Tuesday, 29 July 2008

Why should I guarantee your mortgage?

The latest wheeze from the banks and building societies is that we taxpayers should shoulder the risk of the mortgage market because of the credit crunch. I'm with Vince Cable in thinking that this is a totally inappropriate use of taxpayers' money.

I totally agree that the credit crunch is hurting people. In particular older people facing high energy bills and low earners who need to use their cars who are faced with high petrol prices. The people who are being hurt less are those who have mortages at rates they knew (or anticipated) when they took out the loans and get a place to live into the bargain. That their properties are no longer rising in value at 15% per year and cannot be remortgaged and the resultant cash splurged is not my fault or concern.

We all know what can happen with the housing market. As recently as the early nineties we had falling prices and negative equity. Surely no one can have thought that the rising market was guaranteed for ever more and they will have invested in this knowledge.

Now the banks and building societies are saying that they don't feel confident investing in the mortgage applications of people who, just a year ago, would have sailed through. And so they are asking the Government to guarantee the loans. If the loan succeeds then the banks will take the profits. If it fails then the taxpayers will shoulder the burden.

There are likely to be people genuinely hurt in this. First time buyers (possibly including me) may well find it much harder to get onto the housing ladder. But it's not me that the banks are most wanting to help out. Instead, they want to help their re-mortgagers who want to release the equity in their properties which have increased so much in value since they took out their original loan. So I'm not going to be taken in by the bleating of the lenders that it is actually the little people who will suffer.

1 comment:

Liberal Provocateur said...

Totally agree, but it's a bigger problem than you've mentioned here.

Most fixed mortgages are for 2 to 4 years and many of those are about to get punitively expensive.

The problem is that the expensive (i.e. well above both inflation and the banks base rate) mortgages (and therefore also rental agreements and leases which are also going to up for renewal) are combining with a greatly increased cost of living and unchanged or reduce income.

leading to a recession with high inflation! That affects everybody.

The problem is that the mortgage market is failing to work (because it was inadequately regulated and a relatively small number of people got rich misselling mortgages and selling dodgy bonds based on them, screwing the whole system up).

I'm pretty angry to be underwriting other people's mortgages with my taxes *and* at the same time paying for the mistakes made by the banks through exorbitant mortgage rates and fees.

If the problem really is lack of liquidity for lending, then lending is fine, but the risk should be on the banks, and there should be strict conditions, such as capping the rates, or being linked to money raised from investors.

The Bank of England should be a lender of last resort, not a cash machine. The banks shouldn't be using it as cheap money to lend with to recoup lost profits. The banks invested badly, their profits are down, shareholders are unhappy so heads should roll, unfortunately this doesn't seem to be happening.

Sorry, I've probably just loudly agreed with you, but our mortgage is up for renewal this autumn and I'm not a happy bunny about having to pay for a bunch of directors and city boys bonuses after they pissed away gazillions (including the last year of my pension contributions) on dodgy bonds, lending and cooking the books. c**ts.