Friday, 10 October 2008

Another day, another reckless throw of the dice (2)

As John Pickworth pointed out, in reply to my question "What will they do next to prop up house prices?", our benighted gummint has thought up another wheeze to prop up house prices at taxpayer's expense:

Mr Purnell pledged that ... Those who are made redundant will get help to pay their mortgage after 13 weeks on the dole up to the value of the average house - £175,000.

The underlying message is: "If you are worried about losing your job, rush out and buy a property for £175,000 or less and you can live there rent- and mortgage-free"

FFS! Subsidies for land and property ownership are the very worst kind of subsidies* as these are in fixed supply, so subsidies just feed through into artificially high prices. Being repossessed is stressful, I agree, but that house doesn;t get demolished - the new owner either lives in it or rents it out - ultimately to the very people who were repossessed in the first place.

* The equal and opposite argument is that taxes on land values are the least bad taxes! This sort of scheme is yet another transfer of wealth from workers/businesses/tenants to the unemployed/homeowners. How about having a tax system that does the reverse?


Anonymous said...

Whenever anyone's offered a mortgage they're supposed (theoretically) to be offered Mortgage Payment Protection Insurance on the basis that ISMI isn't available for 39 weeks - by which time it's all over and repossessed.

Irresponsible punters who don't assess or hedge their risk properly, and decline the cover, are supposed (theoretically) to sign a disclaimer saying they were offered it, recommended to take it, but nonetheless decline the offer.

Presumably, then, they'll be proved right (again); the Guvvermint will always bail out the feckless and the irresponsible. Or at least this one will, in its desperate attempts to be loved by the electorate.

Snafu said...

whilst penalising the responsible...

Anonymous said...

We are saved Mark!!

Mark Wadsworth said...

PB, do you think I should have mentioned the problems with creditors and frictions with the UK, or is this a fair description?

Anonymous said...

Ill take it, ill secure the debts on future energy contracts. Send over the paperwork.

Lola said...

FT - you do know that there is now another witch hunt on the 'mis-selling' of PPI don't you?

Is it any wonder that no MPPI gets sold?

In any event most PPI is crap - especially and prticularly that sold by the banks, LloydsTSB contract which was/is a single premium plan with a huge commisison and horribe lapse penalties was particularly dreadful.

Much better to buy UB40 cover only and take income replacement insurance for sickness or incapacity. Even then there will be a 13 week waiting period before this cover kicks in as short waiting period contracts are costly. And UB40 cover is underwritten at claim, seeing as how it is unit rate - successful clain is problematic, again plans set up by banks etc are dodgy because the form completion is so bad - targets you see - so the basic insurance principle of utmost good faith is compromised.

We do FS advice on fees only. No-one but no-one voluntarily buys any of this stuff. I have lost count of the number of mortgages we have arranged where the insurance was never taken up. At least if it done on a commission basis someone is incentives to sell it.

PS Have done one mortgage in 2007 and none since!! Been paid tho' to advise clients NOT to buy houses.

Mark Wadsworth said...

L, "Been paid tho' to advise clients NOT to buy houses."

Money well spent and honestly earned!

Anonymous said...

Lola, yes, I'm familiar with the shortcomings of the MPPI products (and related products) on sale but that doesn't make it impossible to get reasonable cover at a reasonable price from an independent.

My own feeling is that as usual, when the FSA prescribed a desirable course of action - i.e. the requirement to recommend certain insurances - the industry just saw £££ signs floating in front of their eyes, again. Commission rates of 65% and beyond are purely a piss-take. Loading bulk premiums onto Rule of 78 loans and charging interest on them is a double (triple?) piss-take.

You see, I'm caught on the horns of a dilemma with this one. One of my few brain cells is urging that ASU should be compulsory. And "supervised" to prevent the bastard banks and lenders ripping folk off.

Another brain cell recoils in horror when it hears the bit about "compulsion". Let people make their own decisions, it says. Let them shop around and take responsibility.

The whole business of targets has been rendered senseless and self-serving, and finally it's brought some of the bastards down. The irony of Mortgage Regulation - designed by the FSA to ensure that everyone would get quality advice before taking on a mortgage - has resulted in exactly the opposite effect. Almost no one gets any sort of advice, let alone quality advice, because the high-street lenders have switched to "information only, make up your own damn mind". Why? Because it costs too much to have enough advisers, suitably qualified, and because the rules are so tortuous and the penalties so draconian that allowing individuals with targets to exercise discretion or control a mortgage application is like letting your kids play with a loaded shotgun. You just KNOW something bad's going to happen; you don't know what, or when, or how bad.

Example (one that I had a hand in sorting out): Bank clerk working for a lender that's had lots of publicity (good publicity) lately. Filled the forms out for a retired couple for a £20,000 unsecured, flat-rate, Rule of 78 loan for essential work on house. Loan agreed despite repayments being 75% of quoted income. Bank clerk sold ASU on top, despite retirement. When they couldn't repay, they ran up a credit card debt with the same bank. Same bank clerk gave them credit limit after credit limit increase. Then when the brakes went on, GOT THEM A SECOND CARD (with ASU, natch).

By the time they got to me and others who could help, they owed £80,000 but this kid in the bank was probably a hero. I'd have shot the little twat.

After getting fobbed off by the branch, a letter to the Chairman with a copy waiting to go to selected newspapers and the British Bastards Corporation produced an instant write-off of all debts. And 1 terminated career. But the snotty little bank clerk wasn't entirely to blame, was he? What about the sales manager who put him under that kind of pressure to earn his own bonus? Or keep his own job?

OK, it's not a regulated product but I've got a load of other examples; the people who were sold Offset Mortgages by Banks when they had limited incomes, no savings at all and really needed a Fixed Rate to help budgeting (if a mortgage was appropriate at all). But Offsets were the target that week.

People who were sold low interest rates with big fees added, when the numbers made it clear they'd have been better sticking with no fee and higher rate. And on it goes.

Sorry to rant. I keep reading about how bad it is for you, and how irrational, to be angry about things you can't control or change, and yet I've never been angrier in my life about a whole range of issues. Oh well. If it's as bad for me as they say, at least the ravaged remains of my pension fund won't have to support me for too long :-)