Wednesday, 24 November 2010

We own land! Give us money!

From CityWire:

With millions likely to suffer financial difficulty in meeting their mortgage repayments once interest rates start to rise, the Building Societies Association is calling on government and the housing industry to look at new ways to prevent these struggling homebuyers from being pushed over the edge and suffer repossession of their homes (1) – before disaster strikes...

The most important of these rescue schemes is undoubtedly Support for Mortgage Interest, a state benefit which pays mortgage interest (but not the capital) when a homebuyer becomes unemployed. Borrowers who find themselves in this situation can claim mortgage interest for up to two years at the ‘official’ mortgage rate of 3.63% after 13 weeks of unemployment on loans of up to £200,000. This meets most homebuyers’ outgoings as the average mortgage borrower pays around 4% for their borrowing with many paying as little as 2.5% or less (2)...

Only 225,000 low income households on benefits qualify for SMI. According to the government, more than half of those are pensioners eligible for pension credit (3) and about a third are lone parents or disabled people on income support. (4)

Only one in six is unemployed and receiving job seeker's allowance. This is because most homebuyers are disqualified from SMI because a partner’s income is taken into account. In effect this means that if the partner earns around £5,000 or more, then the couple is not eligible for mortgage interest benefit. Anyone with savings of £16,000 or more is also ineligible...(5)

What trade body the Council of Mortgage Lenders has long been lobbying for is reform which would allow SMI to be paid in proportion to the loss of income. For example, if the person who is made redundant earns £40,000 a year and the partner earns £20,000 then SMI should be paid at two-thirds of the full amount (6). Expecting the couple to pay the mortgage in full on just one third of their former earnings is totally unrealistic...

1) And who did the reckless lending and piled all this debt on people? The banks. And who did the reckless borrowing? The very people now hoping to be bailed out. And who stampeded people into that reckless borrowing? The Home-Owner-Ist 'house prices can only go up' Mafia. [extra sentences inserted at request of Dearieme in the comments] Which 'industry' was largely responsible for the house price/credit bubble and the subsequent recession? The banks. And in economic terms, who 'owns' the land and buildings occupied by 'struggling homeowners'? The banks. Continued page 94.

2) They cheerfully admit that even the new lower 3.63% rate is too high - the excess amount clearly goes towards repaying the principal element of the mortgage.

3) Why do people take on mortgages so late in life that they haven't paid it off by the time they retire? Why do people stop working, knowing that they still haven't paid off their mortgage? Did maybe some of them demand their right to large wodges of tax-free cash simply for being a home owner (referred to as 'mortgage equity withdrawal')?

4) How did these people manage to raise the deposit and qualify for a mortgage in the first place (see point 1)?

5) Yup, if you 'own' a house worth £200,000 with a £200,000 mortgage and have no savings, you are home free (sic). If you were a bit more prudent and bought a house for £160,000 with a smaller mortgage and have salted away £16,000 in cash for a rainy day, you get nothing. Cash isn't king any more - land is.

6) In other words, not only do the reckless get priority over the prudent (see point 5) but this is a kind of upwards redistribution towards former higher earners who didn't salt any money away. If we are to have redistribution, let it be downwards, or even better, flat rate and universal. If we can't afford to pay it to everybody, then we can't afford it.


dearieme said...

"And who did the reckless lending and piled all this debt on people? The banks." Bollocks. The correction is:

And who (i) did the reckless lending and (ii) piled all this debt on people? (i) The banks, and (ii) the people.

Mark Wadsworth said...

D, fair enough, I have amended.

formertory said...

re (3), I suspect a number of things. Like MEW to buy that achingly fashionable cottage in France which looked so good amongst one's little social circle, but is now unsaleable. Like MEW to buy a house for the kid an Uni because "renting is just throwing money away" and hell, it impresses the social circle just no end (oh, and the house is now unsaleable because it's full of shitty scruffy students). Like not thinking about restricted income in retirement. Like bank staff on targets to lend and bullied by the management to achieve them. Like the FSA achieving exactly the opposite of what was needed and ensuring that fewer people than ever get proper advice and risk assessment about their borrowing intentions. Like having run up huge credit card debt with the help and connivance of the bank staff on targets and then retiring and being unable to afford the repayments and so transferring it to mortgage (with the help and connivance etc etc). Like taking a Tracker mortgage at >4% + BoEBR without stopping to consider that if BoEBR only goes bak to where it was 2 years ago, they'll be paying over 10% p.a. Like believing that interest only mortgages represent salvation because they're "cheaper".

Mark, the list of peoples' stupidities is endless; I'll spare you, but I could go on because I've seen 'em all over the last few years.

Most of all, if I tell someone who wants to do this not to (which I have with varying degrees of forcefulness, and with careful explanation, the next thing I know is that they've been to the Bank instead "who were much more helpful". Yeah, right.

Re (4), they had the equity in their house. Most of these pensioners who have mortgage borrowings "only" owe a small portion of the value of the house, but it's still a large amount when interest rates rise.

Bollocks to them. They burned it all with their own stupidity and I resent bailing them out; and then bailing them out again when they can't even have their house secured to pay their care bills.

Oh, did I mention that I get very angry over all this :-)

Bayard said...

6) In other words, not only do the reckless get priority over the prudent (see point 5)

Pure politics of envy. The inevitable result of means testing. A modern version of Aesop's fable, would have the grasshopper safely installed in a taxpayer-funded house, being fed by the state, while the poor squirrel ekes out his hoard of nuts.

Lola said...

Former Tory. All 'me too'. Sigh.

Mark Wadsworth said...

FT, good list, that saved Lola the bother!

B, I don't do 'politics of envy', who exactly do you think is envying whom in this instance?

AntiCitizenOne said...

> Which 'industry' was largely responsible for the house price/credit bubble and the subsequent recession?

Nope. The state. Only they control the volume of credit.

AntiCitizenOne said...


Edward Spalton said...

The Mortgage lenders and property developers would like the taxpayer to underwrite the inflated prices which have occurred because of inflationary expectations and the unique tax exemption of profit on the sale of homes.

Home owners once used to pay income tax on the notional rental value of the house they occupied. This was before home ownership became such a sacred cow, It would certainly restrain people from trading up to ever larger homes "because you can't lose". Of course, it went together with very low expectation of inflation so there wasn't the understandable urge of the last forty years to get out of funny money and pile into bricks and mortar.

Bayard said...

B, I don't do 'politics of envy', who exactly do you think is envying whom in this instance?

Never said you did. The "everyone on the dole is a scrounger" types would be envying those who had savings but were still in receipt of benefits, even if it made social and economic sense. It is my experience that nothing upsets an Englishman more than to think that he is getting a worse deal than the next man, especially in areas where everything "should" be fair, like public handouts.