Banks MUST hold more capital, and lending won't get "back to normal" until then

chewmylegoff

Graham_Devon wrote: »

Then it's nothing new.

And EVERY financial product is rationed, and always was....even throughout the craziest of lending years. So I don't get why all of a sudden it's being moaned about.

i agree that credit has always been rationed. the rationing is just more acute now than it was previously.

it's being moaned about because certain people perceive the current level of rationing to be insufficient. people who couldn't get a mortgage before the financial crisis would have no doubt moaned about it then. there are just more of them now so there is more moaning.

to give a parallel, say that a person who is 5ft 2 needs 1,000 calories a day to live, a person who is 5ft 8 needs 1,500 and a person who is 6ft needs 2,000 a day. if the government in WW2 had sets food rations at 1,500 calories a day, initially only the person who was 6ft tall would have complained about a lack of food. if they then reduced it to 1,000 then two of the three would be complaining. if they then reduced it to 500 then all three would be up in arms.

i don't really care about the fact that mortgages are being rationed, so i'm not going to do battle with you about how the banks "need to turn on the credit taps" or anything like that, but i do think that mortgages are being acutely rationed. i also think that there is an element of a lack of demand for mortgages in the reduction of mortgage lending stats.

wotsthat

Graham_Devon wrote: »

Hell, if were going to use that description which continously confuses things and causes argument, tesco ration milk every time they put the price up. It's a nonsense really. All that's happened is the price from start to finish of processing the milk has changed, and therefore, tesco put their prices up (or ration it "more" if we want to go down that route).

It's not that much of a nonsense.

Food is rationed by price. Why do you think shipping containers full of food stop off in the UK rather than Sierra Leone?

Graham_Devon

chewmylegoff wrote: »

i don't really care about the fact that mortgages are being rationed, so i'm not going to do battle with you about how the banks "need to turn on the credit taps" or anything like that, but i do think that mortgages are being acutely rationed. i also think that there is an element of a lack of demand for mortgages in the reduction of mortgage lending stats.

What I look at, is the simple stuff. Now, people can make of that what they life. BUT, the simple stuff often says far more than trying to come up with technicalities and naming conventions for a problem.

In my mind, we need to look a step backwards from the whole "rationing" thing, and look at demand.

95% mortgages are available. They have been in various guises for a couple of years now through lending and house buying schemes from the government. We have more now than we have had for ages, but still lending figures pull back.

The simple part I refer to, is looking at whether these products have been inundated. The fact is, they haven't. So if these products are not being drowned with applicants, if mortgage "rationing / lending standards" really the nub of the issue?

For me, it's value for money. If people don't see this, this leads to a lower demand for the available mortgage products.

We can't ignore demand (as you point out) while laying the blame at the lending all the time. Time after time were told by business that they don't want the loans, its the wrong time to take it. This is the same for families. Were ignoring so much if we ignore the debt people are willing to take on, and what they see as value for money, but it's never mentioned on here. All that is mentioned is you can get X house for Y money. That doesn't answer the value for money argument, and doesn't answer the lack of demand for loans at current prices.

Sure, if 110% mortgages were available again, I'm sure demand would go up. But that's more because it's just easier, and that attracts a different group of people.

Graham_Devon

wotsthat wrote: »

It's not that much of a nonsense.

Food is rationed by price. Why do you think shipping containers full of food stop off in the UK rather than Sierra Leone?

It is a nonsense.

I'll expect you to refer to the product being rationed, regardless of what the product is, from hereoin on the forum.

You know that's a nonsense, hence you won't say "electricity is just being rationed" when prices go up. It's a technical term, reserved solely for mortgages, as using it for mortgages allows people to ignore every other factor. It's lazy.

System

wotsthat wrote: »

It's not that much of a nonsense.

Food is rationed by price. Why do you think shipping containers full of food stop off in the UK rather than Sierra Leone?

It's semantics again, Credit Rationing is different to food rationing. When we discuss finance matters, most of us assume we're talking about credit rationing...

Does indeed feel like a breakthrough.

Generali

Graham_Devon wrote: »

Then it's nothing new.

And EVERY financial product is rationed, and always was....even throughout the craziest of lending years. So I don't get why all of a sudden it's being moaned about.

Correct, it is nothing new.

In the first lesson of your first economics class you will be told that economics is about the division (rationing) of scarce resources. Water is free; clean, potable water is not.

Everything that more people want than is available is rationed by definition. How much there is to be rationed and how it is rationed are separate points.

So yes, access to debt is rationed and always has been. The way it is rationed has changed however.

Generali

Graham_Devon wrote: »

You know that's a nonsense, hence you won't say "electricity is just being rationed" when prices go up. It's a technical term, reserved solely for mortgages, as using it for mortgages allows people to ignore every other factor. It's lazy.

Electricity is rationed by price. When prices go up, the means of rationing has changed to reflect a change in the market for electricity.

That people don't call it rationing is neither here nor there.

wotsthat

Graham_Devon wrote: »

You know that's a nonsense, hence you won't say "electricity is just being rationed" when prices go up. It's a technical term, reserved solely for mortgages, as using it for mortgages allows people to ignore every other factor. It's lazy.

Electricity is rationed by price. Don't pay the price and you won't get any. Gas is the same - why does Norway choose to pipe gas to the UK rather than ship it to Africa? We pay more so it comes here.

Rationing seems particularly apt as a description to describe the mortgage market but less so for the energy market but the principles are the same.

I can see why we're into semantics and arguments about dictionary definitions though - I felt the shudder travelling up from the South-West when you realised that you and Hamish were on the same page.

ILW

I have yet to see any definition of "normal" lending.

Graham_Devon

Joeskeppi wrote: »

It's semantics again

Of course it is. That's been the point of this thread since post 2.

We all fundementally agree on whats happening and why it's happening. All thats happening is the word to describe it isn't really the best word to use (though, I agree, technically correct). It's not a word we would use in any other circumstance though, it's used solely to suggest the banks are at fault, and used to ignore the multitude of underlying issues in the bank and the economy laying down the path for restricted lending and lower risk taking.

If we can take all the problems surrounding the mortgage industry and wrap them up in the word "rationing" it allows every issue to be ignored, hence IMO, it's used constantly.

Ask Hamish what "normal" lending is, and he describes 95% mortgages. Well we got them.

Semantics over the word rationing have, as I said, allowed ignorance throughout this thread to firstly the actual subject, and secondly pestons blog which holds a massive bit of information that could change the landscape completeley.