The acute vulnerability of the mortgage market

This comment was removed because the moderators found it broke the house rules. Explain.

The problem is that there was far too much money in the mortgage market during the last period of "sustained economic growth". This gave rise to house price inflation and a feel good factor in the British economy.

The government has an interest in maintaining house prices because it has underwritten the mortgages of Northern Wreck and the other securitised lenders. If house prices fall they will stand to loose a fortune. Expect a bit of inflation to hide the losses.

'Mortgage Insanity' is a better description of the state of the mortgage market. We are in group denial of the stupidity of the whole mortgage 'industry'.

It has, and is still, the major factor in destroying the social structure of the Nation - yet David Cameron (and Gordon Brown) is desperate not to limit its stupidity in any way - the only conclusion that is rational to draw is that both want to destroy society. (More than 3.5 times income severely limits the economic viability of couples to breed next generation - a fundamental necessity to preserve the Nation.)

Interest rates must rise to rational levels - i.e. 5 to 6 percent for savings and 8 percent for mortgages yet the politicians want to keep rates low - this will cause progressive collapse of the Nation and society. The fools (aka Mervyn King) allowed the asset bubble of the noughties to grow far too large (by leaving interest rates far too low) and are even now creating the next bubble - this is destroying the Nation!

> Think of our banks, in particular, as hooked up to a life support
> machine of guarantees and loans. If that drip-drip of sustenance was
> turned off with a sudden click of the switch, well the banks
> themselves would become pretty poorly again - and, perhaps, more
> importantly there would be a profound and unpleasant impact on all
> of us, their customers.

Please let's just switch off the life support for _bankers_ while
leaving it turned on for our own money banks.

Unfortunately, this all points to more expensive mortgages in the future.

I'm not convinced that competition will see margins maintained to the bare mimimum either, given the hammering competition has taken as banks focus on home markets as a condition of their bailouts.

Mortgages were the cause of all our woes.
We could have handled over-extended credit card debts and loans.....but mortgages are in a different league.
Of course the property market SHOULD HAVE COLLAPSED in late 2008, but was bailed out by masssive public support and 0% interest rates.
The government would have had to take over all those repossessions and either rented them out or had a fire-sale.
Effectively.....council houses in every street, even in wealthier areas.
Over-heated property markets are as dangerous as the British and American bankers who create them.
Perhaps now the public, and those in power, understand the extreme importance of sensible pricing and strict mortgage-approvals policy. (Come back Captain Mainwaring).
If the whole property market now depends on 0% rates, where do we go from here?
£20,000 cashback with every mortgage?.....that sounds like the dreaded 125% mortgage again.
Running a "boom" on rocketing property prices does not work...eventually it will always bite you on the backside. (Remember 1990).
Have we all finally learnt our lesson?.....I doubt it.

The whole economy relies on houses being far too expensive for the younger generation to afford without getting into ridiculous debt. Now the whole government of our country is dependent on house prices not falling to affordable levels and exposing the bad debt.

Brown in 1997 said in his first budget " I will not let house prices get out of control". He failed, and we are totally and utterly screwed.

It is no surprise that the most read story on the BBC earlier was "Australia looks for skilled immigrants". Why would anyone sane stay here?

And is it possible that we could actually have NEGATIVE interest rates?
I.e. the government or the banks will PAY you £100 a month to take out that mortgage.
We seem to be going that way.
Has any country ever had negative interest rates?
Our mad panic to save the banks and the property market seems to be sending us into madness.
Or, in effect, is not the 300 billion bail out subsidising all those dodgy mortgages?.....WE ALREADY HAVE MASSIVE NEGATIVE INTEREST RATES?

So we can look forward to another great accountancy fudge to lead us further down the plug-hole.

After AAA credit ratings, which have proved to be worthless...
After audits of banks, which allowed their assets to appear over-inflated, causing the credit crunch...

Now will come another fudge to allow UK Taxpayers to fund future UK mortgages, whilst somehow keeping the cost hidden from the National ledger.

I don't know how it will be done, but Robert, your article sounds like the first soundings to enable it to happen.

The fact that the taxpayer has given so much support for the mortgage market means that the government has the right and the duty to control that market, in the public interest.

It should be made clear to banks that continuing support, on an individual bank basis, is conditional on conforming to regulation by the FSA. This regulation should be designed to regulate, on a day to day basis, the flow of mortgage capital in a way that provides sufficient funds for the purchase of new build property, without causing overheating and a price bubble.

#3 John from Hendon: you have on many posts over the last few months repeat this mantra about returning to 3.5x income limits on mortgages.

Such a limit is foolish - the issue is (and should always have been had banks actually thought about it) affordability. I was allowed to borrow 3x income when interest rates were 12% which, on annual cashflow, is roughly the same as 5x income when rates are 6%.

As a borrower why should I not be allowed to take my own view on my likely pay rises, if I can convince a lender that this will happen then what is wrong with that rather than having some govt legislation to protect borrower's from their own foolishness.

Of course in the past, the lenders and borrowers both got suckered in by the delusion that house prices only ever go up and lost any sense of reasonable risk. This was made worse by people buying their house as an "investment" rather than a home.

There is very limited evidence that interest rates should go up to 5-6%, I would agree that some increase is needed fairly soon, but I doubt that level of increase is needed.

Going back to the blog. I think it is a good thing that mortgage supply is weak at least for a while. As a country we must break the belief that property is an easy way to wealth. Sadly, I do suspect that in the long term we will find that property prices will start going up again. If govt stats are to be believed (alright always a doubtful assumption) we are building far fewer houses than the increase in demand

Others have said it but I'll repeat -

Maybe if the mortgage market dies then housing prices can return to a sensible level. They were pushed up and up and up by the availability of ever more debt at ever cheaper rates. The so-called crash only resulted in the most minor of corrections and has done nothing to fix the underlying bubble.

Mortgages should be hard to come by.

RP Quote:
'the measures taken by the British government to prop up the banking system and limit the depth of our recession were an emergency life-saving procedure - and that they created all sorts of dependency problems for the British economy that will take years to fix'

By the way Robert, you know that some of wiser amongst us strongly disagree with this assertion that you have made on more than one occasion.

The Government should have had the decency to let several banks fail in late 2008. Yes, this would have caused a temporary stop to UK imports, and some rioting. And this was averted.
But to state that these were 'life saving measures' is totally untrue, as we would have got through those difficult months and come out a stronger, healthier Britain. Short term manageable huge pain, and long term health.

Instead, this Government has injected the poison of Hundred's of Billions of Pounds of debt to foreigners on to its own people.
This slow poison of debt slavery to outsiders is lethal, and will kill of this country for the next fifty years.

So, life saving ?
No.
Death inducing.
Yes.

my grandfather was asked by the family in the early eighties to buy his council house for 10k. he refused stating that council housing was for the benifit of low income families and that if right to buy was allowed to continue we would all pay the price. how right he was.to continue subsidising the mortgage market will bring this once great nation to its knees.

Posts 2 and 3 pretty much sum it up, the housing boom has destroyed this country for younger generations. I've waited for 9 years , saving hard for normality to return to the housing market, just as it finally was we had the colossal bail out and now a new house price boom! So now its life in limbo just like the last 9 years. I cant even contemplate starting a family. This is messing with peoples lives.

The sensible are now the losers again, all the help being heaped on the over borrowers. Many ordinary people on web comments like this saw trouble with low rates, debt and runaway house prices and warned for many years , yet we're spun the line about no one saw it coming and its a global crisis. Its happening all over again and its obvious, so why is it being allowed to happen again? Why aren't the obvious questions being put to the politicians by our media?

Don't think Australia is necessarily a better bet.

They've been paying people to buy houses via large tax incentives with fairly predictable results in terms of rising house prices.

At least the weather is better there though.

Robert

You say `The bad news for banks is that we're putting a disproportionate share of our new saving into unit trusts and products other than bank accounts.'

I have a stack of my own cash on deposit with a major High Street bank at the moment just in case of an emergency whilst I fulfil my obligations as an attorney for an asset rich but cash poor frail and elderly relative who has recently gone into a care home. Yet every time I speak with the bank I am enouraged to move this money into fixed term accounts at higher rates of interest even though I might require instant access.

Surely, the way to square the circle is to pay a decent rate of interest to the retail depositor as John_from_Hendon has so rightly pointed out today and many times before. I can only echo his heartfelt sentiments.

What you, the government and the financial services industry seem keen to forget is that there are more savers in this country than borrowers. If savers got a decent rate of return on their savings then there would be more savings, more funds to invest and a virtuous circle would develop as it has in previous times.

The question needs to be asked is why can't this be done? The answer to this is that all of a sudden the duff assets that the banks collected during the good years would become even more duff. Now, if we separated retail banking from the funny stuff where or rather who would be left holding the duff assets. My guess is that this would be the over-bonussed funny men who would suddenly find their bonussed world of fun vanishing in a puff of blue smoke a bit like Barings did. (By the way I rather enjoyed the comment on the BBC they other day that Nick Leeson was the John the Baptist of the investment banking cult.)

Why am I and all the other savers in this country subsidising these rogues from my years of prudence?

I dont pretend to be an expert on the banking system but doesn't that tend to suggest that somewhere along the line there have been losses totalling hundreds of billions ?

The answer is simple. For new houses slap a 150% tax on land that's sold for more than £25,000 per acre. This will slash new house prices and have a corresponding effect on existing houses.

The negative equity issue can be dealt with by a one off write down.

After all - it's only pretend money :-)

In effect, that is £314bn of credit provided to mortgage providers by us, by taxpayers.

Us the tax payers... who in 2010/11 are expected to pay only £144.7Bn income tax, £74.2Bn VAT, £41.7Bn Corporation tax.

When you compare these numbers you realise how near bankrupted we are as a nation. We will simply never generate enough income to support all the liabilities that are pressing from every side.

@stevewo: "is it possible that we could actually have NEGATIVE interest rates?"

We have had, that what Quantitative Easing was all about £200bn of it.

#11. Justin150 wrote:

"affordability..."

You know I am going to disagree - and this is the expression of my disagreement....

This is absolutely where we have as a society gone wrong. I will repeat the argument that blows this stupidity out of the water (as it is still in circulation).

Affordability: i.e. when interest rates are low then higher multiple of income are affordable so they are lent and all seems OK. The trap that we have then inevitably built into our economy is that it becomes impossible to ever use the only available and acutely necessary mechanism of putting up interest rates. Thus the property bubble becomes self reinforcing and hence the economy will inevitably collapse.

Thus affordability is insane as an argument for managing the size of mortgages and it is not unreasonable to argue, as there is unanswerable evidence, that this very argument was one of the main causes of the collapse of the UK banks and is thus absolutely to be avoided at all costs and represents criminal economic irresponsibility.

Economically when there is a resource in chronic under-supply the price will rise with out ceiling. This is what has been allowed as the stupid fools that ran the regulation (Mervyn King etc.) kept asset price inflation out of the considerations when setting interest rates. They were and are balmy and they, and the advocates of 'affordability', are prime causes of this collapse.

To all those posters who think the mortgage market dying would be a good thing since it would bring down prices..
WRONG

If mortgages aren't available why would anyone build new houses except for the lucky few who can secure the funds? Given our population is growing this would lead to MORE expensive housing due to housing shortages.

Mortgages are NECESSARY to help people purchase a house BUT the fact that houses are used as a speculative source of wealth in this country IS the problem - I've posted this thesis before but I'll do it again:-
If all house sales had capital gains tax applied then it would put a brake on people moving just to 'keep up'. would generate a useful amount of tax and would help first time buyers since they wouldnt have to pay a tax and builders would have a more stable market for which to build. Before the howls of protest drown me out, note that capital gains taper relief could be applied so people who have been in their houses for a long time and need to sell to downsize, fund retirement etc could do so without capital gains tax being applied.

Although house price rises would probably be restrained by this, I wouldnt mind my kids being able to afford a house in the future rather than notionally sitting in a pile of bricks and letting it make me feel 'wealthier' without actually doing anything.

Let the protests begin.....

Ah but the people who make these decisions (and the people that vote them in) already own houses with hyper inflated prices and have no intention of selling at a loss.

"Better to rent the thing out to fund our pension and wait for the recovery, Margery."

Sadly it will only be a massive increase in interest rates for mortgage holders or a similarly massive increase in house building that will break this deadlock and I look forward to both.

So, first the mortgage market props up the government, underpinning its economic policy.... then the government props up the mortgage market in order to maintain the illusion of economic recovery and win the election... and eventually both mortgage market and house prices will come crashing down, but it won't matter, because it'll be another five years before the electorate can do anything about it...
Lucky for some that it is possible to create the short term illusion of prosperity.

So what absolutely cannot happen is a further fall in house prices which would mean that there would be no chance the banks could come off the life support of the SLS and CGC. To sustain house price inflation we will need low interest rates, so it will be interesting to see what happens under the next administration to the policy of maintaining inflation with monetary policy at all costs, when the cost to do this will be economic suicide because of the fallout from the declining values of mortgage backed assets leading to further credit constraints and also the loss of a decent credit rating for government debt.
These facts highlight the urgent need to get the public sector finances under control sooner and faster. There is still this arogant assumption by the current administration that they will be able to determine the timing of constraining the public finances, it is clear that this could very easily be determined by the bond markets much sooner than is being presented. Perhaps it is a scorched earth policy or perhaps it's just a continuation of the economic incompetance of this government.
I'm ususally quite critical of a lot of what Robert Peston writes here on this blog but this is a very good analysis of the current state of affairs in the mortgage market, and hopefully these facts will be included in the debate surrounding the management of public sector borrowing highlighting the need for fiscal prudence sooner and faster.

Justin150 @ #11. You clearly have a limited grasp of finance/economics. Falling interest rates, as in the example you've given, are accompanied by falling inflation and slowed growth in wages. In such circumstances, the timing of payments on a mortgage are shifted out to later in the life of the mortgage, but it will still end up costing you the same amount of money as a percentage of your overall income. Lower interest payments are matched by slower growth in incomes. There's no reason that the ratio of income/house price should change if interest rates fall like this. Nonsense like what you have stated is what created the current situation.

The Debt Management Office sells £178 billion in gilts to investors.

The BOE creates £200 billion in new money, buys £178 billion of gilts off the same investors and any gilts that are due for redemption.

The BOE swaps these £178 billion in gilts for mortgage bonds off the banks.

A significant proportion of the mortgages covered by these bonds are likely to fail.

So when 2012 comes and it’s time to swap back, the banks are broke again.

If ever there was a point in a country’s history where a state banking system was needed, this must surely be it.

For how long are we going to prop the banker bonuses and those who over-extended themselves?
If we allow hose prices to come down to sensible levels a natural flow of capital from those who have stable income but cannot afford the current house prices could heal the whole economy.
Anybody can see there is another bubble in the house market.

26. At 12:14pm on 08 Feb 2010, FearandLoathing wrote:
So what absolutely cannot happen is a further fall in house prices which would mean that there would be no chance the banks could come off the life support of the SLS and CGC. To sustain house price inflation we will need low interest rates..
>>>>>>>>>>>>>>>
We dont really need house price inflation at all FearandLoathing - stable house prices would be fine since those mortgages would be worth notionally the same - House price inflation is the problem that created our current mess - house prices were inflating faster than the economy was growing and faster than people were getting pay rises. This is clearly unsustainable in the long term making housing more and more unaffordable.

3. At 11:03am on 08 Feb 2010, John_from_Hendon wrote:
It has, and is still, the major factor in destroying the social structure of the Nation.
-------------------

I wholeheartedly agree with you, yet I don't a will for a change even amongst us the consumers!

ARE WE DRUGGED OR HYPNOTISED OR BOTH?

It's disingenuous nonsense for the banks to claim that low base rate is preventing them from attracting savers. They may adhere strictly to a close relationship between base rate and the miserly sums they pay out to savers, but they certainly don't recognise any relationship between base rate and the rip-off charges and arrangement fees they're currently inflicting upon borrowers. As per usual, the banks want it both ways. Caledonian Comment

Champagne communism at its finest. Why should the productive be subsidising unearned gains on house prices? As somebody who has been prudent and didnt buy during the bubble, I would welcome a return to an efficient market.

Withdrawing tax advantages to home ownership would also be a positive step. Viewing housing as an investment has been bad for the economy and society in general.

#23 EmKay

We don't really need many new houses. Bar immigration, the UK population is not growing. Making mortgages hard to get and in restricted amounts is a surefire way of restricting the housing market inflation.

If it means that not everyone can sell themselves into a lifetime of slavery to the bank in order to get the hovel of their dreams, so be it.

Look up tragedy of the commons to see why cheap/easy/large mortgages are bad. Individual self interest (outbidding the other lot to get the house) results is a detriment to us all (houses become ridiculously expensive).

Unfortunately the price of money is going to have to catch up with the underlying price of assets. Money is an abstract concept most assets are real and tangible(houses). I'm afraid inflation is the only way out of this mess as painful as this will be. After which we need to look long and hard at the failings of our macro economic policy, as unpalatable as this may be it's time we viewed the Emperor in all his naked glory.

Fascinating to see put down in writing what many are thinking/aware of.

The net result will undoubtedly be a fudging of an answer. To some extent the guarantees will end, with a resulting impact on the cost of borrowing but almost certainly some will continue.

National debt hasn't been a priority to date but easy to guess it will be by the time this decision comes around- and the political element of the election having already taken place adds an additional dimension. Perhaps making it easier to end the guarantees- impressing the ratings agencies etc safe in the knowledge that there is nearly an entire parliament to watch mortgage/interest rates rise and then (hopefully) fall again...

Oh to have a crystal ball...and no mortgage.

So by bailing out the banks, we taxpayers are now even more vulnerable to banking failure? We are now held to ransom by those very institutions which would not exist if we hadn't provided a lifeline to them? That is deranged!

Years have passed since the system collapsed and I'm still none the wiser as to why we ended up on the hook for the whole darn thing. Lofty people say how much worse it would have been if we'd done nothing, but no-one is quite able to say why. What I really want to know is how the taxpayer will really benefit from this. After all, they're the ones who will suffer higher prices, reduced public services and job losses for decades as a result.

Was it really worth it? Could we not have spent that money building a better system? It probably would have cost the same but the benefits would might have been felt by all, not just by a few.

Hopefully this will mean deflation is not far off?

Rising mortgage rates would clearly be unpopular. Rising mortgage rates would not be affordable for all. Cue those wanting to blame those affected borrowers for borrowing too much....

The flip side of the vulnerable mortgage market is massive bank debt write off (or bad debt losses) for the banks, something the banks won't really want, you might well think? (It's NOT in the bank's interests to raise rates too far because of the losses they will suffer.)

Wrong! Obviously they won't raise them more than they have to, but the point at which this is painful for banks and painful for borrowers won't necessarily be the same. But borrowers won't be what the bank's want if they're in cashflow trouble of their own. They will want....savers.

The banks have a big problem now and will still be in a degree of trouble come 2013. By then they will have had 3-4 years to improve their financial strength. But given the sheer scale of their problems 15-20 years may not be enough.

In the intervening period the regulator will be wanting the banks to build greater capital strength - it was said recently that Barclays would be obliged to find something like £17bn to achieve their required quota.

But if they are unable to lend, because of a lack of capital and higher lending rates, house prices won't be affordable. If the pressure remains to reduce or keep wage rates low, higher morgage payments in 2013 on debts taken out in 2006,07,08, at a time when things were different, will hardly be conducive to keeping any any asset prices high.

34. At 12:38pm on 08 Feb 2010, Gothnet wrote:
#23 EmKay

We don't really need many new houses. Bar immigration, the UK population is not growing. Making mortgages hard to get and in restricted amounts is a surefire way of restricting the housing market inflation.

If it means that not everyone can sell themselves into a lifetime of slavery to the bank in order to get the hovel of their dreams, so be it.

Look up tragedy of the commons to see why cheap/easy/large mortgages are bad. Individual self interest (outbidding the other lot to get the house) results is a detriment to us all (houses become ridiculously expensive).

>>>>>>

Actually Gothnet, even if there was no immigration (some chance) the number of households would increase due to household breakup etc so we still need more housing and there are also issues with people moving from one part of the uk to another.

the problem isnt so much that mortgages were available its that there was a disconnection between what houses are actually worth and what people were being forced to pay for them - and that is due to speculation and the fear that if 'I dont buy soon I'll be priced out of the market'. This is the true tragedy. In many ways, mortgages are fairly safe for banks provided the house prices are NOT massively inflated as they were (and still are to some extent) since there is an asset to sell.

Not having mortgages available are sowing the seeds for YET another asset bubble in the future when demand can finally start to be satisfied.

#16. StephenBlencowe wrote:

"Don't think Australia is necessarily a better bet.

At least the weather is better there though."

Better? Give me gentle rain and a temperate climate over 40-degree hell any day.

I do not know if I understand this correctly. If the money provided to the UK mortgage market is in one way or another flowing/maintained, albeit in a restricted format, by the Bank of England that in effect printed money out of thin air (quantitative easing) and represents the government/taxpayer who own a large stakes of the UK banks anyway then in effect current mortgage money would constitute part of the national UK debt that needs to be repaid to balance the books. In other words, a further dip in the housing market, which is likely, would further expose the taxpayers and add to the overall UK national debt. Is that correct?

All the QE has done , if put of the day of reckoning until after the election, which is what it was all about trying to save one man's job.

supply and demand thats the housing market for you some reason fo rthe problems are

1) Keep the golden goose going to GB can squander the profits

2) To big a rise in the POPULTATION this is an ISLAND , if Alan Johnson
payed attention at school .

3) The breakdown of familes which results in the need for more houses
prorator of population than 50 years ago.

need to start addressing these issues

However as we've made £6 billion profit this year, we'd like to give £1.5 billion out in bonuses. is that ok with everyone?
Ta

I remember buying my 1st house in 1986 - a new box. We had to jump quick to get a house before its price inflated out our reach. The house cost 56k, but the rebuilding cost was 14k...

The true value of the house is the rebuilding cost, everything else is opportunity cost. Interestingly, my current 200 yr old house cost about as much to buy as the quoted rebuild cost.

This difference really highlights the issue. We all need a house to live in, like we need water, clothes and food. Yet they are being priced out of reality because people are using a house as an investment asset /or income stream. No matter what you believe, surely you must see that this is not sustainable and is basically mad.

As much as I like the idea of there being equity in my house, unless it halves in value, in the future my children will be living with me, in a squat, or will have emigrated. How else will they afford to house themselves?

As a side jibe, it's interesting to note that despite houses rising some 400% over the last 15 years, estate agent fees have remained constant, and not reduced pro-rata. Capitalistic competition at it's finest.

#23, EmKay:

"If mortgages aren't available why would anyone build new houses except for the lucky few who can secure the funds? Given our population is growing this would lead to MORE expensive housing due to housing shortages."

Sorry, but I think your logic is flawed. If house prices fall, then the price of land falls. So anyone building new houses won't be able to sell for as much, but will buy the land more cheaply in the first place, which will tend to cancel out the effect of falling prices.

It seems to me to be obvious that the housing market it grossly overvalued. It can't be right that professional people on reasonable incomes can't even begin to afford to buy somewhere to live. That just isn't sustainable, and has only been sustained artificially by the over-availability of mortgages caused by all the bankers' little tricks (with collusion by the government).

If the artificial boost to the mortgage market really is starting to vanish, then it would be reasonable to think that a consequence will be a return to sanity in house prices. Given that prices have risen over the last year when we're in the worst recession since the 1930s, something clearly isn't right.

#39 EmKay

"the problem isnt so much that mortgages were available its that there was a disconnection between what houses are actually worth and what people were being forced to pay for them"

Nobody was forced. Everyone had a choice. Some of us chose not to get into 30 years of debt for something clearly not worth the money. The prices were high because too many people bought into the idea that the price could only ever go up and decided that at that point it didn't matter about price inflation. They stretched themselves and took out every little bit of debt they could, all to be ploughed into the housing market to inflate it further.


"Not having mortgages available are sowing the seeds for YET another asset bubble in the future when demand can finally start to be satisfied."

I disagree, vehemently. Limiting availability and limiting the amount that can be borrowed is the only way to control the market. Otherwise there is an arms race in which the most desperate go ever further into the negative for bricks and mortar, and people impoverish ourselves for life just for a roof over their heads.

Dear Robert

Thank you for this article which I have enjoyed. When you look at numbers on such a scale they are frightening I think. I see that you are becoming a convert to the type of analysis I have seen on https://notayesmanseconomics.wordpress.com where the difference between official and actual intertest rates has been a subject matter for some time. No wonder our economy is underperforming! He also feels that we need genuine reform of the banks for there to be any real improvement.
Why are those in charge not listening to this?

The regulators need to set the limits relating to how much can be lent to individuals on mortgages and other personal credit. It is clear that most individuals do not known when enough is enough and will follow the crowd to keep up with the Jones'. It is about time that the Regulator (aka government) started to manage the nations expectations.

Mortgage lending must be allowed to retrench and house values should be allowed to 'normalise'. The reset must happen. Those who enter negative equity should accept the risk that the value of housing can plummet as well as go down and should stick with it! If that means they can't buy the latest tat from B&Q to lavish on their monopoly money homes, then they must learn to live with it.

Banks must wake up and smell the coffee and realise that they cannot make vast profits anymore from ripping indivduals off with all sorts of credit products. The system allowed banks to get riduculously greedy. Until a decent regulator steps up the mark, we are not going anywhere but down the pan.

The trouble with the Regulator, is that they do not regulate - they provide 'guidelines' which are left open to interpretation, and as a consequence leave the unscrupulous operators to duck and dive, and make the rules up as they go along.

It is always easier to give subsidies than remove them. With large subsidies it is even harder to remove them. This is why subsidies should not be given, and if ever give under duress have clear removal steps in the giving. It is ineveitable that those getting subsidies squeal about them being removed. It has always been the case.

37. At 12:53pm on 08 Feb 2010, Dave wrote:

"Was it really worth it? Could we not have spent that money building a better system? It probably would have cost the same but the benefits would might have been felt by all, not just by a few."

There lies the problem, the few you refer to above are the ones who make the decisions, any new system would dilute their power and influence. Never forget everything is about maintaining the status quo and suppressing the majority. What happened at the end of 2008 rattled them but they have steadied the ship again. More stormy waters ahead though.

45. At 1:32pm on 08 Feb 2010, DisgustedOfMitcham2 wrote:
#23, EmKay:

"If mortgages aren't available why would anyone build new houses except for the lucky few who can secure the funds? Given our population is growing this would lead to MORE expensive housing due to housing shortages."

Sorry, but I think your logic is flawed. If house prices fall, then the price of land falls. So anyone building new houses won't be able to sell for as much, but will buy the land more cheaply in the first place, which will tend to cancel out the effect of falling prices.

>>>>>>>>>>>>>>>>>>>>>

Sorry - this doesn't make sense to me. Lets say that house prices fell and land prices fell (not necessarily but lets assume it). It will still cost quite a lot of money to buy land and build a new house. How many people have 50k-100k sitting around waiting to use it? The existence of mortgages is not a bad thing, it is the fact that in the UK there is no capital gains tax on houses so that, by itself, fuels speculation and drives up house prices.

House prices will not fall substantially if there is low mortgage availability because very few people will be moving since they wont be able to secure another mortgage!

Remember that people are not rational - asset bubbles have been going on for a long time (South Sea bubble, Tulip bubble etc) and they only way to solve the speculation in property is to tax the capital gains with suitable provisos for tapered relief for long term residents etc etc

46. At 1:33pm on 08 Feb 2010, Gothnet wrote:
#39 EmKay

"the problem isnt so much that mortgages were available its that there was a disconnection between what houses are actually worth and what people were being forced to pay for them"

Nobody was forced. Everyone had a choice. Some of us chose not to get into 30 years of debt for something clearly not worth the money. The prices were high because too many people bought into the idea that the price could only ever go up and decided that at that point it didn't matter about price inflation. They stretched themselves and took out every little bit of debt they could, all to be ploughed into the housing market to inflate it further.
>>>>>>
The notion of 'forced' is not literal - it is the irrational need to join the pack in fear of losing out. So you are mega-rational - well guess what - you are probably only 1% of the population. Dont expect clear thinking to be the majority action.

"Not having mortgages available are sowing the seeds for YET another asset bubble in the future when demand can finally start to be satisfied."

I disagree, vehemently. Limiting availability and limiting the amount that can be borrowed is the only way to control the market. Otherwise there is an arms race in which the most desperate go ever further into the negative for bricks and mortar, and people impoverish ourselves for life just for a roof over their heads.

>>>>>>>>>>
I didnt actually disagree with limiting the amount that can be borrowed - I agree with that but how do you decide availability - obviously restrict to people who prove they have a job but what happens when lots of people have jobs (eg before latest recession) due to a government debt fuelled splurge? Who gets to decide which lucky person gets a mortgage? You? Me? No - how much the banks can borrow on the markets which is fine provided its not all built on a house of cards like the last boom was. Humans are NOT inherently logical or rational. It is a learnt behaviour.

I still stick to my guns that the way of taking the heat out of asset price bubbles such as the housing market is to tax capital gains on all house sales - this would reduce the attractiveness of speculation and the rate could be altered to suit circumstances and give another tool to manage the economy.

Your solution is NOT to reduce demand - the demand is still there although unsatisfied since people will be forced to rent / remain at home with parents / house share etc - but to make it impossible for people to start owning a property. Do you think renting for your entire life is a better option than owning your own property? I dont.

# 38. At 1:08pm on 08 Feb 2010, spareusthelies wrote:

> Hopefully this will mean deflation is not far off?

Fingers crossed. One chump was saying (last week) that we should
be glad when prices go up. No way - I'm always trying to lower
the costs, so a lot of deflation right now would really cheer me up.
When things get really cheap, I might be tempted to spend some money,
but when things are dear, forget it - I'll eat spam until
the price of meat comes down!

So people, when do we start the revolution?
Blogging is not going to bring the bread on the table?

I do not buy this doomy scenario.
The British mortgage scene is now a lot securer as LTVs, multiples of income, certification of income,credit scoring etc are all much more conservative than of yore and payment histories demonstrably better.So for wholesalers to look at the whole scene, the risk level is much lower.
And with the added carrot of a likely transitional and reducing guarantee scheme,(you first heard it here, but it will help the government to offload £300bln of liabilities eventually ) which will be necessary to allow the repackaging of these loans wholesale,the improving economy and the need for huges swathes of institutional cash cash to find a home, ..... with all of these helpful factors, I think we will actually be ok in the long run.
Onward ho says go-go-go for wholesale dough!

11

You also miss the affordability of the money the 'bank' borrows to lend. The former link between savings and mortgages which is still imagined by many no longer functions. As the amount of mortgages outstripped the supply of savings some years ago.

These now have to be funded out of market lending which expects a far higher return to fund the profits and bonuses. Hence the oft quoted link between mortgage and LIBOR now and not the baserate which most assume.

A low multiple keeps the ability to fund under control as much as it keeps prices of housing under control.

Also don;t forget that borrowing from the future which applies to retail borrowers also applies to the banks - they borrowed massively from the future and house prices now reflect the prices from the future they borrowed from. Is that 10 or 20 years hence I don;t know, but they are vastly overpriced now and there is a mountain to overcome in attitude where the price of a house is readily equated with a persons perception of their wealth.
This is why we were all encouraged and bribed (council tenants that is) to buy them to fuel this particular speculative bubble.

We are I fear in for a real let down - either through a proper collapse of house prices to sustainable levels, long slow stagnation/deflation or through inflation, none will be pretty.

22. At 12:10pm on 08 Feb 2010, John_from_Hendon

I don't think that Mervyn King is the real culprit here. He is merely a puppet and his remit was to set interest rates consistent with keeping CPI inflation at 2%. This target was set by none other than the saviour of the free world, Gordon Brown.

"23. At 12:11pm on 08 Feb 2010, EmKay wrote:

.... the fact that houses are used as a speculative source of wealth in this country IS the problem"

The problem is the basis for the monetary policy of the Labour Government, implemented by the 'independent' Bank Of England.

How can you sensibly set an inflation target that doesn't take account of the cost of purchasing somewhere to live? This ridiculous policy should have been exposed as soon as a bubble started to inflate - there are lots of long-term indicators that could have helped with this, such as prices to disposable incomes - and the goalposts should have been moved.

This would have lead to a truer inflation measure, and therefore truer (higher) interest rates, dampening down the housing and mortgage bubbles.

55. At 2:02pm on 08 Feb 2010, onward-ho wrote:
I do not buy this doomy scenario.
The British mortgage scene is now a lot securer as LTVs, multiples of income, certification of income,credit scoring etc are all much more conservative than of yore and payment histories demonstrably better.So for wholesalers to look at the whole scene, the risk level is much lower.
And with the added carrot of a likely transitional and reducing guarantee scheme,(you first heard it here, but it will help the government to offload £300bln of liabilities eventually ) which will be necessary to allow the repackaging of these loans wholesale,the improving economy and the need for huges swathes of institutional cash cash to find a home, ..... with all of these helpful factors, I think we will actually be ok in the long run.
Onward ho says go-go-go for wholesale dough!

>>>>>>

Onward-ho - I like your upbeat views on everything. But.. are you a spin doctor employed by GB to subvert the blogging community (powerful though we are ..ho ho!)

Hello Mr Peston (and others),

The problem seems to me that the banks can't offload their mortgage books onto the wholesale markets in order to re-lend, and this is the case because those who would otherwise buy this debt fear mass defaults will cause these 'assets' to be written down in the future and become worthless.

Something I have been wondering for a while why the government cannot simply change the insolvency laws to hold those who took out the debt to remain liable for the balance of the loan, minus the interest. For instance, if you have a £100,000 mortgage and declare yourself bankrupt then you are still liable for the £100,000, but not interest and charges added to it. This could be deducted from salaried wage in the same way student loans are. Perhaps a nominal amount of interest could be added annually to those debts which would otherwise be written off based on CPI. The debts could also be written off (as student loans are) on retirement or death.

This instantly gives the mucky stuff that the banks, and now the government, are holding immediate value to be resold, since these debts are now likely worth at least their face value. Not only is each mortgage secured against a property, but the balance of any shortfall is guaranteed by the borrower. Credit cards and unsecured loan books will now also hold their face value. Suddenly the government finances don't look quite so shaky, the banks balance sheets are instantly propped up without government aid and they can be taken off life support.

Better still, there's no need to punish savers any longer, the so called free market of housing can be left to find it's natural level where the young can likely afford to buy, potential borrowers and lenders both have an incentive to be prudent about how much liability they choose to take on and everything can operate as before but at a more sensible level. Surely that is what the government wants to acheive?

Is there something fundamentally flawed about my thinking?

Post 17 has it pretty much right. The answer for the banks is extremely simple they should and must raise their savings rates to encourage people to put their cash in a savings account so that they aren't reliant on taxpayer handouts. No wonder people are shunning them with their savings when they offer miserably rates on savings.

Surely the government should have imposed a conditrion on the repayments of the life support so that after maybe a 2 year standstill period that somewhere like 10% to 15% of the outstanding balance must be repaid every six months to slowly wean them off this taxpayer subsidy.

The banks know this but are quite happy to whinge and charge us huge rates to borrow and give us miserly rates on savings. All the time making supranormal profits to pay their minions in bonuses.

You might wish to compare and contrast the following rates from our publically owned bank (RBS) and my local Building Society (the Coventry).

For a savings account with limited withdrawals per annum (no more than 4 per year) including a bonus RBS are paying 1.3% and you need to give them 30 days notice. The Coventry are paying 3.15% and you can get your money without notice.

For a 2 year fixed rate bond RBS are offering a rate of 3% based on a GBP 5,000 investment whilst the Coventry are offering 4.25%.

It doesn't take a genius to work out which one is on taxpayer life support and huge reliance on commercial money and which one is able to fund its lending from savings and deposits?

This whole sham and game of shells (hide the debt) is designed to get Labour re-elected. If Conservatives want to win all we need are 2 things, posters of Flash Gordo's smug face with the words, "no more boom and bust", and secondly loads of signage showing the debt clock ratcheting up exponentially with the words, "is the legacy we want to leave our children?".... we need a dictatorship for the next few years to swallow the tough medicine... found this quote recently and think it is very apt. "A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy..." - Alexander Fraser Tytler, Scottish lawyer and writer, 1770

Maybe the lack of affordability of mortgages will help to encourage people to save for a new home (as I am sure it used to be). Then maybe people will be less reluctant to view a home as a get rich quick scheme. Because its going to take ages to save looking at the loan to ratio values at the moment anyway. Therefore putting the mind set of the younger generation in to a 'hold onto what they have had to wait for' attitude and therefore view a home as somewhere to actually live in, not to make money from! Instead of, 'I want it and I want it now, throw it away/change it tomorrow' attitude.

What needs to be done is that the taxpayer needs to receive the bailouts, banks should be closed down, and a handful of nationalised ones left to operate providing basic services.

58. At 2:07pm on 08 Feb 2010, Wardy29 wrote:
"23. At 12:11pm on 08 Feb 2010, EmKay wrote:

.... the fact that houses are used as a speculative source of wealth in this country IS the problem"

The problem is the basis for the monetary policy of the Labour Government, implemented by the 'independent' Bank Of England.

How can you sensibly set an inflation target that doesn't take account of the cost of purchasing somewhere to live? This ridiculous policy should have been exposed as soon as a bubble started to inflate - there are lots of long-term indicators that could have helped with this, such as prices to disposable incomes - and the goalposts should have been moved.

This would have lead to a truer inflation measure, and therefore truer (higher) interest rates, dampening down the housing and mortgage bubbles.

>>>>>
Wardy29 - couldn't agree more. This is the dark side of democracy - now that most people are homeowners the powers that be dont want house price inflation to be controlled carefully since it is unpopular.

#52 EmKay

I think we probably agree more than we disagree. I don't mean to limit mortgages to a very small number, just to end the cheapness of the debt and therefore make sure it's not attractive to get in WAAAAY over your head because, hell, interest rates are low so why wouldn't you?

I do disagree with this idea of yours that there's masses of demand though, I'm not sure there is. And if mortgages are more expensive/less huge, demand will fall.

"The notion of 'forced' is not literal - it is the irrational need to join the pack in fear of losing out. So you are mega-rational - well guess what - you are probably only 1% of the population. Dont expect clear thinking to be the majority action."

I don't, believe me, which is why I think there needs to be regulation or taxation here, to try to stop people from behaving in such a short-term way that ultimately is against their own interests.

What really, really irks me though is that those of us who were prudent are now seeing our taxes go up and the value of our savings go down, all because of the laissez-faire attitude of the rest. What people like me didn't remember was that the government would never abandon the homeowners, even when they don't really own their homes, because it's a vote loser, so they'll do all they can to manipulate the economy in such a way as to keep houses inflated and keep people in them, to the cost of folks like me.

Effectively I am paying for other people's houses, whilst not being given one of my own.

So, in summary, the housing market, the hugely inflated prices and the continual price inflation are only there because banks have been lending money they haven't got and have no hope of ever really having ? In effect a giant upside down pyramid scheme ?

Hmm. Perhaps breaking the addiction cycle might help. Number of mortgages granted has to fall and in turn supply will exceed realistic demand in turn making house more affordable to those with real savings ? I am trying to understand the problem.

£314bn is equivalent to £5200 for every man, woman and child in the UK, which we give to the banks to lend back to us for interests and charges.
Of course, the bankers will take several billions pounds as bonuses for our troubles.

Onward Ho, post 55, you make a valid point that things are securer now and that in the long run we will be more secure.

It does however fail to address the issue of anyone who was either a first time buyer, or who remortgaged, or took some or lots of capital out of their property in the period between 2003 to 2007.

Many of those are in negative equity; or are so indebted that they cannot remortgage off their current deal and will be stuck in a near sub prime hell for many years to come or cannot afford to trade up as you would normally expect.

Many of these mortgages were financed commercially and as such when the money markets open up again fully it will cost banks more to get this money replaced than the give away deals that were open to them before the crunch.

This will cause a log jam in the housing market for many years to come. The people caught in this trap will be forced to pay high mortgage costs that will act to depress spending elsewhere in the economy.

In the long run, and by this I mean between 5 and 10 years things will be better. The short term, i.e. next 18 monthst will be hard for most people and the medium term 18 months to 5 years will be hard for a surprisingly large number of people.

I know that this has been mentioned before today, but why can't the profits from house sales be taxed? It's unearned income for g/sake. If I'd bought in the seventies and I was now sitting in a house that had gone up in value one hundred fold, or more, why isn't the taxman knocking on my door. If this was savings it would be taxed. It allows grasping home-owners to over value their ghastly brick boxes and leave the rest of us on hold to start our lives. Perhaps if Sid and Edna Shyster had to cough up 40% after selling Dunroamin' then the next generation could have a go at settling down.

No 14
Metallicinglewood. It was great to hear of your grandfather's view of Thatcher's infamous "right to buy" that let many Council Tenants make huge profits from their tenancy of Council Property and in doing so make it unavailable for the very people for whom it was built. It's a pity that there seems to be so few people today with the integrity and clear thinking of your grandfather.

It is all a case of the Chickens coming home to roost. I have been banging on about setting up a 'sustainable' banking system whereby savers deposits match borrowers mortgages for ages. It is only the get rich quick bankers and government officials wanting to take a huge amount in tax take think they know better.

The whole system is teetering on the 'tipping point' where we will end up like the poor Icelanders. Dropped in the chicken poo from a great height by those who should have known better.

Dear Robert Peston. I disagree with you absolutely. I believe that we should "demand our money back tomorrow". If that meant "no new mortgages provided for some time" so much the better. £ 314 billion of
credit provided by us, the taxpayers, to the mortgage lenders is in effect £314 bn stolen from our Children, our prospective University students, our Old Age Pensioners, the NHS. the Red Cross and every other organisation that exists to try and make this country a better place .

NO PAIN NO GAIN

IF IT AIN'T HURTING, IT AIN'T WORKING

THE TRUTH HURTS

WHEN YOU ARE IN A HOLE STOP DIGGING

PROCRASTINATION IS THE THIEF OF TIME

NEVER PUT OFF TILL TOMORROW WHAT YOU CAN DO TODAY

Eventually what is happening must leave us poorer (as a nation).

All that is left to debate is how and when we get there and which of us need to be poorer (at moment the super rich of the City seem to be trying to escape this equation affecting them).

Should it be us now or our children and their children?

NO MANUFACTURING, NO EXPORTS, NO SKILLS, NO JOBS, NO MONEY, NO FUTURE

#67 "breaking the addiction cycle" etc

People will always aspire to own their own home. With the population heading towards 70 million and the house building rate the lowest since the 1920's, I doubt we are going to see a drop in demand.

On the supply side, most of the contributors on this blog overlook the overwhelming effect of the real ON/OFF tap that is the planning system - controlled by a handfull of eco-nutters in Whitehall and our compromised political masters.

Year-on-year that tap has been progressively tightened, ensuring land prices remain artificially high. This, more than anything else, has led to the so-called asset price bubble. All political parties have a vested interest in maintaining the status quo, so at a time when you would expect the planning system to release more land, get people off the dole laying bricks and paying taxes and thereby increasing the supply....you can pretty much guarantee that precisely the opposite will occur!

New Labour have been very good at setting targets ("3 million new houses required by 2020.." etc) but as with everything else, they have delivered next to nothing. If the Tories get in, you can be sure their NIMBY core vote will constrict the supply for years to come.

Upshot - Higher prices forever and your children and their offspring living at home until you drop dead!

"65. At 2:21pm on 08 Feb 2010, EmKay wrote:

This is the dark side of democracy - now that most people are homeowners the powers that be dont want house price inflation to be controlled carefully since it is unpopular."

The irony is the gullible fools think they are better off because their net worth is a bigger number, when in reality higher prices just mean the value of the pound is lower. Just as you can't explain calculus to the average voter, nor can you explain the difference between price and value.

#27 "Justin150 @ #11. You clearly have a limited grasp of finance/economics. Falling interest rates, as in the example you've given, are accompanied by falling inflation and slowed growth in wages"

Maybe I do but it is clearly not as limited as others.

The relationship between falling interest rates and falling inflation only holds true if (a) central bank is setting interest rates and is not subject to political intervention (b) the exchange rate is stable and even if both those factors are true the relationship can be false over a short period of time.

You are also trying to apply a macro viewpoint to individual transaction (a micro issue)which as any decent economist will tell you is almost guaranteed to produce the wrong result. Or to put it another way looking at the average whereas each mortgage transaction is an individual transaction - at the individual level you must certainly can have falling interest rates and accelerating pay increases. Similarly whatever the general inflation rate what matters to an individual is how it affects him/her - for example pensioners typically suffer a higher inflation rate that 20 year olds.

John from Hendon and I disagree I think his argument is too simplistic but where I think he and I do agree is that asset price inflation should be part of the general inflation measure and therefor feed into interest rates.

For my part I fail to see why houses should be treated in any different way to any other form of borrowing - the issue is not whether it is 3x income or 10x income but how much of my after tax monthly pay will the borrowing cost and can I afford that.

Maybe part of the reason I look at it this way and ignore that inflation can make the cost much more affordable later is because as far as I am concerned the purpose of a mortgage is to buy a house not an investment.

Once I have paid off the mortgage I have a home of my own, the amount it cost (adjusted for inflation) is irrelevant as long as it is the right size for my needs.

I maintain that mortgages are paid from cash flow (or income as most people refer to it) and people get into trouble not because they borrowed 3.5x income or 7x income but because the amount they have to pay each month is more than they can afford.

Let me give another example. Two different families buy houses and take out mortgages of 3x income - in other words within JFH artificial and simplistic limits paying 6% interest. Family No. 1, has no other major commitments finds it no problem to pay and wonders what all the fuss is about. Family No. 2 before they bought had 3 kids, 2 at public school, and was paying for 2 cars and finds that there simply is not enough money coming into every month to pay all this. For family No.2 the mortgage was never affordable, whereas family no 1 could have afforded a significantly larger mortgage without worrying about it.

In many ways this is similar to a lot of debates about company "profits", profits never paid for anything and are often an artificial accounting structure, cashflow is much more important

The stability of the mortgage market is dependent upon the capacity of the borrowers to repay their loans.

It is also dependent on the capacity of mortgage companies to offer savers a decent rate of interest on their savings to attract their funds.

Unfortunately, as we all know, job security these days is very low so it's possible to be on £100k salary one day and out of work the next.

For the mortgage companies this presents a problem because someone in that situation is transformed from being a safe bet into a toxic debt.

It is better as a risk strategy to give out lots of little mortgages where a small number may default than give out fewer larger mortgages where the loss of job of the morgagee would have a major impact on the stability of the mortgage provider making the loan.

Given that no-one knows when they will be made redundant it makes sense to make some financial provision for that possibility.

The problem is, as with credit cards, people want to spend up to the maximum without planning fo future and possibly immediate loss of employment, which dramatically compromises their ability to repay debts.

To make the situation worse, some mortgage providers are unable to attract the necessary amount of funding from savers.

It's only a matter of time therefore before we see some mortgage providers going belly up.

The banks' need to refinance their wholesale funding ( BoE say £1 trillion over the next five years) together with increased capital regulations will affect all forms of credit, not just mortgage finance. It so happens that the mortgage and housing markets raise the biggest political furore thus giving the banks' lobby a better chance to change policy on the Special Liquidity Scheme and the Credit Guarantee Scheme.

Small Medium Sized Enterprises will suffer, as will growth. Its not all about mortgage-borrowers and consumerism!

The banks betrayed everyones trust and is now disdraught because people are not placing more money in their accounts. Might be because last time the money they had entrusted with the banks suddenly disappeared in quanities because of a gambling scheme by the bankers. The government is holding a lot of bad paper provided by the banks. If things go as usual the banks have no worries for paying the money back as either it will be done with some jiggery-pockery between them and the government or an extension will be provided. Just read Humpty-Dumpty. We get to clean up the mess.

Message 72 PaulattheRocks

Once upon a time we had a sustainable banking system that underpinned the mortgage market: they were called building societies. Some still survive...

...why is it that all the things we once had that worked have disappeared whilst things we don't need, such as debt, have become compulsory?

What parcel of rogues run this nation? They are nothing more than footpads who once challenged declare that unless we surrender all our goods and chattels to them they will run off like the vagabonds they are to foreign lands so that we will be without the undoubted advantage of their company.

59
"Onward-ho - I like your upbeat views on everything. But.. are you a spin doctor employed by GB to subvert the blogging community (powerful though we are ..ho ho!)"
Ha ha but no no.
69 Negative equity is by and large shrinking daily to the point that next year most of us will have forgotten what it is.
It was the same in '93.We are now in the third rotten year and finally the sun is coming out.By '96 we had all moved on.
Advance onward!

#11 There was one mortgage provider that had in place a 3.5x income multiple limit before the credit crisis, Nationwide. And they haven't required a bailout or guarantee. The proof of the pudding is in the eating Justin 150.

The housing market has a much bigger problem than reduced sources of funding.

I take it as read that we are all aware 100s of thousands of mortgages to purchase homes were fraudulent because of lying about income on mortgage application forms.

But are we aware of the rules concerning the restitution of stolen property to the victim, it's impact on the fraudster occupying the property, on the mortgage and other charges on the title, on subsequent purchasers and any charges they incur on the property.

This issue is going to come up soon. This mortgage fraud was widespread. Even police officers, housing officers, H&S officers, Prosecutors, planning officers, civil servants, security guards, prison officers, did it. All are now open to blackmail by organised crime, by terrorist groups, by foreign govts and the unscrupulous.

Public salary levels are public knowledge, the price paid for a house is public knowledge, charges on a property are public knowledge, items and cash inherited are public knowledge. The only piece missing for organised crime is the address of an official which can be easily learned by following the official home.

Indeed, it is so easy to find out who is likely to have done this fraud that a modest burglar with an internet connection, a laptop and a few pounds can make themselves untouchable.

Then we have the mind boggling sums that can be made on the markets from advanced information via a blackmailed treasury official or a secretary in an M&A dept. To think this isn't happening right now is downright foolish.

Sooner or later the blackmailing of mortgage fraudsters will start coming up in criminal prosecutions of terrorism, organised crime, insider dealing.

What this will mean for "banking britain" and house prices goes way beyond a bearish sentiment.

• 76. At 3:48pm on 08 Feb 2010, Wardy29 wrote:
‘The irony is the gullible fools think they are better off because their net worth is a bigger number, when in reality higher prices just mean the value of the pound is lower. Just as you can't explain calculus to the average voter, nor can you explain the difference between price and value’

Never a truer word spoken.

We need water, food, clothing and shelter.

If the price of food or water for example went through the roof people would complain bitterly. But if the price of shelter (houses) rockets it is moment for great jubilation. Why?

> In other words, there is an acute risk of mortgages becoming either
> scarce or very expensive or both, if the government were to insist
> that taxpayers get their £300bn back in 2012 or so. And that in
> turn would almost certainly prompt a further housing-market dip.

Yes - that applies to banks that are encumbered by obligations to the
taxpayers. New, unencumbered finance houses can (and should) offer far
better deals than those weighted down by their mis-spent billions.

I've got a good idea - anybody want to start up an online building
society?

Question to bank auditors and accountants generally
Assuming that the banks are not in a position to repay the £300 bullion in time, at what point would consider qualifying your audit report as to the banks' position as a going concern ? or does the fact that the taxpayer is always there make that unnecessary?

given my sign in name (as adopted in 2007 when I was desperate to buy a home for my family), I just had to make a comment on this story....

my hope/assumption is that if one assumes parity between GBP sterling and the Euro, ie an exchange rate of 1:1, and given the lack of housing in the UK, then prices are near stability, throw in a bit of inflation and it should all be OK

of course it could all go horribly wrong!

#84 - I think the reason is simple - the first three are consumed - they are an expense.

Whereas property is retained and enjoyed - an asset - therefore the perception of its cost and hence value are different.

Whether that perception is correct is another matter.............

#86 - auditors only have to look 12 months forward from date of signing their report so not an issue this year - but next year.............

However 18 months ago I'm amazed there weren't more questions asked!

Securitising Mortgages is unnecessary.
A Bank should hold the loans it issues on its own Books, and if it wishes to raise funds it can raise money by issuing Bonds secured on the Banks assets, rather than on selected loans.

Loan securitisation is a faulty American idea, which has contributed to numerous Bank failures in America over the years.

It is a model for conducting business that is deeply flawed and benefits only Investment Bankers who make their commissions selling on the unknown quality packages of Loans.

Out of Curiosity, how is Santander weathering the Spanish property crisis?

It seems to be looking at ways to raise money all over the place, however, who in their right mind would buy Bank shares in the current Management climate.

I wouldn't, once bitten twice shy.

Hi Robert
While you are in mortgage mode I would like to point out what's happening to people that have taken out subprime mortgages with companies associated with Lehman Brothers. Some of these companies are still trading which is amazing when accounts have not been submitted since 2007. One of them is just about to be struck off and I believe that SPML has only one director and she is about to be fined by Companies House. All of these companies are administered by an outfit in High Wycombe called Capstone Mortgage Services. I suggest you google them - some of the stories are horrifying, the way people are being treated. The FSA should hang their heads in shame and things will get worse as quantative easing has been withdrawn and the banks will now increase the libor rate which will just increase the pain of these people trying to keep their homes. The libor rate should be brought under the Bank of England umbrella and not allowed to be set by the banks.

That's one almighty dilemma for the next government to sort out.

They are well and truly boxed in.

Which move do they make that will cause the least amount of damage?

Or will someone else make it for them?

No wonder they are driven to tears.

The taxpayer is underwriting the entire housing market, lets just admit it and move on. Is it wise? Is it sustainable? Can we afford it? These are the questions we should be asking. If the banks cannot afford to pay this money back over the next few years is this just a way of saying that they will always need the crutch of taxpayer support underwriting property prices? When you take the money funding mortgage lending and put it together with even more taxpayers cash being used to fund the part rent bit of the part buy/part rent mortgages for first time buyers, then would there even be a housing ladder if it were not being pumped up with our money and guarentees?

At the moment with so much being done to support the economy, the way taxpayers are propping up the over inflated housing market tends to get lost amid all the other mind boggling figures, but as things get better it will start to be noticed by more and more people. If you are not living in your own home then you are in effect having your taxes used to price you onto the streets, you are paying to price housing out of your reach all together. It won't be long before people wake up to this and then they will expect it to be stopped, if you think about it then it is worse than the 10p tax decision.

If, when you look at all the things we are doing in order to protect the value of the banks assets it becomes obvious that house prices would fall if it were withdrawn, then should the BoE not make sure that house price rises stay within the target inflation rate?

Hmm, If Government lent Banks money for Mortgages and it has to be paid back in 2/3 years, are we not back where we started, Borrowing Short to Lend Long?

Or, it has just occurred to me, has Gordon offloaded his mess onto the GOvernment of 2012?

All of the comments on this thread about house prices rising are only valid if it is a free market, unsuported by taxpayers money. If billons of our money is needed to sustain property prices then of course prices will go up! The question then becomes one of how sustainable that is in the long term, and will people stand for it when they perceive that they are paying to underwrite other people's equity whilst finding their own chances of living anywhere disapearing with their tax money.

If it is a short term thing then people will live with it, if it becomes the norm then expect trouble!

Just look at the economies which are in deep deep trouble most have one thing in common: a credit driven property price boom.
Now tell me that house price booms are good for the economy as clearly in the long term they are a disaster.
And Robert it is not the the mortgage market which is vulnerable, its the inflated asset values at risk and the knock on effect to those you borrow and lent far to much.
3 possibilities seem likely:
1)House prices drop to levels where traditional montages funding methods can boost transactions and get things moving again. (unlikely)
2) someone starts buying mortgage debt again by the ton (very unlikely)
3) the market stagnates, kept propped up like a drunkard by the bar with more government debt funded 'stimulant'. (most likely)

I think that the 'stupidity' of the mortgage market was never wanting the boom to end hence bigger and bigger mortgages which were less and less safe in terms of managing repayments.
I think now we will slowly see an increase in the divide between rich and poor as credit remains hard to get and equity release becomes almost impossible. The economy grew on false wealth created by soaring house prices. Now the only people able to buy houses are those who have sufficient savings to put down a deposit or those not needing a mortgage. in short, those who have the income to support their lifestyle.
Those who have lived on credit and equity release (which was a substantial number) will now have to find alternative ways to live which may even mean downsizing homes to pay off debts and manage to stay afloat.
Factor in pay freezes and inflation about to go into 5 or 6% and the future for lower incomes looks bleak indeed.

We are pointing the accusing finger in only one direction - towards others and away from ourselves. We can't avoid our own share of responsibility for letting the predators get their claws in the door of our values.

How do we escape from the suffering that we are accumulating for our children? We need to urgently come to our collective senses before it is too late. We need to radically change direction away from our dominant individualism and return to our collective values. We've done it in the past and we can do it again.

Failure to do so can only result in deep long-lasting global depression which will make the 1930s look like a picnic. It has already started for those countries and systems whose debts are beyond control.

Total Insanity 2.0: To sum up - British bankers have used the investments of unsuspecting foreigners to pump up a credit bubble of enormous proportions. They did so to help themselves to almost unlimited income, which they called "bonus". They thereby also triggered absolutely unlimited house price inflation, as no matter how much a house cost, they would find the money on "wholesale markets" to provide the mortgage. This was mirrored by similar banking activity in the US. The whole system imploded, starting with the weakest link, so-called subprime in the US. One should think this would be the end. Bankers, lose their jobs and bonuses, house prices implode, the public starts to think again and within a decade or two, Britain is back to doing normal, decent, prudent, productive real economy. No, unfortunately that is not the case. The UK government now stuffs our taxes into the black whole, with the effect that bankers, bonuses and the incredible bubble aren't only maintained, no they even grow again. Insanity beyond words!