Nanny bans mortgages of more than 3 x income

>>> FSA-to-cap-mortgage-borrowing.html >>>>> So is nanny going to cap the average house price also? An average salary >>>>> (£20k?) won't get you much, even with the crunch... >>>> All speculative bubbles burst. Much to the relief of people who buy >>>> tulip bulbs to grow tulips. >>> Exactly! And to the amusement of those who pointed out the tulip bubble, only to >>> be told that it wasn't a bubble because tulips are actually useful and that >>> there are real underlying reasons for the increase in demand for tulips... >> Do we know that there isn't? Houses aren't selling because people can't >> get loans...how can we tell what a realistic price for a house is >> anymore? Certainly the number of estate agent's inquiries vastly >> outnumbers the number of mortgages being granted. >

Ok...but people can't get mortgages for that even at the moment, so is it a realistic price? Surely if they want to buy now even at these prices, then they are realistic prices now - just that they can't get the money.

It matters because with all the stupid bailout spending, I'll end up being charged for the stupidity of all the borrowers and lenders.

FoFP

That's my point: there will be no next housing bubble. The primary asset in the next credit bubble will be different. Admittedly that will partly be because of regulation around housing which is about to be created. The last thing we need right now though is the banks being persuaded to go back to 2007 levels of lending and the idiot Brown keeps saying he wants.

FoFP

What housing bubble?

Didn't you just tell us you lied about your income? Why pretend you weren't part of the problem?

FoFP

Isn't that the whole point? Houses shouldn't be so expensive!

I paid my mortgage - never defaulted. We didn't borrow more than we could afford - just more than the bank said we could (about 10% more). We also didn't borrow it to get a house bigger than necessary - just a basic starter home. There were no council houses at all (16 year waiting list), and nothing private rented, not even a room. The market was very stagnant at the time. There really was no choice - we couldn't stay with my grandparents because the landlord threatened them as he was trying to get them out, and we couldn't stay with his parents because his dad was a violent alcoholic. My only serious mistake was not knowing about house prices, I didn't realise the premium paid for a new build - we were buying 30 miles north of our home town (that's all we could afford), and didn't research the area - if we had, we would have known that we could have had a three bed terrace for less, not had to lie, and not been stuck in a 1 bed house with a baby for two years. I was only 18 at the time - I soon sharpened up! We aren't part of the problem as far as I am concerned, but if we had been, then I would have been content to take the rap for it. If people want to borrow more than they can afford, and lenders are willing to lend it, then tough luck when it goes wrong. Isn't that what personal responsibility means? That's what people have been trying to teach me for years, and now I've got it!

>>

Do we need nanny to lower the prices?

Are we sure it is a bubble? Just looking at the immigration stats..all those extra people must be living somewhere...

Does he? I missed that!

Surely in a truly libertarian, free market economy, they would have been allowed to fall and you wouldn't have had to pay for them at all...it seems to me that the only reason people are supporting this kind of regulating legislation is because they are being forced to foot the bill. Some woman from the BBA was on the Politics Show today saying that there are over 230 banks in Britain today - only a few of them are in trouble.

Maria gurgled happily, sounding much like they were saying:

- Low income

- Heavy responsibilities

- Stretching to get on bottom-rung

Seems to me to be a fair definition of the sub-prime lending where the whole mess started...

No, because it isn't just the buyer who is party to the deal. The lender too has money at risk and if they won't take part in the deal, there is no deal. Prices will simply have to drop until a deal can be done.

Of course as prices drop, MBS's, CDO's and all the other accoutrements of the credit bubble will collapse in value even further. This means that the balance sheets of lenders will become even more impaired and in turn this will mean they rein in lending ever further. This will lead to further price drops and so on. This debt-deflation phenomenon is the opposite of that which pertained in the bubble as rising prices, and the borrowing against them, produced greater and greater amounts of credit with which to bid up prices.

Just as bubbles have natural endings: the borrower can't service more debt; the lender won't furnish more debt; or prices collapse and lead to both, debt-deflations too will find a bottom. Obviously if houses fall to the value of secondhand cars (as they have in parts of Detroit for example) there will eventually be cash buyers. Possibly non-bank lenders will find profit in lending at slightly higher values (if anyone will still borrow). In some way though, the debt-deflation will end.

There's even a good way to spot the bottom: just as at the peak of the bubble, the last bears surrender and join the mass optimism about prices; at the trough of the debt-deflation, the last optimists will capitulate and all will be convinced that prices will never rise again.

FoFP

Adrian wrote:

Sounds to me like what every young couple faces, and has always faced. My situation was 1981, long before all of this kicked off. Every young couple we knew who were buying houses was in the same boat, and a lot of them lost their homes a couple of years later when the mass unemployment kicked in. Abbey were repossessing after 1 month missed payment. We were the only couple we knew who didn't lose their home, and that is because we paid everything to the mortgage and ate poo. (not literally but you know what I mean). We were used to it because we went without for 4 months to put all of our wages into a 10% deposit on the house. We even sold our motorbikes to pay a single month's mortgage payment when the rates went up, but we didn't need them anymore because we had no jobs to get to anymore. We just had everything on slot meters and sat in the dark a lot. But that was how desperate we were to keep the house because we had no alternatives at that time :( These days people think it is, or want it to be easy to get on the housing ladder, while some think it is some kind of reward thing, that if you suffer enough, you are entitled to a home. I don't really have any views on that, apart from not seeing it as any kind of benefit to make it hard. People have to pay, whether it is mortgage or rent, so the affordability arguments don't ring true to me. A prime example is me - I could not get a mortgage for my own house now (i.e. the one I am living in), and I could not afford to rent it, but I would have to rent it and raise the money from somewhere because I am already in the cheapest house I can get!

It's true that they should have been allowed to fail - we'd get the debt-deflation over with faster and at less expeense. However it's unrealisti to suppose that the damage wrought by the credit bubble hasn't been sufficient to draw us all into the consequences.

Could be. he who pays the piper calls the tune.

FoFP

So you bid 10% more than you'd have been able to do had you not cheated. You are therefore partly responsible for at least that rise in house prices.

I accept you had a harder time than most, and I'd be the last to say you made the wrong decision for your circumstances. However there's no doubt that as a result, you contributed to the bubble.

It does indeed. However the people responsible are in the majority and so in a democracy, they can make the rest of us pay for their folly.

Sadly, just as the rest of the world is keen to abandon it. Really, it's quite unfair.

FoFP

[snip]

It was the excess demand caused by all the liars that was the problem IMHO :-)

No, but we'd be a lot better off if they'd just stay out of it and quit trying to resurrect the bubble. I expect I'll be saying this a lot over the next decade or two, but:

The current situation is not the problem. The current situation is the cure. The credit bubble was the problem. Thus, every time Brown et al try to "fix" the current situation, they're delaying the day we're cured. If they're really successful in this ,we can delay it for a couple of decades the way Japan has, and treat ourselves to a very long recession while house prices fall 60% to 90% slowly instead of quickly.

FoFP

It's the great Abelard, he don't make no steen'kin' mistakes.

In the US the Dems were neither in power or in a position to do any such thing.