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Now the UK government wants banks to bail out borrowers

Not content with lending billions to the banks and bailing out Northern Rock, the UK government has set its sights on homeowners who are struggling to pay their mortgages.

According to the BBC:

Homeowners will have enough support to ensure that their homes are not repossessed, the government says. The comments came after key mortgage industry figures met Chancellor Alistair Darling and Housing Minister Caroline Flint at 11 Downing Street. But ministers did not outline how they would stop people losing their homes.

There are two ways to read this news: cynically, and angrily.

Cynically: The Government knows the housing market will slow down, and will want to claim it did its bit

Believe it or not, empty PR spin would be the positive interpretation of these noises coming from the Chancellor Alistair Darling and PM Gordon Brown. It would imply that the Government accepts house prices are falling, realises that in two years’ time they’ll be getting the blame, and so are bleating a little now about helping homeowners when nobody is listening so that they can point back to their ‘efforts’ in years to come.

Angrily: Having presided over the biggest boom in UK housing market history, the Government wants all the credit and none of the pain

With Northern Rock on taxpayers’ balance sheets and the majority of voters also homeowners, it’s more than possible that Brown and Darling really do hope to bully the banks and building societies into not chasing up repossessions, just as they’ve recently been urging lenders to support more home buyers, even as house prices have seemingly passed their crazy all-time highs and are finally coming down.

Yes, that’s right. They’re trying to tempt first-time buyers to take out mortgages of 5-10-15 times their annual income. (The historical average is between 2-4 times annual income).

Let’s be clear about the facts here:

  • What first-time buyers need is lower house prices, not yet more reckless lending stoking further price increases
  • Careless lending to people who couldn’t afford to repay it is what sparked the (probably inevitable) credit crunch in the first place
  • People who buy houses should so with the knowledge that house prices go up and down
  • If they don’t like the costs of their mortgage varying, they should take out a more expensive 25-year fixed interest rate loan
  • When prices were rising, we were continually assured housing remained affordable. Yet after a mortgage interest rate hike of a mere 2% or so, homeowners are apparently ‘feeling the pain’. Since we’ve just been through a period of unprecedented low interest rates, which were never likely to last, doesn’t that imply that houses were NOT affordable after all?
  • Some taxpayers in this country don’t own houses, and some who do don’t want to see every tremor in a market used as an excuse to bail out the reckless and greedy

Honestly, what are young 20-something professionals supposed to think? If Brown and Darling want mortgage holders to get a break, will they be pushing landlords to cut rents for tenants, too?

It’s becoming increasingly difficult to keep politics off Monevator, which is perhaps inevitabe given that a Chancellor who claimed to have abolished the centuries old business cycle is now running the country.

Housing is too expensive. It happened on Mr Brown’s watch. I’m not saying we needed credit controls or mortgage rationing hitherto, but that was because I accepted that crazy fast price appreciation was the price of a free market.

The other side of the equation is that if people have finally realised we’re all paying too much for housing in the UK, then prices must be allowed to fall. Homeowners should take their own measures to reduce the impact of the credit crunch, and we must all start taking responsibility for our finances again.

{ 1 comment… add one }
  • 1 Toby April 23, 2008, 7:12 pm

    Couldn’t agree with you more, and I’m speaking as someone who extended themselves moving up the ladder in the peak of last summer.

    I wasn’t completely foolhardy though. I did my worst-case scenario planning and put down 25%, however I was near the top of the multiples and have since spent all remaining funds modernising the property, money I know hasn’t increased the value of the property by anywhere near as much as I’ve spent. The house purchase wasn’t an investment decision, it’s a long term purchase that suited my growing family needs and our current work situation, but as it stands it’s currently the worst financial decision of my life.

    Since the end of last year I’ve had to endure watching the credit crisis unfold as my finances dwindled with the costs of building work. It couldn’t have happened at a worse time for us financially. However I’m fairly lucky in that I’m not a believer of credit other than mortgages so I don’t have credit card/overdraft/loan repayment issues.

    I can afford to pay 7% on the mortgage. Much more than that and it will be painful. The problem is that I need to remortgage at the end of the year and my 25% deposit will likely have shrunk with the fall in value in the property, so I’m frantically saving every penny to try and put myself in the best possible position so I can put down the same 25% in the hope of getting the best deal possible. However I have no idea how much of a fall I need to cover to make that 25%.

    Having said all that, I find the whole crisis fascinating, as I have an interest in economics and finance in general. I think the government has been negligent in letting things get to where they are. There was no way the housing market could keep going at the rate it has been growing, the government should have done more to keep it growing at a more sustainable rate. I have a feeling banks will be forced to change they way they operate in future, but the real villain of this story is our very own Gordon Brown.

    I really hope this serves as a wake up call to the nation, that people start taking responsibility for their finances, that money doesn’t grow on trees, and that lenders take more care when lending. And that all this happens without sending the country into a painful recession and downward spiral. Fingers crossed.

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