25 Nov 2008
Mortgage lending in the UK could dry up completely next year leaving no-one able to afford to buy a new home, according to a devastating report.
This is a massive blow to Alistair Darling's plans for keeping Britain on an even keel through what is expected to be a protracted and crippling recession, some experts are suggesting banks could stop giving any loans to aspiring homeowners.
Sir James Crosby former HBOS chief believes net lending could drop below zero for the first time on record, as it seems likely people repay more money back to banks than is taken out.
There are suggestions Mr. Darling's Pre-Budget Report shows a freeze on new loans could see house prices fall yet again in the year ahead perhaps a further 25%.
Mervyn King governor of Bank of England seems to have expectations of another rate cut this coming month, which may assist the mortgage markets/rates if financial institutions pass this on.
If the mortgage markets continue on their present course the effect on the housing sector could not only devastate prices but make Chancellor Darling’s mini-budget useless, yet still leave the UK taxpayer with the largest debt ratio to GDP of any of the worlds developed economy’s. Thus leaving the UK economy doomed to many years of failure, long after the rest of the world as left the recession to the history books.
Mr. Darling’s almost Brown-esque mantra to do whatever is necessary on interest rates & steer the economy into calmer waters is consistent with the failure of the last 11 years.
It is a fact & has been shown the one trick pony of interest rates in controlling the combination of a countries internal economy & that of a trading nation is little more than an ineffective cudgel, & a far more complex system/mechanism is needed to respond to the internal & external vagaries of the markets in which the UK wishes to participate.
The Chancellor and Gordon Brown seem to have gambled on the UK economy recovering by 2010, if this gamble of previously unheard borrowings fails then perceived timescale of tax rises to pay for the gamble will ensure the downward spiral will continue. The real truth of the matter is Brown & Darling are looking for a white knight, in this case the US & Obama to come to their aid. But if the US does begin any kind of protectionist programme the UK will have to look elsewhere for their saviour.
Crosby anticipates lending will not only freeze next year but existing homeowners could be re-mortgaging their properties just to survive. Add this to the prediction that mortgage lending may go negative in 2009 & things look far from well in the residential sector for some time to come.
Worryingly the Darling/Brown mini-budget relies on a strong house price recovery in the next 12 months. But banks can hardly be expected to lend whilst property prices continue to drop, it makes no sense for the lender & in truth even less sense for the borrower as they go into negative equity from the moment of purchase, the only 2 people of planet earth who seem unable to grasp this are the very 2 who supposedly run the economy, unless it is true aliens did land from another galaxy & perhaps took up residence at numbers 10 & 11 Downing Street.
New official figures show mortgage lending has already dropped by more than half in the last 12 months.
The longer Darling delays allowing house prices to find their true market level the longer the whole of the UK waits for the market to ‘bottom out’ a harsh statement & even harsher reality for some but we are delaying the inevitable.
After all even if interest lending rates fell to 1% or 2% it makes no sense to purchase in a falling market & it certainly makes no sense to lend at these rates in a falling market, that is unless we wish to recapitalise banks twice in 12 months.
The banks should be allowed to rebuild there balance sheet during this period allowing them to be in a strong position to respond to any upturn in he markets.
With regards to repossessions, there are only 2 ways either let the markets & repo’s take their course or extend the borrowers repayment schedule diluting their monthly payments but increasing the overall interest paid.
The only jobs thus far created by the Darling mini-budget are 6000 in the public sector (no surprise there then) job centres, even more public sector debt with a further & deeper chasm of the public sector pension to fill.
If Gordon Brown & Alistair Darling are genuine in their claim in wishing to bring the UK economy back up to speed & service its debt whilst limiting further borrowing all they need to do is cancel the impossible to fund public sector pension scheme & with it clear the 2 biggest black holes in the UK economy, the UK would begin its climb out of the global recession long before others, leaving us able to respond, indeed lead the way forward.
They need a combination of a clear head & balls sadly the cabinet has this in name only. |
