Labour does not understand (housing) markets

Spotted this article on LabourList on the difficulties of getting a mortgage for first-time buyers. The authour, Kate Groucott, complains of needing a 10% deposit for older properties, but 25% for new build flat. Kate complains that


            This extra barrier for people buying new build flats is surely hurting the companies developing these properties, and I’m sure will result in some flats going unsold when people are desperate to live in them.”




          Our main frustration is about the rigidity of the rules imposed by the banks and the lack of help available. As taxpayers who currently make very little claim on public services, we thought the least we could expect from our publicly backed banks would be fair policies and consistency. Of course they need to be careful with public money, but this should be based on an assessment of our creditworthiness and the value of the property we are looking to buy, rather than a blanket policy. Those of us who have saved and want to buy a property within our means are being punished compared to those who bought a few years ago with 100% (or more) mortgages.”


There are two things that Ms Groucott needs to understand about the current situation.


The Risks for Banks


Imagine someone who loses their job a year after taking their first mortgage, so has to sell up quickly.


Up to mid-2007 the Housing Market was rising at 10% a year, and houses sold quickly. Someone who took out a 105% mortgage would be able to sell the house, pay off the mortgage and not be left with a debt. If the bank had to re-possess, it would be in no real haste to sell at a discount, as by waiting it would get a bigger return than by selling quickly. The jobs market was buoyant, so their were few people getting into difficulty and probably in a minority of cases would the bank have to repossess.


Now house prices are falling by 15% per year. New flats are falling (in value) even faster. In parts of Manchester that have fallen by 50% or more. Unemployment is rising rapidly, so there is a real risk that a fair proportion of the first-time buyers will get into difficulties in their first year. There are not many houses being sold, and to sell quickly requires a large discount. With a 90% mortgage, it is very likely that the homeowner will be unable to sell for more than the outstanding mortgage and the costs of sale. The bank will therefore be more likely to have to repossess, then auction off at a deep discount. With falling house prices, the longer the bank waits, the bigger the loss to the bank.


I would suggest that banks offering 90% mortgages in April 2009 are being more imprudent than those offering 105% mortgages in April 2005 or even April 2007 (based on the knowledge then available). If banks were


The Cost to the Taxpayer


As John Redwood has blogged, the taxpayer has sunk billions of pounds into the banks, and taken on hundreds of billions of toxic assets. We (taxpayers) may own a lot of banks, but they are like my late Father’s first car. In the late 1950’s he bought a 1932 Rolls-Royce for half the price a new mini. It was much grander than present day Rollers (and longer), but kept breaking down. It was not an asset, but a liability. One thing he did not do was race it around. In the banks we have a something like this 1932 Rolls. They may sound grand, but they are broken and in need of lots of maintenance. Bad debts need to be decreased, not (potentially) increased. It is imprudent to expect anything else.

From New Labour to the USSR

Twenty years ago I was reading works by Soviet dissidents such as Vladimir Bukovsky and Irina Ratushinskaya. There are parallels in what they wrote about under a rule-bound state and what we are seeing today. I do not suggest that in Britain today we have gone nearly as far as the USSR, but we are being lead by people who, given time, are getting us there. There are a number of common factors such as


  1. The belief that the government is always right.
  2. Contrary opinions are to be suppressed.
  3. The citizen is there to do the bidding and serve the state.
  4. Reality and truth is whatever the propagandists decide it should be.

From the Rule of Law to New Labour

John Redwood blogged today on “Killing the High Street”. I started to write a post, but went off topic onto wider issues. I therefore publish my post here.


Mr Redwood you point to a much wider problem when you say


“We will not linger long, deterred by the rip off car parking charges and by the need to comply with an ever more terrifying array of traffic and personal conduct rules and laws. We know the yobs will flaunt all this with no consequence for them,….”


We are moving from a society under the rule of law to one where we are constrained by laws. Under the rule of law, the laws are irrelevant for most people. Breaking the law is not something that people would consider, even if the most severe punishment were a public ticking-off and a fine of 50p. This is because as this vast majority don’t just aim to live on the boundaries of the law, but living peaceably with one another. A good number of these peaceable citizens working to positively enhance the society around them. Furthermore, serving the community whether an elected official or a local government employee is something to be admired.

Ever-increasing laws and rules mean that we are all law breakers, and equally guilty. Politics becomes the arena for the grasping (MPs expenses) and the manipulators (As this weekend showed). Employment in the public sector becomes a matter of secure jobs, gold-plated pensions whilst failing to serve the public.

Gordon Brown – The blinkered General

I got tot to thinking that the Labour Government’s strategy in dealing with the credit crisis can be compared with an Eighteenth Century Military Campaign.
Imagine the Grand Old Duke of York of nursery rhyme fame, for years believing that all that his troops were for was to make him look impressive. So he concentrated on spending on shiny uniforms and the latest equipment, and plenty of retinue. Further the troops were trained in drill, but not how to fire their muskets, or fix their bayonets.

Then the general has to face a critical battle. Fearing for his personal safety, (and distrusting his generals), the glorious general sends his personal valet to inspect the area. The valet spots a nice hilltop, with trees for shade where the area can be surveyed in safety. The troops on the low ground, so the general can view them. When the enemy is sited, he gets the cannons and muskets to fire a series of salutes to impress the enemy of the importance of the mighty general that they face. With the ammunition depleted, the order is given for the entire army to advance, with the band at the head, playing a victory anthemn. When the enemy give a warning shot, suddenly the general is no where to be seen….