Tuesday, February 2, 2010

Simple: drop the price, then we won’t have to borrow so much

Fears over mortgage funding gap

Homeownerism rife at BBC so much so that the obvious answer - "borrow less" - hasn't even registered. We have a funding gap because what people want to sell for isn't being met by buyurs. Why must we find policies to fill finance gaps??? Have we really not learnt anything???

Posted by growler @ 04:00 PM (2226 views)
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23 thoughts on “Simple: drop the price, then we won’t have to borrow so much

  • mark wadsworth says:

    Yup. “Gaps” are usually filled by those monsters “the markets” – if we left well alone, prices would come down just enough to soak up what funding is available. But the Home-Owner-Ists only look at one half of the equation – our houses are worth what we say they are worth, without accepting that they are merely the flip side of a credit bubble that is merrily deflating. If in doubt, bash the evil bankers for not lending enough!!

    Ditto “evil property developers concreting over the countryside”. Any and everybody is to blame except the poor Home-Owner-Ist who has “invested for the future”.

    It’s a bit like people wailing on about “electricity gap” – if we restrict the number of new power stations (and heck knows why this is seen as desirable, but hey) then prices of electricity go up, quantity demanded goes down and hey presto, no more “gap”.

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  • “Mortgage providers are warning of a £300bn shortfall in the amount housebuyers want to borrow which will not be filled by savers’ deposits”

    Simple answer: Encourage savers with higher savings rates.

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  • mark wadsworth says:

    Mr G

    *ahem*

    1. We haven’t got £300 bn left to save, that’s about half our net incomes after tax and housing costs. The problem is that all the lovely credit ain’t flowing in from China etc any more (I’m not sure where it’s going now, TBH).

    2. They can’t put up savings rates because that would mean putting up lending rates, so that’s a non-starter.

    */ahem*

    Or were you being ironic?

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  • [email protected]

    I was being ironic but I have also got to say that I simply cannot see the BOE / HMG, of any political persuasion, keeping the lid on interest rates for much longer.

    The following may be of interest to savers: http://www.saveoursavers.co.uk/

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  • ontheotherhand says:

    This will “hit first-time buyers”. I would think they would be pretty happy if there is 300bn less chasing property and they can actually afford to buy somewhere.

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  • “The problem is that all the lovely credit ain’t flowing in from China etc any more (I’m not sure where it’s going now, TBH).”

    Australia, I think. Working on an FTA, at the moment.

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  • [email protected] … not so much what they say their house is worth, rather the minimum they can afford to sell for because they’re mortgaged up to the hilt and cannot afford to sell for a realistic price (I’m being pedantic I know! – but I think it’s an important distinction to make). It is this unwillingness to sell for anything less than initial inflated prices (‘cos houses always go up in value don’t they?) that’s causing a shortage of affordable houses and the low volumes we are seeing. Also lenders are raising the requirements for first time buyers – they are tacitly acknowledging the fact that prices are too high.

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  • Surely this could just be re-worded: Sellers refuse to drop asking prices.
    There you go, much easier.

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  • It added that a “clear strategy” was needed to put the UK mortgage markets back on a “sustainable footing” immediately after the general election.

    Are they having a laugh here? The UK mortgage market hasn’t been anywhere close to a sustainable footing for over a decade now.

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  • Free Trade Agreement

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  • tenyearstogetmymoneyback says:

    “The funding gap was previously covered by the wholesale mortgage debt market, the CML said.”

    Referring to the graphs from a couple of days ago what they should have said was.

    “Between 2000 and 2007 an increasingly large funding gap developed due money pouring in from the
    whole mortgage debt market.”

    Back in the mid 1990s a couple of pensioners savings = a first time buyer mortgage.

    Nowadays, even the pensioners savings are likely to be going abroad or spent due to
    pathetic UK interest rates.

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  • If a lender made a 100% mortgage loan to buy a £250,000 house then that is a £250,000 house irrespective of what the market’s currently saying. If it won’t fetch £250,000 the lender’s alternatives are to write down the asset or force the borrower to pay money he hasn’t got. The bank won’t do the first and can’t do the second. So basic supply and demand has to be suspended, the bank keeps a £250,000 asset on its books (“look, we’re not insolvent”) and we end up with a nonsensical ‘mortgage funding gap’. Implication – the taxpayer has to do something about it.

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  • The whole artical is a criptic message to the government. Isn’t this how governments communicated in the cold war?

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  • I like this bit –

    “In the long-term, this could reduce choice for consumers.
    It could also hit first-time buyers, as loans would be restricted to those who could offer a large deposit.”

    It’s terrible isn’t it? All those lovely wikkle fwuffy consumers and first-time buyers having their choices reduced. Oh no, what can we do??? We can’t allow their suffering to go on any longer.

    I’m surprised the BBC’s Minister For Propaganda hasn’t started trotting out the old “STR’s eat their babies” headlines!.

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  • @14 – “If a lender made a 100% mortgage loan to buy a £250,000 house then that is a £250,000 house irrespective of what the market’s currently saying”

    Are you sure this is right? I always thought that the ‘debt’ (loan) is the asset and not the collateral. How does a bank ‘value’ an unsecured loan?

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  • @14 – Ignore what I wrote, you are talking about a case of repossession.

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  • markj69 str05 says:

    @14 icarus…’If it won’t fetch £250,000 the lender’s alternatives are to write down the asset or force the borrower to pay money he hasn’t got.’

    Not sure I agree with this. It only holds true if the property is in nequity, and implies the majority of mortgages/property borrowing are associated with zero equity. I know personal debt has increased significantly, but I’d bet my (Landladies), house that most property still realizes some equity. Therefore, a crash is possible. Yes there will be huge casualties. But, the markets will correct and money will start to flow, again.

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  • @16 – The sentence you quote was meant ironically, as indicating bank policy (and probably the owner’s perception) rather than mark-to-market reality. The debt (loan) is the asset, as you say, and the £250,000 loan remains a £250,000 asset on the books as long as that valuation isn’t challenged by the market. The trick is to find ways of evading any such challenge (e.g. make it easier to keep repayments current by low IRs and govt help to keep people in their homes, dressed up as helping them rather than the banks).

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  • mark wadsworth says:

    @ Icarus, comment 14, that is a good summary, but I’d submit that the bank’s asset is the lower of the nominal amount of the loan and the market value of the property, but there is as you say, an inbuilt barrier to price correction.

    Which is yet more argument for allowing more new homes to be built for those who want to buy at sensible prices – if those who’d like to sell can’t sell (or the bank won’t let them) I don’t see why it should be a potential FTB’s problem. And then once property prices bottom out, introduce LVT to make sure this doesn’t all happen again, of course.

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  • mark w @20 – I did say @19 that the nominal amount stands as long as that valuation isn’t challenged by the market. And it won’t be if the borrower is given all kinds of help or incentive to keep up repayments and stay put.

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