Wednesday, November 26, 2008

The guv’nor is angry

Bankers adopt can't lend, won't lend approach

Net new mortgage lending may next year shrink to below zero, a situation quite without precedent even during the last housing market crash of the early 1990s, when the problem was never lack of mortgage finance but rather its cost. Today it is the reverse. The main reason for this intensification in the mortgage famine is that lenders have approximately £160bn of mortgages to refinance next year, yet beyond the Government, no obvious way of doing so. Nobody is prepared to finance or buy mortgage assets right now. The securitisation markets remain closed. Bankers may have behaved recklessly in lending too much during the boom, but it is not in their nature or self interest to lend already overstretched debtors even more now that the bust has arrived, however much they are commanded to do so

Posted by drewster @ 02:25 AM (1000 views)
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7 thoughts on “The guv’nor is angry

  • Okay, I’m no economics whiz, but how can lending shrink to ‘below zero’? These are the financial experts? No wonder we’re in a mess.

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  • Below zero lending simply means starting to call existing loans, without lending out any money at all.

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  • Thanks JU! I was just about to file the guy into the same category as the sports plebs who can somehow give ‘110%’ or can work out their fitness levels in percentage terms. Ah, the paucity of accuracy in language . . .

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  • They are still lending though, so this isn’t really true. They want a larger deposit reasonably enough.
    The problem could also be seen as a lack of deposits by borrowers, or you could even see the problem as the denial of sellers. If they were to drop prices substantially then lending would take off again.

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  • planning4acrash says:

    It could also mean that more people are voluntarily paying off loans than are taking them out. What we need is negative lending. Jeeze, this situation is getting worse by the minute. How long before we are like Iceland.

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  • This article makes clear some important points. Debt has to be paid off eventually; as that happens people stop borrowing and spending, or borrow and spend much less. Since debt has grown so large the deflationary effect is strong and there is nothing banks or govts can do to change that. They can only try and ameliorate the impact.

    The ex-boss of A&L on Newsnight last night was illuminating. He pointed out that banks are required to rebuild their balance sheets by the Govt at the same time as increasing lending. He said that there is just not enough money to lend to small businesses and to domestic borrowers in this situation. All this suggests deflation with savings account rates holding up fairly well, and loans harder and harder to come by.

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  • The key is in the word “net”, which makes the statement true in all respects. If more money is paid back from existing mortgages than is loaned out in new mortgages, then net mortgage lending is below zero.

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