Monday, September 9, 2013

Market forces require assistance from the government

95pc mortgages 'not weapons of mass destruction', Chancellor George Osborne says

George Osborne has used a speech in which he hailed the wider recovery of the UK economy to fight back at critics of his housing policies ... Most controversial of all has been Help to Buy, whereby the Government underwrites high loan-to-value mortgages ... But the Chancellor said on Monday that the average loan-to-value (LTV) ratio for first-time homebuyers had fallen from 90pc to 80pc. “That is why the Government’s Help to Buy scheme is a sensible, time-limited and necessary financial intervention to fix a specific financial problem: the dramatic reduction in the availability of high LTV mortgages," he said.

Posted by quiet guy @ 10:39 PM (2596 views)
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8 thoughts on “Market forces require assistance from the government

  • Classic Blue Socialism.

    “Hooray for free markets and no government intervention,” they cry, “No bailouts! Unless we’re talking about banks, land owners and other monopolists, of course.”

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  • Give him the benefit of the doubt……a weapon is designed to inflict damage on an adversary so this crazy scheme cannot rightly be described as a weapon. If we are very very lucky we may escape devastation. It is Russian roulette and the taxpayer is funding gun and bullets.

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  • Yes maybe not “weapons of mass destruction” but certainly a risky burden for the government/tax-paying public.

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  • Not a Hiroshima or a Nagasaki, more of a Fukushima.

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  • What no one has mentioned in all this is that the 15% threshold is not just to do with banks wanting protection against house price falls. That’s true of the thresholds at 25% and 40%, but the 15% threshold has more to do with Basel 3.

    Basel III requires that banks hold certain amounts of capital against certain loans and any mortgage with less than a 15% deposit requires considerably more capital to be held by the bank, thus making the loan more expensive and the interest rate higher.

    George Osborne can argue that 95pc mortgages aren’t dangerous until he’s blue in the face, but ultimately he’s sidestepping the most significant international banking reform to come out of the financial crisis just to buy himself an election.

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  • Assuming the policy works, he is effectively subsidising a range of deposits 5-25% such that the only benefit to saving for a bigger deposit within that range is to be able to bid that much more for the house.

    After years of making everyone save 15% (18% with stamp duty), suddenly anyone who is more than a third (or almost half with 3% stamp duty) of the way there is invited to a free-for-all where they can suddenly borrow 5x joint salary without having a 15% deposit.

    Obviously, this will create a sudden surge in demand, that will peter off after a year or so. You don’t have to be too economically-savvy to understand this. I suspect that most of the recent appreciation can be attributed to the smart money piling in early. I have heard a few people say recently that their parents urged them to buy before this scheme came into place.

    On the plus side, if it actually goes ahead, all the BTL brigade may be disappointed to learn that there aren’t so many tenants left to put pressure on the rental market.

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  • This is a typical war tactic “lay down your weapons, we are not attacking” whilst they mow down the opposition who have emerged from their rat holes.

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  • “Boy George” will be too young to remember the halcyon days of the 125% Mortgage and the collapse of Northern Rock but no doubt he will be familiar with “what makes you bad makes you better”

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