The Telegraph appears to be the only paper to have covered the rumour that the FSA will only allow banks to grant mortgages of up to three times salary. I personally doubt whether a) this is true, b) this is administratively enforceable and c) even if it were, whether our benighted government - who have desperately spent the last two years trying to reflate the property price and credit bubbles - would allow it, but never mind:
Spread over two or three articles:
Exhibit One: Melanie Bien, at mortgage broker Savills, said: "If you insist on putting a limit of three times salary, you will end up with as a subdued market as you have now. Prices will have to come down even further for first time buyers to afford a property."
Exhibit Two: why does the Government feel the urge to intervene in the mortgage market so crudely? It will make life tougher for first-time buyers.
Doth not compute.
If the measure were to bring prices down (which it almost certainly would), that would make like easier for first time buyers. But simultaneously, by a miracle of DoubleThink, it would also make like tougher for first time buyers. Don't the two more or less net off in the short term, with the overall long term effect being a reduction in the debt burden on the first time buyers?
Or does the avowedly right-wing Telegraph in fact favour the nominally left-wing government's original plan to do absolutely anything within its powers to reflate the property price and credit bubbles? Or what?
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Now I think about it, this is another good example of a marginal situations where you can choose between policies that make it easier to become wealthy and policies that make it easier to remain wealthy.
As there is a fairly fixed supply of housing and a fixed amount of space where it's worth building them, changes in house prices do not affect the overall wealth of the economy one bit - policies that keep prices up merely enable the already wealthy to remain wealthy, whereas restricting the amount of money that is funnelled into property, must, all things being equal, increase the amount of money that can go into more productive things, thus enabling people who aren't already wealthy to become wealthy.
Tuesday, 17 March 2009
Compare and contrast
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13 comments:
who knows, madness. More government intervention = more market distortion and disaster.
just as progress has been made to right the housing market after all these years...
What progress would that be? The hyper strict rules on planning permission or the lax lending criteria and artificially low interest rates?
lack of credit has markedly improved affordability - don't you think a 25% price fall is a good thing. We are halfway to normality.
I will give you planning and low interest rates, but I challenge the lax lending criteria - that is a thing of the past.
As you know, Mr W, I have something of a bee in my flabby and ignorant bonnet about lending criteria for house purchase loans. But even though I like the buzzing sound generated by this proposal it is not easy to see how the FSA can enforce it.
What I would hope to see happening is the lenders themselves realising, as they used to, that lending high income multiples is too risky. Provided the government keeps its nose out, the lenders' managers do their job properly and the shareholders keep them on their toes, it should be possible. But then, how likely is any of those three to happen?
I can see one problem with falling prices making life more difficult for first-time buyers, namely a serious dry-up of available property... As follows:
First-time buyers tend to buy from those who are about to become second-time buyers, ie are flogging their first house. If, however, said potential second-timers are now stuck with a load of negative equity - which in view of 100+% mortgages etc being punted at them over the last few years is not an unreasonable assumption - they are simply not going to be in a position to sell. Result, the market gets "blocked" and first-timers are stymied.
CU, yes, we are halfway to normality, give it another 25%.
TFB, as we well know, this is unenforceable. But how about the old rule that the board of directors is supposed to make money for shareholders? On that criterion, they have failed miserably - this is but a small step in the right direction.
P, for sure this might happen - then potential FTBs just have to sit tight and rent from 'reluctant landlord', paying less in rent than the property is falling in value while building up a nice cash deposit.
Don't forget that given the shape of our population pyramid, for the foreseeable future more old single people will be dying that young couples will be buying!
The Fat Bigot,
One problem is that multiples are far too crude a measure.
For instance, if you're a vegetarian who lives close to where you work, doesn't have Sky TV, doesn't have kids and goes on a camping holiday in the UK every year, you've probably got £700/month more disposable income than someone who has kids, regularly changes their car, goes to Spain on holiday etc etc.
If the government really wanted to stop problems in the housing market, they'd be better off setting maximum Loan to Value (LTV) of 90%.
1. Setting lower LTV would mean that banks would have very little exposure to bad debts. While repossessions cost money, they'd get most of it back.
2. It would dampen the effect of booms. At the height of property booms, you get a situation where FTBs can save less per month than the amount that properties are going up. If buyers can't rush into buying because of the panic, then prices will deflate.
Of course, the even better alternative is good old Land Value Tax.
TA, to refine that, in the MW banking bill will be a clause saying that the amount of the mortgage that will be registered as a secured charge will be restricted to the 'bricks and mortar' amount as established for LVT purposes (total property value = land value + bricks and mortar).
Of course banks are free to make unsecured loans over and above that, but this will have to be disclosed as 'unsecured' in the bank's accounts.
Thus there will be no leveraged speculation in land values (unless you want to pay punitively high rates for unsecured borrowing plus LVT on the land element).
You're all missing the point. Lots of Labour MPs & members of the Labour commentariat (such as Will Hutton) have extensive BTL empires. Their personal pecuniary interest is going to drive them towards policies which attempt to reflate the housing market.
SW, that's true as well, which I have mentioned often enough - MPs' second homes, for example (or maybe not often enough?).
I searched for a good site for a long time. At last I found http://www.debtreliefgeek.com/. This site has got it all. Their specialist made a special plan for me that helped me to get rid of the debt burden. They also negotiate with banks and do everything possible to bring down the interest rate.
Turner uses the term "economic rent" in the most ball-breakingly arcane way in the only interesting section 1.iv.5 circa p 106 of his Review (on Net).Never liked this term.
DBC, I think it's just his polite way of saying "Banks were abusing cartel powers and conning people".
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