PeteBrant

What, exactly, are they going to pay rent with, when they owe the mortgage company, say, £50,000 of negative equity?

Thankfully, selfish, greedy thinking like this does not previal in the halls of power. Mainly due to what happened in the last crash.

You better prepare yourself for your tax being used to help out with other peopels mortgage payments, because its going to happen.

PeteBrant

I concur with all of that.

MrNoisy

iTrader: (28)

The only thing that's selfish and greedy is this government. All I've seen since it's been in power is take take take - I've yet to see it give something back that the public actually wanted.

It's not a problem anyway - they won't need to pay the £50000 - they can just declare themselves insolvent or whatever this process Labour came up with is called that allows you to write off your debts.

As for my tax being used to bail people out - forget it, Gordon and Alistair will be far too busy redecorating their homes with the money to worry about the little people.

lozgti

Aye.Only Bankrupt for a year to 'encourage entrepeneurs' to have a go

PeteBrant

IVA's you mean.

Problem is, if you declare yourself bankrupt, or in an IVA, then any letting agent is going to run a million miles from you when they do a credit check.

By far, really really by far, the cheapest cost to the state is to keep people struggling with thier mortgage payments in thier homes. (of course I am talking about the average joe here, someone with a mortgage of £8,000 a week.)

MrNoisy

iTrader: (28)

£8,000 a week you say!? Flippin eck, I'd better move to rented accomodation now

fast bloke

NO!!! - The Northern Rock bail out was underwritten by the government, and if it is called in, the cost to every tax payer would be £2000. That assumes that house values drop to zero and everyone with a Northern Rock mortgage defaults.

Anyway - the new proposals are unrelated to the NR bail out. As you say, the BoE is a central bank, which acts as a clearing house, savings facility and overdraft facility for other banks. If Barclays need a billion quid to tide it over to the morning, the ask the BoE to release it from the overdraft facility they have bought at money auction that month. Sales of money at the auction are securitised by lender assets. Currently the BoE will only allow money to be purchase using easily liquidised assets, as most of the money is auctioned on a 1 month or 3 month basis. Mortgage backed assets are not easily liquidised, so cannot currently be used as security. If would be impossible for the BoE to look at every lenders mortgage book every month before the auction to decide what is low risk and what is high risk. The proposal seems to be that over a period of time, the BoE will buy low risk mortgage backed assets and related debts by using government bonds, removing them from lenders balance sheets and freeing up liquidity.

As an example - say you bought your house in 2001 for 500k with a 300k mortgage. All your payments have been up to date - your house is now worth substantially more than it was in 2001, so your lender has an asset which is worth at least the 300k you owe them, but under current money auction rules, this wouldn't be classed as acceptable collateral for money auction security. Under the new proposal, the BoE would look at long term non liquid assets and issue a bond where acceptable, in this case 300k. The bond would then be used by the bank as security in a money auction if required. The bond would be purchased by an investor with a guaranteed return after x number of years. Again, the taxpayer is exposed to a certain amount of risk, but only if house values drop below the level of security and the mortgage is defaulted

I don't think it going to solve anything long term, but we should know about most of the fallout from the American sub prime fiasco within the next few months. When this becomes clear, the likelihood is that banks will begin lending to each other at reasonable rates and the Libor rate will come back in touch with the BoE base rate, in which case the lenders won't need to raise availability of money from BoE auctions

MrNoisy

iTrader: (28)

Thanks for the explanation fella - sounds like you're in the know! I'm still not certain the BoE lending more money is the answer though; wonder if we can't just give the banks a kick up the a*se!

fast bloke

I don't think it is a brilliant idea either - It seems to be the equivalent of an Ocean Finance debt buster loan, but the point is that individual or corporate investors will take the decision to buy the bonds with minimal risk that the taxpayer will ever be involved

PeteBrant

Thanks for the detailed explanation! I stand corrected.

Just on this point - It seems the Government are only willing to do a deal if there is zero risk to the tax payer - Is this even possible?

Wurzel

iTrader: (1)

They print it with big printing machines

Leslie

Yes I agree and also with Pete Brant. This lot are just too prepared to put our money at risk for their own purposes. It is yet another indication of how Flash has screwed the economy and is continuing to do so. I feel sorry for those who will find their debts increasingly difficult to service. As I said before-the chickens are returning!

Les

MrNoisy

iTrader: (28)

PMSL - yeah, and it's protected by those goblins from Harry Potter... lol

fast bloke

There can't be zero risk to the taxpayer, but in reality, the taxpayer is ultimately at risk for every credit transaction that happens (or doesn't happen) - The credit crunch has led to people holding on to more of their cash and not buying as many luxury items as thay have been. One direct result of this is that JJB sports is closing stores and getting rid of 800 staff. That is 800 people who will be in receipt of benefits for weeks, months or years to come. That money will come from the taxpayer. If credit availability and confidence continue as they are now, we might be looking at a couple of million jobs, which will really hurt the taxpayer. So the risk of doing nothing could be as great or greater to the taxpayer than the risk of giving it a go at a sensible level. The trick will be working out where the sensible level lies. If the BoE starts issuing bonds on 95% LTV mortgages taken out 6 months ago, then the risk will be very large but the credit crunch would be effectively ended. If they decide that they will only issue them on mortgages taken out at 50% LTV in 1995, then the amount of liquidity released will be minimal but with virtually no risk

lozgti

How can the government stop a bank reposessing a house? It can't.It can only politely ask them all to refrain from doing it even if people have lots of arrears etc.

The government cannot change the fact that people who want to remortgage (maybe to get out of debt or get a better rate) can't do that anymore without it costing them a lot more to do it and needing to show they would have an equity cushion.

Surely all the banks/B socs are insisting on people stumping up 10%/20% deposits or more is because they KNOW the market will drop that much and they NEED that cushion to protect their money if there is a repo?

Whatever the position and the desperate measures,I don't think they can stop what is coming

PeteBrant

Right, but obviously its the former that the banks want to get shot of though.

I;m sort of in two minds about this. On the one hand, it;s easy to say to the banks, wel,, you got yourselves intot he this mess, why should we bail you out?

But that is just a macro scale of what I am advocating for individuals - I.e. bailing people out of mortgage troubles if they get hit hard. So I can't really object to it.

I just think that it will only prolong the inevitable - and make it more painful - The housing market is overvalued. It cannot be sustained in my view, so if an adjustment needs to happen, then surely the sooner the better.

Devildog

Its unlikely they would, but its quite (and easily) possible with a change in legislation to the concept of a secured deby and calling up/reposession procedures.

Correct, but what part of "discounted rate" to people not understand when taking out a mortgage? Having said that, a significant issue here is that you could always previously expect do simply roll your mortgage into another good deal when the discount/fixed period ended. You can't do that anymore.

But that's not the banks' fault. That's the consumers fault for not examining the worst case scenario.

The consumer is also partly to blame for wanting too much, too soon, hence the demand is for 3/4 bed housing, not 1/2 bed flats. The developers build what the market wants.

Its not so much about the market dropping that much, its about not being able to "count on" significant growth in the short term.

The problem is existing lending - not the new lends.

unclebuck

Not quite the case apparently. As I understand it JJB's loss of earnings is a direct result of England failing to qualify for the European Cup (or whatever it was.)

EddScott

Someone order a million "Well done England" shirts or summat?

Should we not just let it happen and pick up the pieces afterwards? Rather than hokey get out of jail schemes?

Although I work in an IFA practice, we don't deal with mortgages too often so I haven't got great knowledge on the subject.

Petem95

Exactly - this sort of extreme action will only prolong things!

How about we slash interest rates to 0% as well!

This country is so fcuked

MrNoisy

iTrader: (28)

lol - I'm off to Number 10 to ask Gordon for a BoE loan to pay off my house! Quick join the queue!

Henrik

iTrader: (5)

I don't agree with this at all. If you have a mortgage and you a) haven't taken into consideration that rates might rise significantly and b) don't have enough of a savings cushion to tide you over a short period of very high interest rates, it's not somebody else's fault - it's *your own fault*. If you couldn't afford it because you lost your job, then by all means, the government should help out, but not because you didn't plan properly.

No, and that's why I have refrained from buying a house at these prices. I could have borrowed enough money to buy myself a nice house, but I knew that if interest rates go up to about double, I'd be screwed, so I *didn't*.

You hit the nail on the head there

Maybe, or just be a believer of personal responsibility.

Oh hang on, I forgot it's always someone else's fault nowadays.

pslewis

I thought everyone wanted better schools, hospitals and a stable economy?

PeteBrant

Conversely, it is the responsibility of the lender to lend responsibly. I.e. if someone on £12K a year comes to with a LTV of 100& and wants to borrow 12 times his salary, say no.

Don't say, as has been happening "Are you sure that's going to be enough?"

It used to be the case that you had to build a watertight case to get a mortgage. Up until recently they were given away with cereal.



Right, so again what do you suggest? Making the family homeless and supporting them with benefit that way?

Devildog

Indeed - and we are all still waiting

Henrik

iTrader: (5)

Yes, but just because I can walk down camden high street (or any other major high street) and have all sorts of more or less pleasant drugs offered to me does not mean that I use them. This is another example of it being someone else's fault.

In the situation above, the bank will lose money when it repossesses the house (it will likely never see the full amount back, even if they keep chasing the person for ages). Ultimately, however, the blame for taking out the mortgage lies with the borrower, not the lender.

If I was on 12k, I would not borrow to buy a house, simple as that. I would get in line for council housing and apply for as much benefits and tax credits I could.

Good idea - this would force the government to build more social housing, which is a good thing. I don't think they should be kicked out straight onto the street, but why shouldn't they have to move somewhere they can afford to live in on their income (be that social housing or private housing (bought or rented)).

Also, it's not a case of just because a family or person can't afford to pay for a mortgage that is too expensive, they can not afford to pay any rent what so ever. They might not even need benefits at all if they live in a place they can afford (I realise that it's not always the case that the accommodation that is affordable to someone is adequate, in which case benefits can (and should) play a role in helping to accommodate them adequately).

Devildog

Yes and no Pete. Its been easier, thats not in debate. That the lenders have been somewhat relaxed is not in debate.

But you cannot absolve the borrower of a significant proportion of the blame, or (and perhaps more likely the case) the mortgage advisors who nowadays can pick up their qualifications off that same cereal packet.

I can;t tell you the proportion off the top of my head, but the number of deals involving advisors of some sort (who are operating in a commodity market) must be significant.

They must accept some of the blame for overstretching their clients. The problem there lies in the fact that its a highly competative, poory regulated and frankly immoral market and there is always someone else who could get that deal.

That is, of course, the 6 million dollar question. Someone is going to have to pick up the tab at some point, and that can only be the rest of us.

PeteBrant

I can see where you are coming from. But, the problem as far as I see it , is that we live in an environment where "rent" is almost a dirty word. You are put under pressure to buy as soon as you are able - And you see a burgeoning housing market and want to get on the ride (no matter how much of an illusion it is).

People in the last couple of years that bought (i.e. those most likely to be affected by a crash, should have seen that the market was overvalued. It was obvious to anyone with half a brain.

If people are having to borrow beyind thier means - Or as is happening now, the Banks will not lend the requisite amount, the cause is the same - The market is overvalued.

Yes, perhaps people should be more aware of what they are getting into - but I am not convinced that the best way to get over mass repossessions (if it comes to that) is to just let it happen.



I agree we need more social housing (which obviously in turn would exert downward pressure on house prices)


As for "why shouldn't they have to move somewhere they can afford to live in on their income?"

That's a tricky one. I mean last time out, you had people that had spent years building thier homes only to be kicked ouit because they couldnt afford the mortgage for 6 months.

I mean lets not forget, this isn't just about house prices, if it really does go, then there is every possibility, that people that thought they were relatively safe from getting embroiled in the house price crash could be dragged into it through economic slowdown - i.e. redundacy or whatever.

Yup this is a fair point -Again, I am just not sure that uprooting someone, the added administrative costs, finding them housing etc etc - Its worth it when you can just tide them over for a fixed period of time whilst they try and sort themselves out - It would certainly be cheaper.

PeteBrant

Yes of course everyone has played thier part.

Not least the government, who are reaping the "rewards" for a long term low inflation, low interest rate economy - Great in the short term, but there was always going to be a consequence, wasn't there?

fast bloke

Cheers DD - Now everyone will be buying loads of Shreddies to get my job