the other owners sat on £Trillions in equity.

[Guest]

Perhaps if we did place a higher value on the needs of people in debt and less on the primacy of creditors we would not have arrived at the point where bankers- who can create credit from thin air- felt empowered to do so on a scale so large that they all but took down the entire financial system.

I do not think wonderpup is saying that we should forgive and support debtors per se. I can see how that can be read that way. He is saying that the system benefits the creditors too much. Thanks to private money creation and bailouts, the risks of default to them are minimal. The financial system has it far easier than private individuals who are loaded up with debt.

As it stands, the risks to debtors and creditors are diluted; everything is largely imaginary and divorced from reality. Both lenders and debtors need to endure responsibility rather than be bailed out. I think wonderpup is saying if we did respect the debtors position more and hence have personal responsibility, then lenders could not get away with irresponsible lending and relying on everyone else to bail them out. As it stands, bailouts benefit both the debtor and creditor as the debtor keeps their over valued housing and the creditor has an asset on their balance sheets and are not in default. It is purely because we bailed out the creditors that people can remain debt servicing rather it be written off. The people in debt would also suffer in a default as any assets such as housing would be taken back but that is better than perpetual debt.

I think Muddlehead has made rational decisions from his explanations. The actions of buying in 2013 do perpetuate the system unfortunately. The problem with rationality is that if everyone is rational then we get into a tragedy of the commons scenario, an endless HPI.

[Venger]

I do not think wonderpup is saying that we should forgive and support debtors per se. I can see how that can be read that way. He is saying that the system benefits the creditors too much. Thanks to private money creation and bailouts, the risks of default to them are minimal. The financial system has it far easier than private individuals who are loaded up with debt.

As it stands, the risks to debtors and creditors are diluted; everything is largely imaginary and divorced from reality. Both lenders and debtors need to endure responsibility rather than be bailed out. I think wonderpup is saying if we did respect the debtors position more and hence have personal responsibility, then lenders could not get away with irresponsible lending and relying on everyone else to bail them out. As it stands, bailouts benefit both the debtor and creditor as the debtor keeps their over valued housing and the creditor has an asset on their balance sheets and are not in default. It is purely because we bailed out the creditors that people can remain debt servicing rather it be written off. The people in debt would also suffer in a default as any assets such as housing would be taken back but that is better than perpetual debt.

I think Muddlehead has made rational decisions from his explanations. The actions of buying in 2013 do perpetuate the system unfortunately. The problem with rationality is that if everyone is rational then we get into a tragedy of the commons scenario, an endless HPI.

Banks can handle a massive HPC now, where they couldn't before - without any bailouts. Isn't that something new, something changed, something to give forever HPIers something to shiver about.. if they weren't so complacent?

http://www.bbc.co.uk/news/business-30491161

I am the only one who knows what last 7 years has been about / going on.

(Existing homeowners, you have no idea of the fortune the government response to the financial crisis brought you – a largesse for which non-homeowners paid.)

There will be very few Muddleheads that get out at near peak prices. Great; he bought in 2013, London.. he's 30, and downsizing/selling to move somewhere further out. HPC Glorification brought to the table.

It's not ruthless pursuit. So much of the debt has been written-down. It's asking for a good part of what they could repay, and for reforms. Reforms and removal of so many special interest strangleholds. All the victims tend to be those with a lot more than the mainly debt free younger-renters 'living with parents, can't afford to rent' (Sunday Times today re Greece). These victims tend to be the owners, and the few at the margin with mortgage debt. They need HPC/RPC, reforms. Possibly lower wages vs Europe to improve productivity and investment

Not 'lead directly to death of thousands of babies' nonsense.

In his book about Debt David Graeber makes the observation that anyone who tried to implement a policy that would directly lead to the death of thousands of babies would probably not gain the support of most liberal minded western thinkers- but there is one instrument that could be used to achieve this outcome with near moral impunity- that instrument being Debt.

This is the scenario we see playing out in Greece today as it's health service collapses and millions find themselves unable to access healthcare.

Is it not a curious thing that an EU that would be driven into a legislative frenzy over a flawed design in a car baby seat can be utterly indifferent to the young victims of it's own ruthless pursuit of the repayment of a clearly unpayable debt?

Such is the moral power of debt that it seems somehow ok that people in an EU country are left without even basic healthcare while their EU 'partners' demand ever more 'austerity' measures in the name of debt repayment.

[wonderpup]

There is far more irresponsible borrowing than irresponsible lending going on in this market.

This cannot be correct simply because if I wish to borrow in an irresponsible way I must first locate a lender who will make an irresponsible loan, since the very factors that might make my borrowing irresponsible are precisely the factors that those doing the lending should be looking at in order to assess that loans viability.

All debt junkies require a dealer in order to maintain their habit.

What's interesting is that If I wished to set up in business selling a highly addictive product like Crystal meth I would be arrested- despite the fact that my customers were not coerced into buying my product. Why is that?

Well the argument seems to be that my product is so potent in it's appeal and can lead to such bad consequences for my customers that I have a direct moral and legal responsibility for the harm that I may cause.

So what about money? Is there any doubt that money is also a potent life altering stimulant?- clearly not. So as a seller of money in the form of bank credit do Bankers have any responsibility for the harm their product may cause?

Not really- but perhaps they should. Perhaps a banker who makes a clearly irresponsible loan should be treated like any other dealer in dangerous stimulants and bear some consequences for the harm his actions have caused.

Is it not odd that the Government seems compelled to protect the population from itself when it comes to things like drugs or pornography or even driving without a seat belt- but when it comes to the borrowing of money it seems reluctant to get involved. At any point where the interests of the Banking sector and the interests of the Public are likely to come into conflict the Government is nowhere to be found, except in as much as they will act all times to protect the interests of the banks.

If we are-as you suggest- a nation addicted to debt then maybe one way to deal with this is to go after the dealers as well as their customers.

Edited to add;

Return of the interest-only mortgage: Fierce competition among lenders is making it easier to take out risky loans

Interest-only mortgages are becoming easier to take out as a result of fierce competition among lenders.

The potentially-risky loans almost disappeared altogether in 2008 after being blamed for inflating the housing market ahead of the financial crisis.

But lenders have begun introducing deals allowing borrowers to take out an interest-only loan with a deposit of 25 per cent and pay it off when they sell the property, the Times reports.

Read more: http://www.thisismoney.co.uk/money/mortgageshome/article-3141560/Return-mortgage-Fierce-competition-lenders-making-easier-risky-loans.html#ixzz3eMXbukvF

Follow us: @MailOnline on Twitter | DailyMail on Facebook

Edited June 28, 2015 by wonderpup

[Venger]

This cannot be correct simply because if I wish to borrow in an irresponsible way I must first locate a lender who will make an irresponsible loan, since the very factors that might make my borrowing irresponsible are precisely the factors that those doing the lending should be looking at in order to assess that loans viability.

All debt junkies require a dealer in order to maintain their habit.

Many borrowers only see HPI+++++++ / see no future crash.

So they may think they're borrowing in a responsible way to pay today's low-mid-high prime prices / BTL etc.

HPC website/forum came out of an FT discussion board discussing house prices, derivatives et al where the concern was what might happen (to the economy) if/when it turned out the bubble burst.

Well the derivative/securitisation bubble did in fact burst with the consequences we are now all familiar with.

HPC happened - the point now is to understand how the post-crash environment is developing and what that means for the economy, markets and house prices.

It's a discussion forum - meaning people bring differing views, opinions, fact, data, links and so on to the ongoing debate. It isn't (although you & others may wish it to be) an activist group against existing home owners or anyone wishing to buy their own home in the future.

The banks are just a mirror. They're not there to guarantee your position WIN-WIN.

In a HPC your older owners "in so much debt", are going to see the values of their homes fall. Some borrowers who think it's 0.5% QE and more stimulus as needed forever may be found out.

Mark Carney warns house buyers: can you afford the mortgage?

Home-owners should not rely on being bailed out of any future difficulties by rising house prices, Bank of England governor warns

Friday 29 November 2013

The governor of the Bank of England has issued a blunt warning to potential home-owners that they must be able to pay their mortgages when interest rates go up and not rely on being bailed out of any future difficulties by rising house prices.

In an interview with the Guardian, Mark Carney said on Friday that Threadneedle Street's decision to rein in mortgage lending was designed to head off a boom-bust in the property market at an early stage and avoid drastic policy action in the event of a bubble.

"Think about the mortgage you are taking on, the debts you are taking on," Carney said when asked what his message was to those aspiring to get on the housing ladder. "You are taking at least a 25-year mortgage, maybe a 30-year mortgage.

http://www.theguardian.com/business/2013/nov/29/mark-carney-bank-of-england-home-buyer-warning

You want a no-victim/no loss world, vs these prices, and those of us positioned for HPC are going to applaud it? There's no arguing with you.

Is there any doubt that money is also a potent life altering stimulant?- clearly not. So as a seller of money in the form of bank credit do Bankers have any responsibility for the harm their product may cause?

Not really- but perhaps they should. Perhaps a banker who makes a clearly irresponsible loan should be treated like any other dealer in dangerous stimulants and bear some consequences for the harm his actions have caused.

Fantasy land. There are no incocents at these house prices, both for borrowers pushing and falling each other to get ever tighter/restricted mortgage debt. Not the owners who own £TRILLIONS in equity outright.. they could sell. How many times here it's not real money.. well it is cause it can be sold to real money.

Perhaps having a system where it's not always the ones who were sensible bailing out everyone else? No one is dragging anyone to borrow.

Banks ARE much stronger against defaults. They can repo BTLers.

I want lower prices even where that comes with repos on your victims of the banks lending them exactly what they wanted to borrow to pay these prices. If hpc wipesout the borrowers deposit and more.

SOCIALIST FANTASYLAND - make other people pay.

[Venger]

Is there any doubt that money is also a potent life altering stimulant?- clearly not. So as a seller of money in the form of bank credit do Bankers have any responsibility for the harm their product may cause?

Not really- but perhaps they should. Perhaps a banker who makes a clearly irresponsible loan should be treated like any other dealer in dangerous stimulants and bear some consequences for the harm his actions have caused.

How about making someone out there pay all the rent I've paid over the year in Bubble 1.0 and Bubble 2.0 Reflation rent back in compensation too? Throw in moving costs too, and many another trouble from renter-side costs.

Surely the victim side works 2 ways.

It's not like prices aren't at a new peak here. London-style. Oh the victims of the banks.. 0.5%, Carney warning mortgage big commitment. .oh I know.. Mr.WonderPup will arrange compensation vs the banks for lending more recent borrowers the mortgage they wanted to outbid others.

[Neverwhere]

This cannot be correct simply because if I wish to borrow in an irresponsible way I must first locate a lender who will make an irresponsible loan, since the very factors that might make my borrowing irresponsible are precisely the factors that those doing the lending should be looking at in order to assess that loans viability...

Many borrowers only see HPI+++++++ / see no future crash.

So they may think they're borrowing in a responsible way to pay today's low-mid-high prime prices / BTL etc...

BTL is the thing here.

Pre-2008 a lot of it was subprime rubbish, but post-2008 BTL has largely been at <75% LTVs and with additional requirements around the BTLer's own home and/or income. Those loans are not irresponsible from the lenders' PoV as they have a very nice chunk of equity to draw on, and a second property to place a charge on, to cover any arrears and/or asset depreciation. They are potentially very irresponsible on the part of the borrowers personal finances, in the event of a HPC.

If we assume that all OO lending and pre-2008 BTL evens out in the wash - i.e. anything borrowed irresponsibly was lent irresponsibly - then the addition of post-2008 BTL indicates that borrowers may well be edging it on lenders in terms of irresponsible behaviour.

Also the whole thing works in tandem: it's totally correct to say that if I wish to borrow in an irresponsible way I must first locate a lender who will make an irresponsible loan; but it's equally correct to say that if a lender wishes to lend in an irresponsible way they must first locate a borrow who will take an irresponsible loan.

[Venger]

BTL is the thing here.

Pre-2008 a lot of it was subprime rubbish, but post-2008 BTL has largely been at <75% LTVs and with additional requirements around the BTLer's own home and/or income. Those loans are not irresponsible from the lenders' PoV as they have a very nice chunk of equity to draw on, and a second property to place a charge on, to cover any arrears and/or asset depreciation. They are potentially very irresponsible on the part of the borrowers personal finances, in the event of a HPC.

If we assume that all OO lending and pre-2008 BTL evens out in the wash - i.e. anything borrowed irresponsibly was lent irresponsibly - then the addition of post-2008 BTL indicates that borrowers may well be edging it on lenders in terms of irresponsible behaviour.

Also the whole thing works in tandem: it's totally correct to say that if I wish to borrow in an irresponsible way I must first locate a lender who will make an irresponsible loan; but it's equally correct to say that if a lender wishes to lend in an irresponsible way they must first locate a borrow who will take an irresponsible loan.

At any point. If we get even a mild HPC, there will be those who bought within low LTV, who will claim lender was irresponsible.

Even the outright owners will be calling the banks irresponsible. Scapegoating at their loss of equity wealth.

We already have something close to that for equity release.

How am I supposed to react to the HPC members who claim equity release is in "an expensive rip-off" for older outright owners, just about on every occasion equity release is discussed on forum. That's right up there on the victimhood scale.

Somehow they have it in their heads that older outright owners 50+ who mostly bought their homes at low price, should then have an easy low 'equity-release interest rate' so they can then live on the house, (cake and cake and someone else's cake too).

If it's such a big rip-off, compete with them.. start your own equity-release business which has lower interest rates. I mean after all, it's not like there's any HPC risk either for some victimhooders on the forum.