Watching, hoping
There was always going to come a moment when all the talk about the credit crunch, the liquidity crisis and our old friend Northern Rock suddenly hit home for people who don't spend their lives studying the financial pages. Today is, I suspect, that moment.
The Halifax's announcement that since the housing crash of the early 1990s will force many people to stop, pause and gulp. The optimists will say that things now are nothing like they were then. Inflation is not out of control. Interest rates are being cut, not raised. The economy is still growing. As Labour's canny former deputy chief whip, George Mudie, , "Well, fine, but that is history". He went on to quote Lloyd George 'You can't feed the hungry on statistics of national prosperity'.
Things, to coin a phrase, can only get worse - at least in the short run. These stats came before the lenders began to refuse mortgages to people they'd previously begged to take them. The FT has reported that because buyers cannot get the mortgage they need.
The question is what, if anything, can the government do?
Today Gordon Brown's talking about - the 拢3million he's promising to spend helping 2,000 people buy their first homes - is sure to be welcome to them but not budge the housing market as a whole.
He's promoting international action at important meetings of the G7 and IMF in Washington at the end of this week - which may help avert a future crisis but can do relatively little to solve this one.
No doubt he hopes that the Bank of England will cut interest rates on Thursday - although he must know that these cuts are only being passed on to a few mortgage holders.
He has just seen his chancellor deliver a in which he could do very little - beyond let borrowing rise still further - because there is no money in the coffers to spend.
So, like us all, Gordon Brown finds himself largely a spectator - watching, hoping, perhaps even chewing the odd fingernail - as we all wait to see if this is simply a "market correction" as part of an economic slowdown or the beginning of something much much worse.
I'm 
Comments
Gordon is finally reaping the seeds that he sowed. Pity it will be the rest of the nation that pay for it.
House prices are too high, and have been for a while; that's why people over-stretched themselves, why we have initiatives to help "key workers" afford to buy somewhere to live.
The general assumption (in government as well as the media) is that government must try and keep house prices as high as they are.
If house prices fell to a more realistic level, then more people would be able to afford to own their home without an implausible mortgage. Would that be such a bad thing?
The Prime Minister is building some sense of order at the top with the G7 and at the bottom with cadet schemes in schools. A proper sense of order, balance, calm, and knowledge that we're all in the boat should help things. It may not prevent a market correct but we'll all be healthier and fitter when dealing with circumstances.
My biggest concern is the way ISP's are using Phorm to break multiple laws with their intrusive hijacking of peoples internet connections. If the government did that without a warrant there would be an outcry. How does this fit with the Prime Minister's sense of developing a positive business vision and social wellbeing over the long-haul?
If Britain is to change and move into a better future it needs to leave retreads like these behind and develop opportunity at the grass roots. The old ways of fear and greed, or monopoly and passive consumerism are dying are yesterday's news. When the Prime Minister returns to domestic issues and helping people I hope he acts on this.
Gordon, you promised never to betray us. .
Nick,
There is no pleasure to be had in pointing out to everyone who fell for the view that Gordon was a great Chancellor that they were in fact wrong.
There are too many in Britain who seem to think that the government has this wonderful power to move markets, tackle social problems, or even reshape other countries in our likeness. In case they haven't realised, this is not the case. Instead, we should be trying our hardest to free up the economy from all of the unnecessary regulations and bureacracy that come from government intervention. Only then can we hope to kick start the economy and provide wealth and jobs for those in the UK. For the avoidance of doubt, this will mean radical reshaping of the EU at the very least. Are there any poloticians out there who are willing and able to put their heads above the parapet and state what needs to be said, or are we all doomed to just quietly surrender to economic decline?
And this is the end result of '10 years of Prudence', is it? Not a recession - but a crash-stop.
Not a lot to show, really, for the 99 Tax rises between '97 and '06 - or the raid on Pension Funds by scrapping Dividend Tax Relief.
And, lest we forget, this was a Chancellor (now PM) who raised 拢22.5bn selling the 3G licences, yet we now have a dying economy, a large DEFICIT - oh, and an increase in tax for the low-paid.
Well done, Gordon. Still, you got a nice dinner at Granita out of it.
Why should the government do anything?
House prices are massively too high. It makes little difference to most of us as we just use a house for living in.
If a proper price correction were to happen prices would fall quite dramatically. First time buyers I know are getting 35 year Mortages together so they can move out of home. Up here in the Highlands the average wage is pretty low but house prices are ridiculously high. As many people as I know that cannot get on the ladder I know as many people that have bought to rent to make cash out of the situation.
The fact the banks kept changing their own rules so they could keep lending has created this. If the banks had stuck to the old 3 x wages then this bubble would never have gotten as big as it has - pure greed and a large lack of financial common sense!
I look forward to the "crash" that the 大象传媒 paints as all bad. Its really mainly only bad for people that have either over stretched or tried to make money out of the situation.
"Gordon Brown finds himself as a spectator" - err, how often did we hear him repeat the mantra about his government being responsible for low mortgage rates and higher house prices? Too often - but now it's all the fault of "global" factors. Please.
Also, you never mentioned stamp duty in this article. That massively impacts on the housing market.
You correctly point out that few may benefit from the possible rate cut on Thursday.
In a mortgage market where volumes are falling, what is there to stop the banks from simply increasing their margins and not passing on the cuts to the general public?
When it was easy for them to sell on their debt and grow their mortgage business rapidly in a time of high demand - it was a highly competitive market. Lower margins yet still producing record profits. Things are somewhat different now.
There are now far less mortgage products available and a less competitive market. What odds that the banks will use nearly all of the upcoming rate cuts to boost margins in an effort to maintain profits and appease shareholders?
Things are getting much worse for the man / woman in the street. Meanwhile the Bank of England are carrying out an an exercise that may be as effective as pushing on a piece of string and the government are left in their post budget state of being unable to do anything other than sit on their hands.
Ultimately the market will eventually solve this problem. Property prices will correct themselves, first time buyers will return to the market and some competition will return to the lending market.
How long that will take or indeed how many changes of government will occur first, is still a moot point.
Never mind the credit crunch, falling house prices or the streets of London taken over by Chinese security police, the strongest indicator of calamity in the country is a negative comment of Gordon Brown by Mr Hardwidge. This clearly is the beginning of the end for the PM.
It sickens me to see Gordon Brown try to weasel out of this and call for international action.
What about the billions in extra tax he has squandered? What about the excessive borrowing that he presided over when strong growth should have seen a reduction in the PSBR?
And most scandalous of all was the ditching of RPI (which included housing) to CPI which of course doesn't.
And don't believe the hype - the UK has the highest inflation and the highest interest rates in the G7.
I seem to recall Gordon Brown promising an "end to Boom and Bust" What happened ?
I think the next General Election looming on the horizon is going to become pretty problematic for the Government and the housing market.
We have worldwide inflationary pressures due to record oil prices and basic dairy/grain shortages (due to biofuel production and India & China's middle classes growing tastes for Western foodstuffs). We've seen the costs of oil, wheat and milk increase and an unexpected rate - and these are the basic blocks for everything - the animals eat grain so the cost of meat is bound to increase etc.
In the UK our main (and possibly only truly effective) measure against inflation is raising interest rates. So the government has only three choices:
1) Hold the Band of England to its remit of keeping inflation within set percentages - leaving them no option in the future other than increase the interest rate
2) Relax the upper end value that inflation can reach as a temporary measure so as not to destroy the housing market
3) Tamper with the calculation formula of the UK's inflation to more, lets say, helpful variables.
The first option, drastic as it may be for the housing market and houseowner can be (politically) blamed on the US's sub-prime lending problems.
Option 2 & 3 leave the Government open to the charge of not being in control of the economy - a rebuttal of what it considers one of its great strengths.
Now with a Gerneral Election looming in the next couple of years, David Cameron already accusing Gordon Brown's government of mismanagement of the economy, and a potential collapse (sorry - readjustment) of the housing market that can be blamed on outside forces - which option do you think they are likely to choose?
Any sense of control that the PM, the Bank of England or the Federal Reserve felt they had over this economic downturn has evaporated.
Gordon Brown's job is on the line, yet he is completely powerless.
It's a global crisis not UK only. Stop and think. The countries with commodities, including cheap labour, to sell will ride the storm out best - China, India, oil states, etc. We have very little to sell.
And please don't make out that if the Tories or Lib's were in power the crisis would not affect the UK.
Moaning will not change a thing.
The question should be 'Why should the government do anything about house prices?'. It is not in the country's long term interest to sustain an inflated housing market. In fact it causes much of the social divisivness we expected Gordon Brown to tackle. People on lower incomes who have managed to buy a house spend a large proportion of the income to banks and bankers. Key workers can't afford houses and rents are artificially high to allow buy to let landlords to pay their over-stretched mortgages. Who is this helping but the rich and the exchequor. Who is paying - the working and middles classes.
I will be disgusted if the government step in to do anything. They didn't when house prices were escalating at a stupid speed, causing misery for many.
It is a market, like many others. Leave it be.
I have prudently sat buy, saving money waiting for house prices to become more affordable. It now looks like they may do so.
The government and the Bank of England have helped the bubble to be inflated to it's current level (2001 interest rate cuts). Blowing some more air into it is only going to make the correction/crash/readjustment much more unpalatable down the line.
Why should the government have to do anything? The whole point of the Bank of England raising rates two years ago was to cool the housing market. That is now happening. The cost of housing is overvalued and a correction was always likely to happen, anyone who thought they would keep on growing was not living in the real world for ultimately a house is only worth what someone is willing or able to pay for it. In my view prices have risen too sharply because the banks were too free with their lending. Now we talk about having 10% deposit as a minimum, well that was the norm 20/30 years ago. Had the banks not lent such vast sums then it is likely that prices would have been unable to raise so fast as many on the ladder now would noy have been able to buy. This is the hangover from the ten year property boom party
Why are falling house prices seen as a problem? If house prices were lower, then more people could buy a their own home, and exisiting home owners would not have to pay large proportions of their wages in mortgage repayments. The result of which would be more disposable income, and hence a stronger economy. Wages would not need to rise as much as they do to keep pace with rising house prices, which results in lower inflation. Everyone's a winner.
Except those people who bought a house as an investment. Houses are for living in.
A prudent man saves during times of prosperity so that he doesn鈥檛 have to just watch and pray when times get tough, but at least we have our gold reserves鈥.. ah鈥 its off to church then.
Falling house prices are a good thing for the millions of people who are completely priced out of the market.
When the market was rising, those with houses had a great time while those without suffered. Now that prices are falling, the reverse is true.
Tinkering around the edges with a schemes for a few thousand key workers was never going to solve the affordability problem. In fact, it was just likely to make it worse for everyone who couldn't get on one of the schemes. Falling prices were always the only solution. Hooray that they've at last arrived!
House Prices are, historically, far too high, and a correction is over-due. If the credit crunch brings this correction, that is only to the good. The other thing Gordon Brown needs to do to bring house prices DOWN, is to modify the planning process to stop 'Nimbys' preventing new house building in the south-east.
I'm generally supportive of the Prime Minister's position under the circumstances. He's acting appropriately as the situation demands. He could do nothing more or less. My issue is less with government and people but with poor corporate governance. The barbed comment is no more a suggestion to the Prime Minister that a developing issue may benefit from his attention.
The abstract and detached is fine to a point but, I feel, the Prime Minister would find developing a more positive and personal domestic policy useful. Indeed, I'd go so far as to say that general approach is in hand and the Prime Minister is waiting for an opportunity to arise to drive a more enlightened and welcome policy. Cavalier businesses may well be that issue.
I think the latest news from Halifax is a prelude to something much worse. Base rate cuts won't be enough to stop the property crisis.
Good synopsis Nick. The fact that you as political correspondent, in addition to Robert Preston, take to commenting on this, indicates the seriousness of the situation.
And of course Gordon Brown is Mr Boom and Mr Bust. So much for his mantra of stability and no more boom and bust!
I'm surpised that you say inflation is not out of control. I, and everyone I know and/or work with would beg to differ.
I know the government's statistics on inflation would imply that it's not out of control, but if it were actually based on things that people actually do have to spend money on, then I suggest the figure would be a lot higher.
When money goes out faster than it comes it, something had to give.
I think an idiot could see where this is heading.
One thing the government could do is postpone or scrap that CGT changes which are about to come in.
These changes create an incentive for buy to let investors to sell up. A flood of property arriving on the market is not something we want right now.
There may be a cost to the treasury in postponing the changes but the cost to the country of not making them could end up being much higher.
So house prices are so inflated that large numbers of people are unable to buy a home. Hmm. What should Gordon Brown do? Accept a long-overdue price correction and a return to affordability? Are you mad? No, let's keep prices high, promote shared ownership and make them buy half or a quarter of a house instead. Yep, that's much more sensible...
mathew asks 'if house prices fell to a more realistic level then more people could afford a home without an implausible morgage. Is this a bad thing'?
Well yes it is. People like me would be bankrupted. I was paying 拢600 rent a month and realised the morgage on an identical house would be only 拢640/mth. I went without a holiday for several years to raise a 5% deposit and can meet my morgage payments comfortably.
If house prices fell to 'affordable' levels I'll be stuck with 拢40,000 of negative equity that I'll never be able to pay off. In effect I'll be bankrupted in order to help someone who presumably hasn't given up their holidays and saved buy a house instead. How is that even vaguely fair?
By the way welcome back, hope the break was enjoyable.
Anyway 拢3,000,000 to help 2,000 get their first home?
That would suggest that Gordon could help every man, woman and child in the country to get a home without exceeding the amount spent on Northern Rock.
On that basis what housing crisis?
Seems about as credible as the rest of his financial performance this last decade.
How exactly will the G7 help out people who borrowed between 6 and 10 times their income to buy property? Do people really believe Angela Merkel, representing the country with one of the highest svaings ratios in Europe and with the lowest home ownership, will want to bail out Gordon's boom and bust economy?
There can be no international solution to a home grown problem. Brown spent ten years boasting about his successes but now wants everyone else to help bail him out when it goes wrong. My heart bleeds.
If the boasting ex Chancellor hadn't spent so long telling everyone how clever he was he might have more chance of success. Sadly for him many of us have long memories and would like to remind him of his multiple grandstanding at the despatch box now it's all going pear shaped.
Welcome to the real world, Gordon.
No one - and I mean no one - I know has a good word for this government any more. From die hard labour voters to those who voted Labour for the first time in '97. All of them are now firmly anti-this-government. The only surprise is that Labour is getting any percentages at all in the polls. The economy was all that was keeping many in the labour fold. Now the "miracle" has been revealed to be cheap money propping up unsustainable borrowing. The good times are over. Gordon Brown mismanaged the country's finances. He'll reap the whirlwind when the next general election is called.
At least gordon has spent the last 10 years reducing the tax burden and reducing borrowing so that the uk is well placed to plough through the economic hardships ahead
oh wait a minute he's spent 10 years frittering money away with nothing to show for it except high taxes and high borrowing
some much for 'prudence', he's well and truly 'browned' the uk for the next 20 years
Why do commentators keep referring to house price falls as 'bad news'? For those of us who have been priced out of the housing market for years now, house price falls are good news. They are overdue and much needed.
Too many people have been trying to get rich quick of house price rises. It's not the government's job to help those people at the expense of the rest of us. Let the bubble pop and then we can get back to a more sensible situation.
I suspect real world actual figures for individual properties are worse than the Halifax averages. I have several flats bought more than five years ago in a mid 1990's low rise development and have monitored actual selling price of all properties in the development since 2000. The peak price obtained was in Spring 2007 when one flat was sold for 拢180,000. When I tried to sell an identical flat for 拢135,000 in Autumn 2007 I got no takers. That's a drop of 拢45,000 or 25%, a big loss for the person who bought at the market peak last year!
10 years of spin has come to an end and the plates of flawed economic policies are falling onto the concrete of hard reality.
Time to get these clowns out of government and back to the circus.
Why sould the government do anything? best thing that can happen is for a drop of 50% or more so ordinary people can afford to buy.
The government probably can't do anything about the house prices without causing massive economic problems. What they can do is strengthen the position of those who are forced rent and give them enough legal protections so that renting becomes a decent and stable proposition.
At the moment if you complain or try and get your landlord to repair anything you are in great danger of being evicted. Unless you are in council accomodation there is pretty much no way you can force repairs without going down the legal route and that will probably just lead to eviction before you get a legal result.
House prices are far too high and Nick should not presume that there is a "problem" in house prices coming down. The question I would prefer to have him ask Gordon Brown is this. Where and when will we see more houses being built? What is being done about the planning permission morass and the NIMBY syndrome? If other countries can do it, so can we.
Nobody can do anything about the upcoming downturn, the city will talk itself into one whatever any politicians or Joe Public does or doesn't do.
Regardless of what anoyone in power says, the worlds economy is in essence at the mercy of the very banks that ushered in the problems to start with, with economics editors around the world acting as their heralds predicting ever more apocalyptic financial meltdown.
The Bear Stearns and Northern Rock farragos proved beyond any real doubt that reality and facts have very little to do with the financial markets these days, it's the rumours and in some cases outright falsehoods propogated in city bars that are carrying the day. The financial giants are effectively authors of all our demises.
The 拢3 million for first time buyers is quite simply pethetic as it would only be enough to cover solicitor costs and a survey for the property which they want to purchase.
I work as an estate agent and they are a lot of people who want to move and in reality if you are a buyer with an appropriate sized deposit and looking to buy a property to live in for the next 5 to 7 years then this is actually not a bad time to buy as house prices are unlikely to go down over that time, however, with tighter lending criteria and less packages available to consumers I think the government should be doing more to combat this issue with the banks instead of letting the Bank of England sort out this mess. After all it is the banks causing this problem and it does not seem appropriate that it is being left to them to sort it out.
And one other thing, prices can only go down if transactions go through. A homeowner will only sell for less than what they paid for it if:
1) They are being repossessed/ going to be repossessed
2) They are dead and the family are selling it.
So if this situation is left to continue it will lead to lower prices for first time buyers but thousands of homeowners will lose their homes through repossession or is that what this government wants?
Shame Mr Brown didn't give us a general election when we wanted one.
What a lot of rot in this piece. I listened to the chap from the Halifax this morning on Radio 4 and he said all the economic factors were looking good for Britain especially the most important factor, the labour market. He even stated that house prices were rising in some areas notably the South East.
We all know this is nothing to do with the Government. This has been caused by the Banks being too greedy and now they aren't lending to each other. Just as Marx didn't predict pension funds being players in the stock market, no-one predicted the rise of hedge funds and private equity funds. The financial markets will always find ingenious ways to make money.
By the way my flat cost 拢74,000 in 2002 and is now worth 拢125,000. so what if it sells for 拢3,000 less ? My mortgage ? A 125% tracker mortgage with Northern Rock !
To echo others here, would it be so bad if we went back to an affordability ratio which actually bears some relation to the ability to repay? x7 multiples over 30 years were always a recipe for disaster.
There are a lots of guilty parties who contributed to the problems we now face: buyers desperate to get onto the housing ladder at any price, greedy sellers, greedy banks and an incompetent government. It seems no-one in the government has even the basic economic skills to work out that levels of personal and mortgage debt are unsustainable and inevitably harmful to the economy in the long-term.
A house price crash would be the last nail in this government鈥檚 coffin, so consequently G. Brown has a vested interest in propping up the whole sorry affair, even if he will be as effective in achieving this as he was in ending 鈥榖oom and bust鈥 economics.
What really bugs me about this whole situtaion, all the schemes to help first time buyers are aimed at people on low incomes only. While i agree this is correct, the problem is im on more than 25k a year at 23 years old, and i can't even begin to buy a house anywhere decent (town centre run down areas are all thats in range). So without over stretching myself into high debt (of which i currently have none) i have to hope for the market to correct.
As for all the optimists that say everything will be ok, how can it? if you want to move up the ladder you need people to buy your current property, yet the more first time buyers fall the less people can move up, and the bottom falls out of the market.
Either im missing something, or the only two ways this can be fixed is drastically increasing wages (never going to happen as this will cripple industry) or the house proces dropping back to appropriate levels.
Rant over :)
The more I think about this, the more it seems that Gordon Brown has backed himself into a lose-lose situation here.
His choices are to protect the housing market at a cost to the Inflation rate, or to protect Inflation at a cost to homeowners.
The first of these will involve exposing the Inflation rate to potential increases beyond our current tolerances, as a means of protecting the value of people's properties (something many people are relying on as a fall-back against the pitfalls of pension security.)
The second is to allow the house prices to fall, forcing more and more people into negative equity and leaving them with mortgages that may soon no longer cover the value of the property they are secured against? However, this will allow / encourage more people to buy the reduced proce properties, creating yet another housing boom and negating the value in reducing the price int he first place.
This dilemna is entirely of gordon Brown's making. Strangely enough, I'd have more respect for him if he were to admit it, instrad of hunting round for 'global' scapegoats.
My vote: No Confidence.
Why oh why do you push the idea that a house price fall is a bad thing? It is not, it is brilliant news for first time buyers, people wanting to move up the property, and gives the next generation of adults hope that they may just be able to afford somewhere to live.
It amazes me that only now are people starting to wake up when the indicators this was going to happen have been around for over a year. We may have different fundementals in the economy to the early 90s but mortgage costs as a percentage of income when the interest rates of the two periods are compared have never been higher. If (when) we have a REAL inflation shock either the BofE lets the economy run away or tightens, and then we'll see the real fear in the housing market.
Also as a lot of this is mortgage based I see a disconnect coming in the housing stock as well, with expensive houses in the catchment areas for traders and financiers continuing to hold their value as the banks maintain their profits (and therefore bonuses), while "middle England" will see a complete market freeze and fire sales of houses where people have to sell. I worry for anybody with less than 20% equity in their property, the next few years are not going to be good ones.
Just reading some of the comments here is fascinating.
It may be good dinner table conversation to claim that the credit crunch somehow undermines the effective management of the economy over the last 14 years (its 14 rather than ten by the way), but its economic nonesense.
Britain does indeed have a much stronger economic position than it did in the mid 1990s, as a result of sensible economic management. Does that make it invulnerable to changes in the global economy? NO. Does it make it pretty well able to respond? YES (low inflation, labour market flexibility are in our favour).
It is right that the govt cant now cut taxes, which it might be able to do in different circumstances (and there is an argument about whether there is a structural deficit), but that is frankly one small lever, which is less useful than increasing public spending anyway, since people might save the lower taxes in a way that doesnt help short term economic growth.
Bash the government cause you dont like - please - but lets not kid ourselves they havent been pretty good managers of the economy.
People should have been gulping when house prices were inflating at 10% p.a. If we have 1% p.a. (current rate) for the next 10 years or so my children just might be able to afford their own homes!
Why do you insist on pushing the view that a fall in house prices is a bad thing?
For a huge proportion of the population it is brilliant news. Perhaps, if they fall back to sensible prices, first time buyers (and I'm thinking of my rapidly growing children here) will be able to afford a home without getting into some shared ownership scam.
So? A few speculator scum and BTL rats get stung. So what?
Bring on the housing crash! The tone of news reporting seems to be biased towards those who actually own - or are wealthy enough to speculate. My own experience, and that of many, many more has made me bitter enough to want the whole thing to end in a spectacular blaze.
When the PM talked to Nick about repossessions being 'a fraction of what they were in the early 90s', what fraction was it? I sincerely hope that a large percentage of those are people who used flats and houses as a letting commodity, for it is them who drove the market out of control.
Now that property is no longer a sound pension investment, and building societies are no longer seen as stable as traditionally thought (not to mention discredited pension schemes that are at the root of the trouble), how are people with large sums of money to keep it from the PM? Overseas?
All this is balm for me: recently unemployed from a job that was in the lowest tax band, and no new jobs available. I offer this to greeting to buy-to-let landlords: 'come on in, the water's lovely!'
I agree with Alex R - I'm surprised we're not hearing more about stamp duty. There is an awful lot of difference between the 1% duty on a property purchase of 拢250k and the 3% duty on a property purchase of 拢260k, for example.
My partner and I are currently buying our first home (great timing) and we were astonished at the difference between the amounts of duty we would have to pay on very similarly-priced properties.
As buyers start to need larger deposits to secure mortgages, they'll have much less to spend on stamp duty. People with properties valued at around 拢280-320k must now be finding it *very* difficult to sell.
I've been to property auctions several times over the years, and seen BTL investors with blank chequebooks, bragging to young couples trying to bid for a house to live in about their almost bottomless borrowing ability (although paradoxically they often can't afford to give their tenants a decent standard of service, and plead poverty when something needs to be fixed).
So, all in all, I can say hand on heart, I don't have much respect for Buy-to-Let and property investors generally. They have, to the last man, been making paper profits mainly by exploiting the least well off in society, and now the chickens are coming home to roost they can't offload their portfolios fast enough.
But often, they are in hock themselves - to the banks.
And when it all goes pear-shaped, does a bank expect to pay for its own mistakes? Hell, no. It expects the customers (over-stretched investors and first time buyers) to shoulder the burden.
If a landlord is in hock to the bank, then his way out is to stiff the tenant. The laws protecting tenants are a complete joke, I know enough professional landlords to recognise that for every half-hearted bit of legislation protecting a tenant, there are a dozen ways of working around it.
I am sick of the way banks take on NONE of the risk associated with ramping up property prices to absurd and unsustainable levels, but are content to reap all the rewards as long as the property pyramid system doesn't collapse.
As it happens, I think all these issues could be addressed very simply, AND the heat could be taken out of house price inflation avoiding a crash, with one very simple bit of legislation.
Here's my policy suggestion:
A bank should bear the consequences itself, if they take on a bad debt. They should NOT be allowed to sell the debt on, or recoup their losses from its other customers by raising charges or interest rates.
Any losses should come DIRECTLY out of their profit margin.
It's about time they managed their own financial affairs properly, instead of simply complaining that customers don't look after theirs after having spent the better part of a decade encouraging frivolous lending if not outright mortgage fraud.
Banks would not lose out massively through my proposal, if they've been lending responsibly. If they've been so irresponsible with their lending that the loan itself was doomed from the get-go and was only approved because some pillock OK'd a blatantly suspect mortgage in order to get his commission and the institution turned a blind eye, then they will be burnt more heavily - but that's life, and it's their own fault.
So here it is:
When a lender / borrower runs into difficulty:
1. If the property was purchased by a BTL landlord with sitting residents, then an independent agency calculates the rental income that can reasonably be achieved. The bank offers to convert the existing mortgage to an open-ended repayment mortgage for the outstanding sum, less deposit and interest which has already been paid to them.
If the landlord is unable to accept this offer, it is then offered to housing associations and Local Authorities on similar terms.
The landlord undertakes to charge their sitting tenants the market rate rent, of which 80% is paid directly to the bank every month, until the loan is fully repaid or the property is sold. The lender is obliged to charge the landlord no more than 2.5% above base rate in interest over the life of the loan.
2. If this option is not taken up, the property is offered for sale to the owner-occupier / sitting tenant, Housing Associations and local authorities, at a price calculated from what the customer owes, less and what he/she has already paid them in interest.
So, if the bank initially lent 拢120k on a 拢150k house, and the bank's already received 拢25k back in interest payments, and the borrower has paid off 拢5k of the actual loan, then the property is offered for 拢90k with the interest rate for the life of that loan capped to 2.5% above base rate.
The bank writes off the original mortgage completely, and issues a new mortgage to whichever entity is prepared to borrow 拢90k to buy it. Or it accepts a cash offer.
3. If neither option is taken up, then the bank must repossess. In which case, it sells the property on at auction, and writes off the shortfall.
I would make it illegal for them to recover their losses from the person whose property has been repossessed.
Furthermore, if there's a way to do it, I would stipulate that these properties would be offered to first time buyers and prospective owner-occupiers only, through a registration process.
Why is it "grim" that house prices should fall? The house price bubble needs a correction, and the only question is whether it's fast or slow. And whether it's a bad thing depends on whether you've borrowed and committed too much to an inflated market, or have not been able to afford to buy at all. I'm a property owner, but I sympathise more with the latter group.
And you should look in the mirror at the cause of the bubble: broadcasters and newspapers, with their incessant talk of the "property ladder" as if it's a certain bet, and all the estate agent programmes on television never suggesting that prices can go down, are largely responsible for the frenzy that led to the bubble. Perhaps you should all be forced to remind viewers that house prices can go down as well as up. Meantime, don't blame Gordon Brown for the mass behaviour for which you have been a cheerleader.
I don't think the government can do much to level out the house prices that much more. As I see it, there are more pressing issues to be raised within the property market other than a small fall in the cost of a home though.
I bought my first house 18 months ago and have spent a lot of money renovating it to a standard that I believe to be comfortable but have reached an unfortunate situation which means I must now sell up and move elsewhere but I am going to struggle to break even as the fee's involved are more crippling than anything at all. For example,after moving this time,I would have spend 拢15,000 to sign my own signature a few times!
I can see the house prices falling even more if these criminals are allowed to continue to charge home buyers this much to achieve thier dream, purely and simply because people won't be able to afford the cost of the paperwork involved, rather than the house itself. It will become a monopoly where the minority will hold the rest for ransom in the property stakes. And I personally don't think we're that far away from this situation already.
Yeah sure, Gordon Brown is being 'Viligant' on the economy and calling for international action. This is the same Gordon Brown who as Chancellor sold off half of Britain's gold reserve at the bottom of the market. The man should have resigned long ago in pure shame. Roger.
拢3million? What a waste of time to try and suggest that this will make any significant difference to 2000 first time buyers. Gordon Brown would do well if he could buy 10 ex-council houses with that money here in the South East. Of course, if he waits a couple of years he might be able to buy a few more.
I do find it funny listening at middle England scream "bad, bad chancellor" at the PM like he's some kind of poorly behaved sheepdog.
Housing prices are still double or triple their value in 1997, and I don't think we'll see the huge crash people are starting to wail about - that's going to take a lot more than tightening of lenders' belts. We may see 10%, or even 20% fall off over two years - that still gives a profit over ten years of something like 160%!
You need to go further back to see part of this problem - not replacing the hundreds of thousands of social housing stock after releasing them for sale. That leaves all of us with the options of either higher pivate rents, or even higher mortgages. No wonder everyone has scrabbled to 'get on the ladder'.
The Prime Minister saying that repossessions are a "fraction of what happened in the early '90s" is hardly reassuring since the drop in prices has only just started and it takes months for a repossession to complete. I've lived in both the USA and England in recent years and it is quite obvious that UK property prices are far more inflated than those in the USA and British people have extended themselves much further than people in the US have done. A 30% drop in UK house values in the next year wouldn't surprise me at all from the evidence I have seen.
The government is going to spend 拢3m to help 2000 families. In other words, 2000 families will receive 拢1500.00 each to help with the purchase of a home - WOW!
Gordon "Prudence" Brown has provided us for years with "feel rich factor", at least we should be grateful to him for that, it might never happen again. It did take our minds a bit of Tony's war as well, did it not?
Whether history writers will see it that way eventually, who knows?
In the meantime, stiff upperlip and all that and blame the foreigners, they after all started it. Pity it's down to our cousins across the pond, always thought the world of them. Greater pity we can't stick that one to the EU!
Feeling less rich already?
This is definitely the beginning of something much much worse!! This is exactly how it all started in the US, and all the 'professionals' were in denial about a recession for way to long.
Well the Estate Agents and RICS have it wrong again - house prices are falling like a stone - a big heavy one gaining momentum and hard to stop.
With 2.5% in March this could easily be 30% fall over a year.
Capital Economics way back predicted this and showed a graph of house price growth and the cliff like drop in prices in 1992 when prices hit the floor over 1-2 years.
If I recall their commnents - the downturn in prices does not slow/stop when the economy recovers and tends to retain a downward trend.
Recovery in prices is slow to reverse until confidence in the economy recovers.
Who in their right mind would buy a property now and this means sales of properties will be stagnate for at least 2-3 years.
We have seen it all before - was it not called "Boom and Bust".
I am overjoyed at today's news of house prices falling - may they fall much much further. Evan wrote an article about house prices a while ago stating he'd be happy if they fell to about 25p. Well, I hope they do fall a very long way, but perhaps not that far, but to at least an affordable level so that people like my wife and I can afford to just get something.
Those who have a home - stay where you are. It's those who haven't a hope of buying anywhere without going in to massive debt who really need the help - so yes, today's news is wonderful.
May the plunge continue!
I heard part of the interview with Gordon Brown on the radio this morning and was struck by the PM's promise to "keep the housing market moving forward". What does this mean. Does he want the prices to go even higher?
Someone should ask him what he would like to happen to house prices - go up, go down or stay the same.
"Today Gordon Brown's talking about promoting shared ownership"
The 大象传媒 are reporting, in the article you have linked to, Nick, that Gordon Brown will say today鈥
鈥淏y offering new grants and sharing a stake in their home, we are making the dream of a new home more affordable for thousands of low-income first-time buyers and key workers such as nurses and teachers.鈥
Tying together this with another recent story - MP's expenses...
How simple it would be to offer a similar scheme to those 鈥淜ey Workers鈥 known as MP鈥檚
If MP鈥檚 need to purchase a 2nd home in London, and need the taxpayer to pay for the mortgage, then the taxpayer should share in the equity 鈥 just like it does when it helps the nurse.
What clearer example could there be of how the Government looks after it鈥檚 own interests, and those of MP's, while bleating on about the help given to key, low paid workers.
Perhaps a 大象传媒 journalist could ask Caroline Flint whether she considers the shared equity scheme a model that would work for MP's?