Should we listen to the Nordics?

Graham_Devon

The Bank of England must act quickly and decisively to rein in UK mortgage lending if it is to prevent another housing crash, two of Europe's top policymakers have warned.

Mark Carney, the Bank's Governor and chairman of the Financial Policy Committee (FPC), which is in charge of financial stability, is expected to unveil measures this week designed to stop the economy from boiling over.

Øystein Olsen, the governor of Norway's central bank, and Martin Andersson, the head of Sweden's financial regulator, told the Telegraph that early action is vital if policymakers want to safeguard UK financial stability.

"The sooner you start, the less hard you need to be on the measures you take and then you can always follow up to take other measures," said Mr Andersson, who has also served on the Bank of England's Financial Stability Board, which pre-dated the FPC.

Sweden has introduced a package of measures to cool the market, including forcing borrowers to stump up bigger deposits by introducing a loan-to-value (LTV) cap of 85pc on all mortgage lending and higher capital requirements for banks.

"When we first introduced the LTV ratios … no-one thought that we did the right thing because all the experts and media thought that we were creating a problem that didn't exist. But after six months … a lot of people thought that we should do more, because this was now seen as a serious problem."

It's yet more pressure to do something about the housing market, but I ask if we should listen as they speak from experience not only of the issues, but putting policy to address the issues in place.

http://www.telegraph.co.uk/finance/bank-of-england/10917307/Mark-Carney-told-to-rein-in-mortgages.html

Results:

No we shouldn't
Hamish - Henrieta can't have it now and stamped her feet

HAMISH_MCTAVISH

Well we should certainly look at the Norwegian experience....

First the Financial Supervision Authority, a regulator, issued guidelines to banks that they should require borrowers to put down at least a ten per cent deposit.

It raised this a couple of years later to 15%. This dampened down demand for mortgages as people found it harder to save up a lump sum.

Secondly, the finance ministry required banks to fund more of their mortgage lending by issuing shares instead of borrowing the money.

This also helped cool the housing market because it made mortgage lending less appealing to banks: it limited the supply of mortgages.

Both measures combined certainly seemed to take the wind out of sales and after six years of prices rising between seven and ten percent a year, they started falling about the middle 2013.

So basically, if you actively institute policies that create an artificial mortgage famine, you can prevent masses of people from buying and that takes the pressure off prices rising.

We already know that.

We've seen the same thing happen here.

But of course it's completely unsustainable, as the Norwegians found out....

So far so straightforward, but that’s not the whole story.

When the taps were turned off and young people, especially, found it very difficult or even impossible to scrape together a large deposit, many of them rounded on the regulator.

Kristin Myrvang Gjorv, a 28-year-old graduate who holds down three jobs quickly realised her dream of buying a flat would remain just a dream for many years.

“I felt angry,” she told me in the kitchen of her rented flat. The head of the FSA admitted he had come in for a roasting in the press.

“It proved to be rather controversial,” said Morten Baltzersen. Owning your own home is even more of an obsession in Norway than it is in the UK.

Jon Gunnar Pedersen, finance minister, told me why: “You have to have a good house, simply to survive the weather conditions we have here. Eventually every Norwegian expects to own their own home.”

His centre-right party was elected partly on the promise of easing the mortgage guidelines.

They want banks to look at an individual’s earning potential, not what they can afford now – and wrote a carefully vague open letter to Mr Baltzersen to this effect, which many people I spoke to in Oslo think undermined his position.

So the people got so angry about mortgage rationing the government lost an election.....

Sounds like the Tories already were "listening to the Nordics".

I'm guessing this doesn't end well for people that want prices to fall....

As one bank broke ranks, and then another, they are all becoming less stringent in their lending and house prices in Norway are rising again.

The whole policy may be unwound.

Didn't think it would.....

How many times, in how many ways, and from how many countries, does it have to be said that "you can't fix a housing shortage by rationing mortgages"?

Anyway, back to the UK.....

So as officials at the Bank of England settle into a day of deliberations next week on how to tackle the housing market, what can they learn from Norway’s experience?

They can take comfort from the evidence that unusual measures like requiring high deposits from borrowers combined with higher capital from lenders do seem to calm property markets.

But they should beware of straying into the political fray.

Imposing restrictions on mortgages means Bank officials are deciding who has access to buying their own home, a distributional decision which is normally left to politicians. They may be taken aback by a hostile response.

Likewise, politicians should be wary of intruding on the Bank’s decisions for fear of undermining the policy.

The Chancellor made clear yesterday that he has given the Bank complete independence to make its decisions.

Yet talk is cheap and he may find the temptation to comment irresistible if housing becomes contentious.

However there are two further points which became clear in Norway: the fundamental problem is not to do with mortgages but is one of supply of housing.

There simply isn’t enough to accommodate a growing population - a very familiar problem here in the UK.

Finally, as similar as the story may be in Norway, there are many differences which mean we can’t be sure these measures will work in the UK.

Britain is much larger, it taxes property differently, we have a different immigration policy, different rates of home ownership, different aspirations.

We can observe what has happened in Norway (and Hong Kong, South Korea and others) but ultimately the Bank may be about to start what is a very impressive and very important experiment.

We’ll hear the result of their deliberations on 26th June.

http://www.itv.com/news/2014-06-13/w...rket-controls/

So Norway has tried lending restrictions similar to the ones being proposed here, which prevented loads of young people from buying houses, and became so unpopular it contributed to government change and is now being abandoned.

And the lesson was learned that a housing shortage cannot be tackled through lending restrictions.

Seems to be an awfully complicated way to avoid building more houses....

CLAPTON

however do countries as sparsely populated as Sweden and Norway conspire to restrict the building of sufficient properties for their population?

HAMISH_MCTAVISH

CLAPTON wrote: »

sufficient properties for their population?

That really is the problem.....

As the article notes.

" the fundamental problem is not to do with mortgages but is one of supply of housing.

There simply isn’t enough to accommodate a growing population - a very familiar problem here in the UK."

Generali

HAMISH_MCTAVISH wrote: »

That really is the problem.....

As the article notes.

" the fundamental problem is not to do with mortgages but is one of supply of housing.

There simply isn’t enough to accommodate a growing population - a very familiar problem here in the UK."

Sweden is a highly urbanised country, almost as urbanised as Australia.

As a result, building houses where people want to live is still tricky.

HAMISH_MCTAVISH

Well this thread didn't quite go to plan for Dev.....

An awful lot of people still seem to be putting an awful lot of effort into avoiding the rather obvious fact that the only way to fix a housing shortage is to build more houses.

You cannot fix a housing shortage by rationing mortgages.

It really is that simple.

Graham_Devon

HAMISH_MCTAVISH wrote: »

You cannot fix a housing shortage by rationing mortgages.

It really is that simple.

No one has suggested this fixes a housing shortage.

What made you think it did?

This goes some way towards identifying and reducing the risk of unsustainable and unaffordable credit.

The housing shortage and credit risk are two seperate things. We all know this, so bar the usual forum politics, I'm not sure why you make out this is a solution to a shortage of housing, as it's not, its one solution to credit risk.

HAMISH_MCTAVISH

Graham_Devon wrote: »

credit risk.

A mortgage for 7 times income when base rates have virtually no prospect of exceeding 5% in the next decade or two is less risky than a mortgage for 3.5 times income when base rates can and did reach 15%.

UK mortgage lending, UK house prices, and UK interest rates had the square root of naff-all to do with the global financial crisis and subsequent credit crunch.

HAMISH_MCTAVISH

Graham_Devon wrote: »

No one has suggested this fixes a housing shortage.

What made you think it did? .

You support these things only because you want to see something keep a lid on house prices and you think this might help that to happen.

Not for any other reason.

You would like to see loads of people prevented from buying houses because you see that as a solution to the price rises being caused by the housing shortage.

As always Graham, you simply don't see the big picture.

The only way to bring down prices sustainably over the long term is to build millions of houses, and that just won't happen if credit is rationed, as we have seen from the last 7 years.

We have tried to warn you that credit rationing was simply "kicking the can" and was only storing up bigger problems (and price rises) for the future but you didn't listen.

Now sure enough, here we are with mortgage approval numbers at still only half the level they were pre crunch, and house prices are back into double digit annual rises.

Your beloved mortgage rationing only caused house building to fall to 100 year lows, landlords to be enriched, a generation having to put their life on hold, and the housing shortage worsened to critical levels.

Now you want to compound that mistake with more credit rationing.

You never learn.....:o

Graham_Devon

HAMISH_MCTAVISH wrote: »

You never learn.....:o

"You want". "You don't". "You think". "You would like".

See the problem with all this is that you end up wrong in most of your assertions.

We can all make up assertions. But it doesn't really get us anywhere.

Stick to the topic. Stop trying to pretend this thread was about dealing with a housing shortage (it's a seperate issue). Stop making up random assertions.

Honestly, we'd get a better debate.

It might have escaped your notice, as clearly you didn't take a blink bit of notice as you are making all the same things up again. But you did this very same thing just a few days ago, and my response to you making things up then was this....and it still stands.

Graham_Devon wrote: »

I'm not Hamish, and I wish you didn't have to stoop to these levels, making things up to bolster your argument.

You can create a good debate. You can argue your point succinctly. But you undo all of that when you revert to making things up to somehow create your argument.

I would like ot see maybe 4x income multiples applied (it's going to hurt some people, but I really don't know how else you can control things effectively otherwise and whaytsmore, historically this multiple, considering dual incomes is still very high). Decent deposits asked for (10%) and the removal of all policies which only create demand and no supply (HTB2, FFL). BTL reigned in through various measures.

I do not want to see 2008 all over again, which is precisely why I believe the government should implement stuff now....to avoid the inevitable bust and therefore avoid the conditions we faced in 2008.

Do we really want to be going around in circles?

Graham_Devon

HAMISH_MCTAVISH wrote: »

A mortgage for 7 times income when base rates have virtually no prospect of exceeding 5% in the next decade or two is less risky than a mortgage for 3.5 times income when base rates can and did reach 15%.

Maybe. But you are comparing a one off, extreme point in time, which, I must add, led to a massive amount of reposessions and concluding it should therefore be normal today to be sailing that close to the wind.

As a country, considering the amount it's just cost us and future generations, I don't believe it's sensible to set up a system that allow us to sail that close to the brink of collapse.

Secondly, who does it benefit really to have such a large proprtion of incomes going directly on mortgage payments? Surely it would be better for everyone, families, business etc to have some money left over to spend on other goods and services, benefitting the whole of the economy rather than just one aspect.