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Fire burn and housing bubble In other news, it would appear that the “Conservative” party believes that the housing market in the U.K. is insufficiently distorted and in danger of reverting to market principles. To prevent that, the new budget contains provisions to assure that there will be malinvestment, bank bailouts, and direct state losses from mortgage defaults for years to come.
I confess to being impressed. It is normal for politicians to fail to learn from history, but here they’ve managed to forget even 2008. Well done, gentlemen, well done!
Chancellor extends home-buying schemes
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They’re just following the US’s lead. Bernanke has spent the last 5 years trying to re-inflate the housing bubble, to the general cheers of Wall Street, the housing industry and the poltical class.
As Perry M. knowns there has been massive distortion of the housing market in Britain – with the Bank of England (pushed by the government) pumping in vast amounts of money (that it creates from NOTHING) into the housing market.
Now the government is going to back 15% of mortgages for people who should not be buying a house (because they can not even afford a deposit).
Will these mortgages appear on the government accounts as both deficit and debt? Of course not – because government accounts do not have to obey the rules of private accounting (a nice way of saying that the government books are based upon fraudulent practices).
You should believe your own lying eyes, instead of anything you read or hear reported in the US. The real estate market has been destroyed. It will take at least a generation to repair. There are now millions of homes with dirty titles, plus the layered schemes of fraud that continue through the stolen signatures of the rubes who signed on the dotted line for homes they will never pay off.
People are brought up to believe that to “get a foot on the housing ladder” (ie get your first mortgage) is one of the fundamental aims of life. Getting a home loan is seen as somehow the most responsible and conservative thing you can do, rather than buying a highly leveraged, volatile and possibly illiquid asset. Therefore, government receives much criticism if it does not help them to do this, however idiotic the policy might be.
This gap between belief and reality explains much (well, some, anyway) of the mess that we are in. In middle England, the events of the last six years have not made even the slightest dent in it. Therefore, politicians (who need votes) still play to it.
I think there’s pressure from the public in both directions. On the one hand, those who already own property don’t want to see the value of their asset fall, hence all the attempts to prop up the bubble and keep house prices rising above inflation. I’ve always thought that the planning laws in the UK have a lot to do with this, serving to keep the supply of building land restricted. On the other hand, there are those not yet on the ladder who are desperate to get there. From a short term, vote grabbing point of view then, cheap loans to buy overvalued assets make perfect sense.
The country is in the very best of hands.
What is so appalling is that George Osborne probably knows, in some part of his brain, that this is BS, but he’s more interested in persuading the UK electorate, the majority of which are mentally retarded, that this is a great idea.
I don’t think they need any persuasion, Johnathan. That’s the trouble. They want to be able to afford houses that will keep getting ever more expensive ad infinitum, and they want him to square that circle.
Canute has been to the shoreline, got thoroughly soaked, and his advisers have simply stared blankly and told him to give it another shot. It definitely looked like it was slowing down that time. A bit. And maybe that was just rain. It’s quite cloudy. Look, if you just shout a bit louder. I’ve heard the tide’s a bit deaf. Doesn’t have ears, you see. Right, here it comes, sire. 1, 2, 3…
I don’t think they need any persuasion, Johnathan. That’s the trouble. They want to be able to afford houses that will keep getting ever more expensive ad infinitum, and they want him to square that circle.
They also want to be paid a large pension by somebody, and for their children to be able to afford to buy houses of their own, while they continue to live in their own homes and also own all the equity in them. All these things together are not possible, and trying to make them all possibly is sending the country bankrupt. Try explaining that though.
We bought our house back in 1979 for cash. So we don’t have a horrid Mortgage. Before the Crash, I was often amused to be cold called by chaps calling themselves Justin or Giles, offering to re-mortgage my home, to indulge in those little luxuries like a Caribbean cruise or a walking tour of the great Wall of China because I was worth it.
When I confirmed that yes, I was the owner of the house, but no, I didn’t have a Mortgage, I was pleasantly suprised to find that they instantly put the phone down on me, rather than the other way round.
The insane “Through the Looking Glass” world that we now live in would much prefer to do business with a person who already has copious amounts of debt, rather than one like me who has none at all. The more you already owe, the more will be offered to be lent to you, and your credit rating will be solid gold. But owe nothing to anyone, have rock solid assets and a large stash of Transaction Tokens (well you can’t call that stuff the Bank of England issues MONEY with a straight face anymore, can you?) and your credit rating is in the toilet. If I did (but certainly don’t) need to borrow a grand or two urgently, I’d be reduced to Wonga.Com. Utterly Bonkers!
RAB: I love the fact that you left that comment under mine, given what I am walking on in the photograph next to my comment. (I have absolutely no debt either. The place where I live: I rent it. I am fine with that).
Michael… 😉
RAB: There are plenty of organisations and divisions of organisations to provide financial services for people with assets and savings but no debt. No, you don’t have to be a multi-millionaire to use them. Generally, though, if you want their services, you call them rather than they call you.
I suppose it’s time to quote Kipling on “The Gods of the Copybook Headings” again.
(And I have to rather sheepishly admit that I initially missed the Shakespearean reference in the title. Well done, Perry M!)
I never really understood the British obsession with home ownership as it contravenes pretty much all common sense investment rules (illiquid, super-undiversified, volatile and in the UK at least frequently low quality). I presume its just a psychological thing rather than business failing to step up to provide long term affordable rental housing (as in Europe). Is that right? Of course the home ownership affordability drive doesn’t help the development of a high quality rental market.
PeterT: Believe it or not, if you go to Australia, you will find that the British appear positively uninterested in home ownership and the value of their houses compared to Australians.
PeterT.
I may be an odd sort of Brit, but I have no obsession with “home ownership” at all, other than it being my HOME. I chose to live where I do, and could afford it. The area is choc full of attractions from the shops, restaurants and lovely little St Andrews Park just a five minute walk away, where I play frisbee with the bonkers dog and meet my friends and fellow dog walkers every day. Gloucester County Cricket Ground is only 5 minutes walk farther on (I could rent it to MJ in a moment on that feature alone, eh Michael? 🙂 )
I do not look upon it as an investment, though I have invested plenty in it over the years. We have just had major repair work done on it and and a state of the art central heating system put in. Next is a new kitchen an wood burning stoves. It is (even before our current outlay and referbishment) worth about 20 times more than I paid for it, which is insane and what the housing bubble is all about. But I didn’t and don’t do what I do with it because it is an investment… cold and calculated… but because it is my HOME. I like being here.
An Englishman’s home is his castle goes the saying… And a Welshman’s too (if you leave a window open 😉 )
An Englishperson’s home used to be his/her castle, but hasn’t a shire council told a farmer to tear his new home down, because it didn’t meet some ‘zoning’ laws, or because he rudely didn’t ask permission first?
How do you sat “Community Reinvestment Act” and “Fanny Mae and Freddy Mac” in an English accent?
Nothing in the universe has a shorter half-life than a politicians memory for inconvenient facts. hand the half wits that are dreaming up this stuff have a very short half life indeed …
Just to offer a contrary opinion…. This could be genius.
This government and the previous had various schemes to increase home ownership. But they were bureaucratic and complex, so nobody used them. If Osborne is clever this scheme will be too.