Guardian: 95% Mortgages "not a source of risk"

Graham_Devon

So people drowning in debt is actually good for them. Hamish says so.

HAMISH_MCTAVISH

Graham_Devon wrote: »

So people drowning in debt is actually good for them. Hamish says so.

No, people taking on debt to buy a house, which amounts to less than they're already paying in rent, is good for them.

Do try to keep up at the back there Graham.

the_flying_pig

HAMISH_MCTAVISH wrote: »

...Better yet, increase funding to everybody....

only that plan's inflationary, whereas just clobbering BTL isn't.

HAMISH_MCTAVISH

the_flying_pig wrote: »

only that plan's inflationary,

If you really want to both prevent excessive HPI, and meet housing need, then there is no alternative to building more houses.

Which, as we have now learned from the lowest house building in a century thanks to the mortgage famine, won't happen without an increase in lending.

Widespread credit availability is the great equaliser, the means through which those without capital can compete on a more level playing field with those who have capital.

Reducing the availability of credit can only result in the consolidation of wealth in the hands of an ever smaller percentage of society.

Which we are seeing in action today with the decline in homeownership percentages, and the increase in Generation Rent being forced to enrich their landlords.

the_flying_pig

HAMISH_MCTAVISH wrote: »

So then under your own explanation, 75% of households borrowed at or below the average...

that doesn't make a lot of sense to me.

but i think you might be asking whether everyone buying a house took 'advantage' of the banks' newfound, ahem, generosity?

well, of course not.

did enough people 'get stuck in' to make a big difference to the average multiple, and to the total amount of debt in the economy, and to house prices? obviously they did.

the_flying_pig

HAMISH_MCTAVISH wrote: »

If you really want to both prevent excessive HPI...

"mortgage rationing" cannot cause house prices to be higher than they'd be with more lending. it's just not possible. you could argue that it has unfortunate social consequences etc but it cannot lead to higher prices. exceptionally basic supply and demand.

i personally concluded that more council building, like in the old days, is by far the most likely way in which we'll get loads more houses.

we weren't building 'enough' even in 2007, and the amount of extra household debt that was being racked up every year at that point was unprecedented, ruinous, insane. more credit is not the answer.

the_flying_pig

also, a point of order on the thread's title:

please change to 'Guardian housing blogger: 95% Mortgages "not a source of risk'.

otherwise highly misleading.

HAMISH_MCTAVISH

the_flying_pig wrote: »

we weren't building 'enough' even in 2007, and the amount of extra household debt that was being racked up every year at that point was unprecedented, ruinous, insane. more credit is not the answer.

More credit is the only answer.

Credit allows for the conversion of housing need to effective demand.

So what people are really arguing for when they argue for restricting credit, is to prevent millions of people from buying houses.

You may as well argue for restricting food, or jobs, or births, or whatever, so that fewer people can live here, and thus fewer people can buy houses.

It's an absolutely asinine proposition.

Let the credit flow freely however, and more people will be able to buy, all those "reluctant landlords" will be able to sell, more houses will be built, and the shortage will get much better, very quickly, instead of worsening by the day as it is now.

Yes, prices will probably rise, but ultimately affordability constraints will limit that.... And if the government is serious about releasing more land for building prices eventually should fall once the shortage is relieved.

grizzly1911

HAMISH_MCTAVISH wrote: »

The professor disagrees with you.

He specifically states that....

They have been the norm for the last 30 years, when more than half of first-time buyers had deposits of less than 10%. That in itself was not a source of risk.

A professor - well that's OK then he will be very well versed in the commercial world. I am sure he has a wealth of risk underwriting experience and strategy within the finance sector.

*2.21 I believe that, had there been highly competent risk and compliance managers in all the banks, carrying rigorous oversight, properly protected and supported by a truly independent non-executive, the external auditor and the FSA, they would have felt comfortable and protected to challenge the practices of the executive without fear for their own positions. If this had been the case, I am also confident that we would not have got into the current crisis. I believe that my personal story of what happened at HBOS demonstrates this exactly.

He also makes this point:-

Instead, Wilcox points to two core issues with finance for housing. First, the unnecessary caps on local authority borrowing, which prevent councils from investing in the local housing market and responding to need where it is identified.

and this

The inability of those without capital to access the housing market is causing the cost of housing – rents, and property prices – to rise,


So allowing LAs to build would be the first release valve on need.

People without capital, entering the housing chain - novel idea.

*2.8 But let's start with the cause and this fairly obvious proposition: even non-bankers with no "credit risk management" expertise, if asked (and I have asked a few myself), would have known that there must have been a very high risk if you lend money to people who have no jobs, no provable income and no assets. If you lend that money to buy an asset which is worth the same or even less than the amount of the loan and secure that loan on the value of that asset purchased and, then, assume that asset will always to rise in value, you must be pretty much close to delusional? You simply don't need to be an economic rocket scientist or mathematical financial risk management specialist to know this. You just need common sense.

*http://news.bbc.co.uk/1/hi/uk_politics/7882581.stm

Seems that people jut don't learn from lessons of the past.

grizzly1911

HAMISH_MCTAVISH wrote: »

I want whatever amount of money sent into the housing market as is required to fulfil existing and projected housing need.

The consequences of that are.....

- Millions more will be able to buy than can today.

- Many more houses will be built.

- Fewer people will be forced to enrich their landlords.

Which is all immensely good for most of society, a few crashaholics excepted.

Of course all those millions don't necessarily have to be unwilling buyers. Many of them may be happy in affordable/acceptable rented accomodation.

Increased provision of, and replacement of previously sold social housing would be another alternative. Free markets have been unable to provide sufficient development, for private buyers, even at the height of recklessness.