£140Bn fund for small business and mortgage lending

HAMISH_MCTAVISH

Graham_Devon wrote: »

My personal view is that I'd have to side with Hamish & Co now. This money won't go to the FTB. It will go to the BTL investor.

Indeed it will.

And it will continue to do so until banks are forced to, or incentivised to, lend hundreds of thousands more mortgages a year to young FTB-s on non-punitive terms.

And there's only really two ways to do that.....

Vastly increase the amount of funding in the market for mortgages which will eliminate rationing and restore competition, along with backing off on the new capital reserve requirements.....

Or force the banks to set aside a higher proportion of their lending for high LTV mortgages to young people, using bonuses (project merlin, etc) as a stick, and again by changing the new capital reserve requirements.

Interestingly, Merv has dropped a hint on that very topic in his speech last night.....

"In current exceptional conditions, where central banks stand ready to provide extraordinary amounts of liquidity, against a wide range of collateral, the need for banks to hold large liquid asset buffers is much diminished, and I hope regulators around the world will take note."

It seems both the BOE and Osborne have started to realise what many of us have been saying for years.

The only way to restore economic growth is to restore healthy levels of lending for mortgages and small businesses.

And to that end, the BOE will now be expanding what is effectively another round of QE away from gilts, and into directly purchasing RMBS from banks to enable an increase in mortgage lending.

Savers, the young, and young families will be royally screwed over.

Only if the scheme remains this small.

If it works, and can be expanded to provide enough liquidity to restore competition to the lending markets, the young and young families will finally be able to get mortgages and compete with investors again.

SailorSam

Haven't we been through this before last year, where the banks were given billions to help kick start the economy, and what did they do with that money. Oh i remember they paid themselves bigger bonuses.
If the Govt wants people to spend this money wouldn't it be a better idea to just send everyone i cheque in the post, cut out the middleman. Perhaps send money to Credit Unions, at least they could be trusted to lend the money out to the people who need it and who'll spend it.

Graham_Devon

HAMISH_MCTAVISH wrote: »

Indeed it will.

And it will continue to do so until banks are forced to, or incentivised to, lend hundreds of thousands more mortgages a year to young FTB-s on non-punitive terms.

And there's only really two ways to do that.....

Vastly increase the amount of funding in the market for mortgages which will eliminate rationing and restore competition, along with backing off on the new capital reserve requirements.....

Or force the banks to set aside a higher proportion of their lending for high LTV mortgages to young people, using bonuses (project merlin, etc) as a stick, and again by changing the new capital reserve requirements.

Interestingly, Merv has dropped a hint on that very topic in his speech last night.....

"In current exceptional conditions, where central banks stand ready to provide extraordinary amounts of liquidity, against a wide range of collateral, the need for banks to hold large liquid asset buffers is much diminished, and I hope regulators around the world will take note."

It seems both the BOE and Osborne have started to realise what many of us have been saying for years.

The only way to restore economic growth is to restore healthy levels of lending for mortgages and small businesses.

And to that end, the BOE will now be expanding what is effectively another round of QE away from gilts, and into directly purchasing RMBS from banks to enable an increase in mortgage lending.



Only if the scheme remains this small.

If it works, and can be expanded to provide enough liquidity to restore competition to the lending markets, the young and young families will finally be able to get mortgages and compete with investors again.

I'm happy to agree with you that the lending will go to those who pose less risk, and will find it's way into the BTL arena.

However, everything else you suggest relies on the borrower, or in this case, the family, being able to afford the repayments. it's not the case that they can, not without 100%+ lending again.

You can make as much lending available as you wish. But unless people can afford the repayments, they won't be taking it. Not unless you make repayments lower by either extending the period over which the debt is taken or offer incentives such as interest only again.

The monthly payment is just as key as the amount available to lend.

I'd suggest the upper hand is in your court at the moment, as they may well look at playing around with how repayments are made on these loans. They may well take ALL the risks away from the bank meaning banks care little who they lend to.

It's clear they may well do anything.

But let's not pretend this is good for families. It's not. It's just more of the same stuff that got us into the mess in the first place.

ALL of what you say in in nutshell is just finding ways to get around the fact that the debt is unaffordable, and trying to make it affordable.

HAMISH_MCTAVISH

Graham_Devon wrote: »

I'm happy to agree with you that the lending will go to those who pose less risk, and will find it's way into the BTL arena.

Fair enough.

However, everything else you suggest relies on the borrower, or in this case, the family, being able to afford the repayments. it's not the case that they can, not without 100%+ lending again.

That makes no sense.

What do you mean without 100% plus lending again?

You can make as much lending available as you wish. But unless people can afford the repayments, they won't be taking it. Not unless you make repayments lower by either extending the period over which the debt is taken or offer incentives such as interest only again.

The monthly payment is just as key as the amount available to lend.

Graham, at the end of the day, if you can pay rent you can pay an equivalent amount to a mortgage.

90% of renters (that's about 7 million households) manage to pay the rent just fine.

The vast majority of those could get a 90% repayment mortgage and be paying a similar amount to what they do now in rent.

You're looking at several million people who could afford a mortgage, who could afford the repayments even at a sensible interest rate of 5% or so, but who can't get the mortgage to begin with.

I'd suggest the upper hand is in your court at the moment, as they may well look at playing around with how repayments are made on these loans. They may well take ALL the risks away from the bank meaning banks care little who they lend to.

It's clear they may well do anything.

But let's not pretend this is good for families. It's not. It's just more of the same stuff that got us into the mess in the first place.

It's a lot better than families being locked out of owning their own home forever though....

HAMISH_MCTAVISH

Graham_Devon wrote: »

ALL of what you say in in nutshell is just finding ways to get around the fact that the debt is unaffordable, and trying to make it affordable.

UK debt was never the problem.

UK banks lost 15 times more on overseas mortgages than they did on UK ones.

That's what got us into the mess.

Graham_Devon

HAMISH_MCTAVISH wrote: »

Fair enough.



That makes no sense.

What do you mean without 100% plus lending again?



Graham, at the end of the day, if you can pay rent you can pay an equivalent amount to a mortgage.

Just because people can pay rent, it doesn't mean they can pay a mortgage.

Part of their rent may get paid for via benefits, which you can't simply transfer to a mortgage.

They may not have the deposit (hence the need for 100% which you query).

It also costs around 4k to make a one off move in legal fees. So it's not a light decision for many families, "just before they can afford their rent".

HAMISH_MCTAVISH wrote: »

UK debt was never the problem.

UK banks lost 15 times more on overseas mortgages than they did on UK ones.

That's what got us into the mess.

Doesn't matter what caused the problem. At the end of the day, all your suggestions are just massaging an affordability problem. What caused the crisis is of no relevance to the people making the repayments.

Graham_Devon

Hamish, you should listen to 5live now! You'd wet yourself!

They've decided to do a phone in thing on the £140bn. They;ve decided to pick someone from a BTL investment agency, a BTL investor and a "housing expert".

One suggests 100% mortgages given to the young only.

Brilliant!

pqrdef

Graham_Devon wrote: »

Just heard on the news that bankers expect another announcement within the next couple of months that not only will this ﾣ140bn be available, but the BOE will become guarantor to all of the money lent under this scheme to make sure that the lending is chanelled to those who pose more risk rather than the banks denying the potential loan.

Bankers state the BOE needs to remove the risks off the banks balance sheets altogether to allow lending to flow smoothly.

That's just about it for the banking system then. No longer fit for purpose. If it's not doing anything useful, we might as well get rid of it and just have one state bank.

Graham_Devon wrote: »

The announcement that more QE is possibly on the way started a sell off off the pound

Hopefully that will put them off doing it. A third of the national debt has got to be as far as it can be pushed.

Graham_Devon

pqrdef wrote: »

That's just about it for the banking system then. No longer fit for purpose. If it's not doing anything useful, we might as well get rid of it and just have one state bank.

Just found what I said referenced on the FT. It wasn't capital economics that it came from on the radio, just "a banker".

“Given the risky environment, banks may simply not want to lend more, even with the carrot of cheaper funding. Indeed, the government might end up having to take the next step and guarantee bank lending itself, at least in part, therefore taking some of the risk off banks’ balance sheets altogether,” analysts at Capital Economics said in a note.

http://www.ft.com/cms/s/0/2bb1de8c-b6cd-11e1-8c96-00144feabdc0.html#ixzz1xrixMCow

On another FT article they are mulling over how we can "force" (through incentives) people to borrow this money, as if we can't, it won't work.

I find it simply fascinating that after all that has gone on over debt, were now at a point where were mulling over how we can incentivise people to take on debt. Utterly fascinating!! Makes a mockery of everything I was taught about money.

pqrdef

Graham_Devon wrote: »

On another FT article they are mulling over how we can "force" (through incentives) people to borrow this money, as if we can't, it won't work.

The way it's shaping up, it's like the BoE is injecting venture capital into these lucky companies, and the bank is just an introducer, taking a commission but not taking an interest.

This is a lot like the role of the front-line banks in the subprime scandal. Their best game was just to write as many mortgages as possible and not worry about the quality.

They didn't have much trouble forcing people to borrow. They just made offers that people couldn't refuse.

If you want to know how and why the U.S. created the subprime mess, just watch the action replay. All we need now is for the BoE to say it's going to sell on packages of these loans as Growth Bonds, along with the infrastructure stuff.

Graham_Devon wrote: »

Makes a mockery of everything I was taught about money.

Progress being made then!