Wednesday, July 24, 2013
Comments are encouraging
What is ‘subprime’ about George Osborne’s Help to Buy scheme?
Though borrowers will at least be creditworthy, the scheme is still misguided, says John McDermott
Posted by tick tock @ 11:16 AM (4072 views)
3 thoughts on “Comments are encouraging”
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reticent says:
Agreed.
Pity that the downsides he focuses on are mostly about the bank subsidies, with the consequences for society as a whole only mentioned as a footnote.
The reality is that it’s not subprime mortgage lending. These are not NINJA loans. This is about getting credit-worthy young professionals who can’t save a 15% deposit whilst paying sky-high rents, to be able to access all of the 5x joint income that banks would offer them if they had the deposit.
It is, however…
i) the state guaranteeing mortgages (a la Fanny Mae and Freddy Mac)
ii) encouraging people to take on maximal credit halfway through a deflationary period in the leverage cycle
iii) encouraging people to take on maximal credit at a time when interest rates are expected to rise
iv) state-sponsored house price inflation at a time when most people think there is a housing bubble
v) the government gambling taxpayers money in a way that banks aren’t prepared to
Libertas says:
Whether or not they are credit worthy is besides the point. The State is underwiting mortgages which would not otherwise have been created. Thus, a person credit worthy for £100k may instead choose to take out a £150k mortgage, thus potentially rendering them uncredit worthy if rates begin to rise. Particularly a bad idea if rates, globally, are about to head on an upwards trajectory.
libertas says:
Whether or not they are credit worthy is besides the point. The State is underwiting mortgages which would not otherwise have been created. Thus, a person credit worthy for £100k may instead choose to take out a £150k mortgage, thus potentially rendering them uncredit worthy if rates begin to rise. Particularly a bad idea if rates, globally, are about to head on an upwards trajectory.