From the BBC:
Continued low interest rates and mortgage market competition has led to another fall in the number of homes repossessed in the UK, figures show.
There were 5,000 homes repossessed in the third quarter of the year, the Council of Mortgage Lenders (CML) said. This compared with 5,400 in the previous three months and 7,200 in the same quarter last year.
OK, it's only half a myth, but it makes the usual Homey assumption that house prices and interest rates are a given, that mortgage debt is something real and that banks are somehow important to the economy (their 'plumbing' is important, making payments, changing currencies, filling cash machines, operating debit/credit cards and Direct Debits and so on, but the rest is fluff).
What really matters is whether the banks are demanding more than people are willing and able to pay each month. And how much you pay each month depends on three things: the nominal amount of the loan, the interest rate and the mortgage term. (Let's assume that people have already extended their mortgage terms for as long as possible and ignore that variable).
So it would be equally valid to say "Low house prices would keep home repossessions down".
At present, there's about £1,200 billion nominal outstanding mortgage debt, on which banks are charging an average interest rate of 3.5% (estimate). So the banks are charging £42 billion interest (actually, ground rent or privately collected land value tax) each year.
If interest rates went up to 5% but borrowers can only afford to pay £42 billion a year, it's not really a problem, banks can just write down mortgage debts from £1,200 to £840 billion, sort it out with debt-for-equity swaps, job done. I don't see what else they realistically can do.
Thursday, 13 November 2014
From the BBC:
My latest blogpost: Economic myths: "Low interest rates keep home repossessions down"Tweet this! Posted by Mark Wadsworth at 13:27