Wednesday, 8 August 2018

Bubblicious!

Emailed in by Lola, from The Telegraph, which devotes a lot of column inches to pushing 'equity release' schemes:

Interest-only mortgage holders with no way of paying off their loan could be handed a lifeline, as major banks look to get these troublesome customers off their books.

Virgin Money has signed a deal with one of the biggest equity release providers, insurer Legal & General. It offers customers the opportunity to switch from an existing interest-only loan to a lifetime mortgage with the insurer.


(And yes, the article contains a link to another paid for puff piece pushing this.)

Hey ho. It's a sliding scale of twattery:

1. In the good old days, you could pay off a mortgage in ten or fifteen years, most of the monthly (or weekly?) payments were principal and some of it interest. The outstanding loan was paid off quickly.

2. House prices have been pushed ever higher and nominal interest rates ever lower, so a normal first time buyer mortgage can only be paid off over twenty-five to thirty years. Most of the monthly payments are interest and some of it principal. The outstanding loan is paid off more slowly.

3. Take it one step further, we have the interest-only mortgage. All of the payments are interest on none of it principal. The outstanding loan is not paid off at all.

4. The final step is equity release; there are no regular payments and the outstanding loan increases over time until it has swallowed up the entire value of the home. The interest-rate is correspondingly higher.

So, having mucked up by allowing people to move to level 3, they think they can fix things by letting them move to level 4.

Hmm.

Fits in nicely with the Home-Owner-Ist narrative, hard working home-owners with their justly deserved unearned land price gains, for which they clearly never paid, victims of those evil banks (who pumped up their unearned land price gains) being bailed out by those generous insurers, who will ultimately claw it all back again, if not, they'll just be bailed out by the taxpayer.

6 comments:

Ben Jamin' said...

You can add leasehold enfranchisement to that list. It's an unfair and extremely shortsighted policy. The accumulation of large plots is best regarding development. Breaking those up makes things much harder when it come to re-development in the future.

Which is another one of the things LVT would help sort out.

Shiney said...

So 1-4 means that, in effect, the so called 'home-owners' never own the home. They rent it off the banks/other financial institutions.

But.... unlike 'proper' landlords (loose term I know) the Banks/OFIs have no responsibility for maintenance/upkeep of the bricks and mortar etc plus get to charge all sorts of lovely fees for arranging the finance/payments etc etc

Trebles all round, chaps!

Mark Wadsworth said...

BJ, thats a separate topic. In an LVT world, I would agree, in a non-LVT world, I'm in favour of leasehold enfranchisement.

Sh, correct. The banks get the best slice of income for the least effort. And provided houses are resold or remortgaged regularly, their assets and income keep going up of their own accord.

Ben Jamin' said...

@ MW

Could you explain your reasoning? As far as I can see, a lease is akin to a long rent, from which the tenant is free to sell their tenancy onto the market at any time. I don't see the problem.

Futhermore, the owners of the leases can then plan to knock down and re-develop all of the buildings once every 125 years for example. That's got to be a good thing as far as making the best use of any given site. LVT or no LVT.

We should be encouraging more leaseholds not less. I also think a LVT, by making accumulation easier, would lead to more leasehold property. IMHO.

Bayard said...

BJ,

Leaseholds can be just like LVT. Where I live, much of the local town was leasehold, in that you owned the building, therefore it was yours to do with what you will, and rented the land it stood on. All this has long since gone by the board, of course.

I have long thought this would be a good model to produce truly affordable housing, but of course, what people really mean by "affordable" is really "undervalue". They want to turn the clock back to the 80s so they can buy a piece of land that will earn more money in their lifetime than they do.

Mark Wadsworth said...

BJ, in LVT world, most things would sort themselves out. In non-LVT world, we have to be grateful for second best solutions.

Plus, who says the freeholder will knock down the building in 125 years' time? His plot is just one of many surrounding plots. I take your point about site assembly and agglomeration, but re-development happens on the level of acres or square miles or whole towns, not haphazard replacing of individual buildings.

B, you have a low expectations about human nature :-(