Should banks be lending to house buyers?
19 January 2009
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Tax and Fiscal Policy
16 January 2009
Tax and Fiscal Policy
20 January 2009
Economic Theory
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Should the UK government really be encouraging households to borrow money to buy houses in the current climate? And should it be encouraging banks to lend to them as part of the latest bailout package?
Clearly there is considerable pent up demand for housing and this will grow over time. But a responsible government would surely be telling first-time buyers and others to put off their purchases. What is the sense in taking out a mortgage to pay for an asset that is declining in value by 15% a year?
And instead of exhorting the banks to offer cheap finance so households can saddle themselves with negative equity, the government should be congratulating them for their entirely rational behaviour of limiting their exposure to the housing market.
Clearly there is considerable pent up demand for housing and this will grow over time. But a responsible government would surely be telling first-time buyers and others to put off their purchases. What is the sense in taking out a mortgage to pay for an asset that is declining in value by 15% a year?
And instead of exhorting the banks to offer cheap finance so households can saddle themselves with negative equity, the government should be congratulating them for their entirely rational behaviour of limiting their exposure to the housing market.
18 thoughts on “Should banks be lending to house buyers?”
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Once interest is added, every 100k extra paid for a property could account for a total cost of 250k or more over the lifespan of a 25 year mortgage. This could easily equate to the borrowers effectively working for 5 years of more for NOTHING. Brown and Darling are doing no more than encouraging people to mortgage away their futures, for what, short term electoral gain. By all means support genuine wealth creation, but property bubbles create absolutely no real wealth.
Once interest is added, every 100k extra paid for a property could account for a total cost of 250k or more over the lifespan of a 25 year mortgage. This could easily equate to the borrowers effectively working for 5 years of more for NOTHING. Brown and Darling are doing no more than encouraging people to mortgage away their futures, for what, short term electoral gain. By all means support genuine wealth creation, but property bubbles create absolutely no real wealth.
The point is that if plenty of people buy houses, the prices won’t fall! The supply of most assets is relatively fixed in supply and 8/10 first time buyers will buy from people who will themselves look to stay in the housing market. Hence why house prices (and plenty of other asset) respond to bank credit…
Surely the real question should be: now the asset-price bubble has burst, should HMG be artificially holding up asset prices by distorting the capital markets (sovereign wrap around AAA rated securities) and allowing BoE to print money (Treasury Bills to finance the purchase of ‘quality’ assets)?
The Government is treating a hangover by having another drink?
The point is that if plenty of people buy houses, the prices won’t fall! The supply of most assets is relatively fixed in supply and 8/10 first time buyers will buy from people who will themselves look to stay in the housing market. Hence why house prices (and plenty of other asset) respond to bank credit…
Surely the real question should be: now the asset-price bubble has burst, should HMG be artificially holding up asset prices by distorting the capital markets (sovereign wrap around AAA rated securities) and allowing BoE to print money (Treasury Bills to finance the purchase of ‘quality’ assets)?
The Government is treating a hangover by having another drink?
I don’t see why any government should be telling first-time buyers and others anything at all about buying houses. It’s none of their business. Nobody knows how much the average price of houses will change in future, nor even in which direction. And there may well be significant regional and other variations around the average; and people’s personal circumstances may vary greatly.
An optimist might argue that a responsible government should take good care to keep its own finances in order; but by that criterion every British government in my lifetime has been irresponsible.
I don’t see why any government should be telling first-time buyers and others anything at all about buying houses. It’s none of their business. Nobody knows how much the average price of houses will change in future, nor even in which direction. And there may well be significant regional and other variations around the average; and people’s personal circumstances may vary greatly.
An optimist might argue that a responsible government should take good care to keep its own finances in order; but by that criterion every British government in my lifetime has been irresponsible.
The basic inconsistency is that the government stood back and took a laissez faire line as the market rose, even claiming credit for the boost that gave the economy, but is taking an interventionist line on the way down.
That is choosing to intervene to prop up the market at an artificially high level – prices are still above trend – and to do so they’re punishing the prudent to help out the unwise or the feckless.
A good rule of thumb is that in a crash prices bottom at roughly the peak level of the previous boom – so about £114K on the nationwide index as that represented the 1990 peak – we still have a good 25% to go…
Sit it out for 12 to 18 months would be my advice.
The basic inconsistency is that the government stood back and took a laissez faire line as the market rose, even claiming credit for the boost that gave the economy, but is taking an interventionist line on the way down.
That is choosing to intervene to prop up the market at an artificially high level – prices are still above trend – and to do so they’re punishing the prudent to help out the unwise or the feckless.
A good rule of thumb is that in a crash prices bottom at roughly the peak level of the previous boom – so about £114K on the nationwide index as that represented the 1990 peak – we still have a good 25% to go…
Sit it out for 12 to 18 months would be my advice.
When house prices were shooting up – way beyond the reach of first time buyers, the government didn’t intervene saying that the market would “find it’s own level”. Did it heck! As soon as house prices began to show signs of ‘adjusting’ the government started to artificially prop it up.
First time buyers unite! Sort this orwellian government out.
When house prices were shooting up – way beyond the reach of first time buyers, the government didn’t intervene saying that the market would “find it’s own level”. Did it heck! As soon as house prices began to show signs of ‘adjusting’ the government started to artificially prop it up.
First time buyers unite! Sort this orwellian government out.
So far estate agents, banks and landlords worked well together manipulating the market in their favour. When time should come for first time buyers the goverment steps in and indirectly helps same manipulators and influencing the housing market even further.
First time buyers need afordable homes not huge loans.
So far estate agents, banks and landlords worked well together manipulating the market in their favour. When time should come for first time buyers the goverment steps in and indirectly helps same manipulators and influencing the housing market even further.
First time buyers need afordable homes not huge loans.
The government props up the housing market in more ways than one. By paying housing benefit at market rates, they effectively offer a Sovereign Guarantee to landlords for the rent. As rents fall, there does not appear to be a decrease in the amount they are prepared to pay to house people in need. If they don’t facilitate lending to owner-occupiers, professional landlords will step in and we will no longer be a property owning democracy.
The government props up the housing market in more ways than one. By paying housing benefit at market rates, they effectively offer a Sovereign Guarantee to landlords for the rent. As rents fall, there does not appear to be a decrease in the amount they are prepared to pay to house people in need. If they don’t facilitate lending to owner-occupiers, professional landlords will step in and we will no longer be a property owning democracy.
One key problem of the Housing Benefit system is that a government agency – The Rent Service – actually decides what is a market rate, and also what constitutes a local housing market. Landlords rationally charge what they can get.
A further issue with HB is that it only applies to rented housing, with the effect that owner occupiers in danger of repossession cannot receive help, but they can if they are evicted and become tenants. Frequently they will be paying more in rent than on their former mortgage.
One key problem of the Housing Benefit system is that a government agency – The Rent Service – actually decides what is a market rate, and also what constitutes a local housing market. Landlords rationally charge what they can get.
A further issue with HB is that it only applies to rented housing, with the effect that owner occupiers in danger of repossession cannot receive help, but they can if they are evicted and become tenants. Frequently they will be paying more in rent than on their former mortgage.
The Mortgage Rescue Scheme was announced in November last year by the Government following an alarming rise in the number of people having their homes repossessed by mortgage lenders. The scheme is restricted to only 6,000 homes across the whole of England. That means only one in 25 households facing repossession claims in the courts can be helped. Its but a drop in the ocean and will not really have much of an impact on housing repossessions.
The Mortgage Rescue Scheme was announced in November last year by the Government following an alarming rise in the number of people having their homes repossessed by mortgage lenders. The scheme is restricted to only 6,000 homes across the whole of England. That means only one in 25 households facing repossession claims in the courts can be helped. Its but a drop in the ocean and will not really have much of an impact on housing repossessions.