If it’s broke fix it with the thing that broke it*

Both my readers (hi Mum) will recall that since the UK election nearly two years ago I’ve often said that the Cobbleition government really doesn’t seem all that different from the Labour government that preceded it. I can’t be bothered to look back and see when it was that I began saying that it was like Labour had never lost the election but I’m pretty sure it wasn’t long. However, I can recall exactly when I said that the country may as well bring back Gordon Brown, which was late last November, my reasoning being that if all politicians who can attract enough votes to win power are hell bent on wrecking the place then real change can’t happen until things have got so bad that the people who voted for them can no longer ignore it, so you might as well have the worst of the bunch in charge so as to get the painful wrecking part of the process over and done with quickly. Not a new argument – Obonoxio the Clown was saying something similar even before the election, and I don’t think he was the only one. But what persuaded me that the current incarnation of the Tories, which at its best has only ever been a party that likes to boss people around about different things from those which Labour likes to boss people around, really are doing nothing more than prolonging the agony was Camermong’s announcement that he was going to fix the economy with the very thing that, in America, fucked the economy right in the eyes.

The Prime Minister and his deputy, Nick Clegg, will unveil proposals to help first-time buyers of new homes by carrying part of the risk of their mortgages.

Dave, Nick, say it ain’t so. Tell us that even you aren’t so monumentally stupid that you can’t see that it’s precisely this kind of policy – using taxpayers’ money to underwrite loans for overpriced housing to people who are at higher risk of being unable to repay them – that led with grim inevitability to the fucking subprime mortgage crisis in the fucking first place. And what did that lead to in its turn? Oh, yes, that’d be adding to an unsustainable bubble with a bonus prize of a banking crisis, wouldn’t it? And you two freak shows are now standing here telling us that you want to fucking do it all over again in the deluded belief it’ll get the economy moving. Folks, I think this year’s Jeff Buckley Award for being the Public Figure Most Hopelessly Out of Their Depth may end up being shared.

But no, they did mean it. And today it turns out to be even worse.

Up to 100,000 people will get Government support to buy homes worth up to £500,000 in a Coalition move to revive the middle-class dream of home ownership, ministers will announce.

I just want to draw attention to the maths here. £500,000 times a hundred thousand people is fifty fucking billion pounds. Fifty billion! Has the country that’s recently fallen behind Brazil in the ranking of world economies actually got fifty billion to spare? Without adding to the already mind-fuckingly huge debt that’ll need to be repaid by future taxpayers?

The guarantee will allow people buying new-build properties to borrow up to 95 per cent of the value of their new home.
Since the credit crisis that began in 2007, most people seeking to buy a newly-built property have been able to borrow no more than 80 per cent of the sale price.

Can someone explain to me why this is necessarily a bad thing? Surely if you’re borrowing less then your ability to repay is easier, giving you either a cushion or the option of early repayment or more disposable income. And if being able to borrow less means you can’t afford it at all, couldn’t that possible indicate that despite adjustments property in Britain is still too fucking pricey by far?

Some estimates suggest that the average deposit required for a mortgage is close to £38,000.

This is telling. When I bought my first house, which was back when the housing market was only silly and not outright batshit insane, I think the rule of thumb was being able to borrow triple your salary. The thing is that a little googling finds that the median UK salary is in the mid £20K area, meaning that a median salary earner needs either to scrimp and save or borrow about 50% of their salary just to get the fucking deposit together. Not the mortgage, the bloody deposit. Surely that screams ‘over priced housing’, and surely this move of Cameramong’s is only going to exacerbate it. I’m no economist but I seem to recall hearing that encouraging too much money to chase too few goods is inflationary.

Though of course it might not be in the longer term if it means loans being made to people who can’t afford to repay them.

… it could also raise fears that the State could end up guaranteeing more risky borrowers.

Quite. Because that’s exactly what happened in the US to spark the whole bloody GFC off in the first place. Put a big government made and taxpayer funded safety net under businesses and eventually some of them will forget to take as much care as they should, and so inevitably banks made bad lending decisions while feeling safe and secure in the knowledge that Fannie Mae/Freddie Mac would take care of things if they went tits up. Can someone tell me how what Cameramong and Cleggie are doing is fundamentally different?

Formally launching the mortgage guarantee today, the Prime Minister will today pledge that the NewBuy scheme will help repair a “broken” housing ladder.

“It’s no good hoping people will climb the property ladder if the bottom rung is missing. Affordable properties and available mortgages are vital,” he will say.

You’re not repairing it, you tool. You’re fucking extending it and weakening the remaining lower rungs still further. Oh, and that name? Sounds a little familiar. Not thinking of yourself as an English Roosevelt, are you? I ask only because among other things FDR’s New Deal created Fannie Mae. If you mention the hand of history I swear I’ll get on a plane, come over there, and twat you heavily about the head and neck with Tony Blair’s autobiography.

And your drones are just as moronic, by the way.

Grant Shapps, the Housing Minister, said the guarantee scheme will help unlock a housing market where for many people, owning a home is “no longer a dream, but a distant fantasy.”

Turning it into a fucking nightmare should fix that.

“We want to help everyone achieve their aspirations, and feel the pride of home ownership. The NewBuy Guarantee will give thousands of prospective buyers the chance to buy a home with a fraction of the deposit normally required.”

Yeah, because you wouldn’t want to let a market of an overpriced good fall to a natural level. Oh, no. Far better to keep those prices unnaturally high by pulling magic money out of your arse with one hand while writing out “IOU – We’ll pay for everything no matter what it eventually costs. Love, the Taxpayers” with the other. Have none of these self described conservatives thought that maybe if they didn’t keep interfering with markets and pushing up prices as well as adding to the taxpayers’ bills then maybe those same taxpayers would have a better chance of being able to afford these things without help?

And this kind of shit is why this blog is beginning to swing towards overt support of Labour. Not because I have any respect or faith for that party, and certainly not in the expectation that they’ll be a significant improvement on with the Cobbleition or either of the parties in it. In fact I expect Labour to be even worse and possibly to have the capability virtually to destroy Britain even more quickly than the other two. And I’m coming to believe that virtual destruction is not only inevitable but is necessary to wake up the majority of the 26,146,419 people who voted for the Big Three for no better reason than their family has always voted that way, or because they didn’t want the other lot to win, or because they’d vote for fortnight dead roadkill if someone dropped the right colour rosette on it. It’d be far better if they’d realise the damage they’re doing by prolonging the paradigm of incompetent and destructive politicians and just start voting for someone else (though I still have concerns about them UKIP is currently my least worst option, but Christ’s sakes, anyone but the Big Three really) but I’m afraid that the majority of those 26,146,419 will carry on as they have been doing until one day dawn breaks on a Britain that is completely bankrupt, probably in more than one sense.

Only then will those destructive political parties be destroyed themselves, or at least made electorally irrelevant, because all will finally be clear and in the wreckage there will be very very few who will ever forgive the Big Three. What will happen then is anyone’s guess, but I’d very much hope it’ll be the beginning of several generations with an inherent distrust of government and big stater solutions. I can’t help but feel that if destruction is indeed a necessary condition for recovery then why put it off by voting for someone marginally less catastrophically incompetent?

That said, if destruction can be avoided altogether it goes without saying that we should, so although I’m pessimistic I really hope an alternative presents itself. Besides, voting Labour would make me want to go home and wash for about a month.

* Title from The Daily Mash.

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Posted on March 12, 2012, in Uncategorized and tagged , , , , , . Bookmark the permalink. 5 Comments.

  1. Who says that the price of somewhere to live has to be affordable by a single salary? Or that it has to be an “average” house on an “average” salary. Back in the ’60s my parents could only afford to buy a flat once they had married and had a correspondingly larger income.

    When I bought my first (and only) house in 1996, I was self-employed. I’d spent the last few years proving how little I earned to the tax man, and ended up with a £100k mortgage having had to find £42k deposit – roughly 30%. It really didn’t help that my step-son was buying his flat at the same time, and needed support with his deposit…. I wanted to do it, so I worked hard to achieve it (we’re talking 100 hour weeks).

    Start by assuming that couples are buying property, and assume that they are buying at the bottom of the housing ladder. Even here in expensive Surrey, that means that two people with a fairly low salary of £15k (full-time job, £7.50/hour) need to be able to buy somewhere for about £120k. There are lots of one bedroom flats around for that; the proverbial first rung on the housing ladder.

    If it means saving £24k for an 80% mortgage in order to borrow 4x salary, that seems a bit strong, but not the 50% overpricing that some people bang on about. As their lives progress and their income improves, they can afford to trade up.

    Perhaps a 90% mortgage should be available, and the flat should be only £100k (there are flats available for this today, just not as many of them, and they tend to be in Hampshire – commutable). This equates to 3.3x joint salary with £9k deposit, and if you can’t manage to save that then you don’t have sufficient commitment to be trusted with a mortgage.

    But you are entirely correct in that the Government should not be putting its hand into my pocket to subsidise the housing market. I just see the sums (and the personal commitment) stacking up slightly differently!

    As for the politics of it, you are also right – they’re all as bad as each other. I’m just slightly more sanguine about it.

    • Who says that the price of somewhere to live has to be affordable by a single salary?

      Not me. If a free market determines the price of a property as twenty times the salaries of the people who are likely to want to buy it I have no problem, though I think it likely that in a free market British house prices would be considerably lower. It’s the lack of a free market due to the constant interference by a succession of governments that’s the problem, and also the reason why British housing is overpriced.

      Start by assuming that couples are buying property, and assume that they are buying at the bottom of the housing ladder. Even here in expensive Surrey, that means that two people with a fairly low salary of £15k (full-time job, £7.50/hour) need to be able to buy somewhere for about £120k. There are lots of one bedroom flats around for that; the proverbial first rung on the housing ladder.

      When I bought my first house (also in Surrey and round the same time as you) I got 3 times my salary, but when I traded up with Mrs Exile a couple of years later I found that couples typically got 2.5 times their combined salaries. To use your example there £15K x 2 times 2.5 makes only £75,000, barely half what’s needed to buy a £120K flat unless they’ve managed to get a 37.5% deposit together. That’d be bloody impressive on 15 grand each. More likely the 2.5 for couples and 3 for singles multipliers have fallen by the wayside as property prices have risen. Again, if this happens naturally in a free market then fine, though you’d expect it to last only until developers build more houses (that this is not a simple thing is another example of how the housing market is not a free market).

      Perhaps a 90% mortgage should be available…

      I don’t have a problem with any particular percentages. If a mortgage lender wants to do 100% mortgages or even more that’s up to them. (I think there was a 110% mortgage available in this part of Oz not long ago, which just goes to show that the housing market here is even more overpriced and fucked up – and yes, there has been constant interference by a succession of yadda yadda yadda.) I just don’t think it should be for governments to say whether it should be 80% or more or less because the right amount to lend someone depends on their individual situation. Nobody is better placed to nut this out that the lender and borrower, so nobody else should be sticking an oar in.

      But you are entirely correct in that the Government should not be putting its hand into my pocket to subsidise the housing market.

      Absolutely, though it’s not just the subsidising of it. Just the statement that you and the rest of the British taxpayers, and probably their children, will underwrite loans to the value of up to fifty billion will have an effect, and I suspect it may well be the same kind of effect seen in the US from doing much the same thing.

    • “Back in the ’60s my parents could only afford to buy a flat once they had married and had a correspondingly larger income.”

      That was then, back in the ‘responsibility’ generation, this is now, in the ‘I want it and it’s my right, sod the consequences’ generation…

      • That doesn’t means that the “I know my rights” generation should be just be given the money without consequences – more that those of us who are responsible enough to have learnt self-restraint shouldn’t be simply indulging them. Your own blog flags how a better lead should be given by those in authority, if only in proper gaol-time for those who deserve it.

        If a mortgage is for 25+ years, why shouldn’t buyers be required to demonstrate commitment? Part of that is saving for the deposit, although the actual numbers are always going to be both debatable and subjective. If they don’t understand what that is and that it isn’t their “right” for us to simply pony up yet again, I’m not interested in helping. Sod ’em.

  2. I agree the real problem here is lack of free market. House price inflation makes first time buyers effectively poorer since not only is a greater-than-sane proportion of salary going to debt repayment, banks get the real benefit because they earn all the mega interest from highly leveraged home “owners”. The market players earn some extra cash too but they’re just sucking off the bank teat really.

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