Friday, 5 September 2008

Mortgages — forever blowing bubbles?

Talking to a surveyor about the near collapse of trade, I wonder about the impact of the current housing bubbleburst on people’s lives. And about debt and oppression — a classic Old Testament theme.

Even non subprime backloaded US mortgages are funny old things:
The UK government has announced some desperate measures this week to try and ease things, including a stamp duty holiday for houses under £175,000 and 100% loans. It’s hard to see what they could have done, but:
  1. When you look at the trillions involved in the bubble, how could any realistic fiscal measure make much of a dent in the real problem? Will four times as many people now rush out and buy houses, given all the other pressures on them from accumulated personal debt, rising energy prices, 2% pay settlements, etc? I think not, Holmes.
  2. Stand by for one unintended consequence — all low end asking prices (say up to £300,000) now nosedive to £175,000. Shome mishtake? If there were a miraculous mass recovery in low-end house prices, guess where it will be pegged? £175,000?
  3. Just as all sensible financial institutions decide subprime 100% lending is a mug’s game, part of the problem, not the soluton, jolly UK taxpayers (= us) dive in headfirst bigtime... I feel a Homer Simpson “D’uh?” moment coming on.
Or have I missed something, here?


Peter O said...

It's worse that that as the removal of Stamp Duty will have no effect whatsoever.

Let's say I see a house I fancy buying for £175,000. It's stamp duty free!!! Should I buy it? Not in the slightest, 'cos at the moment if I wait 6 months it'll only cost me £165,000, saving me not £1,750 of duty but £10,000 off the asking price!!

Steve said...

Wise words. My son may be looking to buy his first property next after he has graduated and has a job. My wife and will help him with the deposit so hopefully he can avoid the 100% mortgage trap. The good news for us is that it is more of a buyers market! But it must be hard for those with families that mortgaged themselves up and beyond what they can really afford. My thoughts go out to people in financial difficulty.

Bishop Alan Wilson said...

Thanks, Peter, for a point that hadn't struck me, but makes far more difference than pretty much anything else, I suppose. It makes the whole government thing seem even more like trying to halt a stampeding herd of elephants with a peashooter!

Steve, there will be some deeply squeezed people out there.

People laugh at the thought of taking OT social/financial regulations literally (and, OK, I admit some of them are a bit strange, and all of them need a bit of translation/ application) but it would be great to think we could achieve something as advanced and compassionate as the Mosaic concept of Jubilee... It would be a step towards the kind of justice the prophets tell us God was looking for in the 8th century BC — and still is!

Erp said...

Except just before the Jubilee it would have been difficult to sell (or to be more exact lease since the Bible didn't apparently permit permanent selling of land) the property for much since the buyer/leaser would know it would revert to the seller in a year or two. Someone who wanted to give up farming to start a small business would have trouble using the land to raise capital in such a situation.

Bishop Alan Wilson said...

See what you mean — their system would have some inconveniences, and our farmer would have to wait a couple of years. On the other hand, our system has a few inconveniences, and, having known people with big negative equity in Sandhurst in the 90's they had to wait considerably longer to move... You're right, though. I wouldn't advocate wholesale adoption of iron age economics; just a bit of serious thinking about the big OT principle that limits the power of money / property...

Steve Hayes said...

Imay be old fashioned but I wonder if things would have been quite so bad if there hadn't been the Gadarene rush to privatise building societies. I don't know what it was like in the UK, but in South Africa it exacerbated the housing problem, and made it impossible for the poor to save because of exorbitant bank charges.

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