Taxpayers' mortgage guarantee
Gordon Brown has just announced a scheme which he hopes will lead to significantly fewer repossessions next year than the 75,000 currently expected by the CML.
It's an attempt to provide assistance for two years to those families which suffer a fall in income as a result of the UK's economic woes.
The scheme is probably best explained by way of an example.
Let's say Mr and Mrs Slightly-Stretched have a £400,000 mortgage, which is the biggest mortgage allowed under the government's new bailout scheme.
Both have jobs. Rory Slightly-Stretched is a manager in the building industry and Melissa works as an estate agent.
Toward the end of this year, he's made redundant and her income collapses.
So they are no longer able to keep up the payments on their mortgage.
They then talk to their bank and calculate that they can only pay £5,000 a year of the £20,000 annual interest payments they're supposed to make (I am ignoring principal repayments).
In those circumstances, their home is seriously at risk: the bank may well decide to seize their home and sell it.
What's happened today is that the prime minster has made it less of a financial strain for the bank to leave the Slightly-Stretcheds in their home, for a maximum of two years (which the government hopes will be long enough for Rory and Melissa to get back on their feet, in a financial sense).
What Mr Brown has announced is that if the £15,000 a year which the Slightly-Stretcheds can't pay is added to the principal they owe - if the bank allows the interest to be rolled up, to use the jargon - there will be no risk for the bank, because the Treasury will guarantee that £15,000.
Or, to put it another way, the taxpayer will promise to pay back the bank that £15,000 if the Slightly-Stretcheds find themselves unable to do so. So that sum of £15,000 will become a contingent liability of the public sector.
In this notional case, taxpayers would end up being liable for £30,000 (£15,000 for the two-year life of the scheme).
But, to repeat, the £30,000 would only end up being a genuine cash cost for us as taxpayers in the event that the income of the Slightly-Stretcheds were never to recover or the value of their property were never to rise above the value of the mortgage.
It's all quite complicated, but the banks plainly think that the scheme has merit, since eight of the biggest have signalled that they'll back it (or so I'm told).
However, the scheme is not completely free for the banks, in that I understand they'll have to pay a fee for the guarantee. Also, there is a cost to banks of not repossessing from the incremental capital they have to allocate to any mortgage when the earning power of the relevant borrower collapses (sorry if this is a bit technical).
On the other hand, the legal and admin costs of repossessing are always pretty big, so banks don't like to repossess if they can possibly avoid doing so.
In other words, Brown's mortgage wheeze could lead to a serious fall in the number of homes repossessed next year - though there must be a fear that a repossession bulge will simply be delayed for two years rather than eliminated altogether.
You'll want to know what the cost of all this for the taxpayer would be. For what it's worth, my calculation is that it'll lead to taxpayers guaranteeing somewhere between £900m and £1.4bn of rolled up interest (the Government is saying around £1bn).
Which, in the context of the £120bn or so that the government expects to borrow next year, is almost a rounding error - and some will say is cheap at the price, if it were to prevent 20,000 or so families being evicted next year (but see below).
UPDATE 19:00
I've become a bit wary of the Government's claim that the eight biggest banks have backed the mortgage-guarantee scheme, having spoken to a couple of them.
They're not prepared to attack it in public. But they're not sure it will have much of an impact, unless they are strong-armed into keeping the genuinely feckless in their homes - which the banks feel would be a bad thing.
Also, Margaret Beckett, the housing minister, has just said on BBC Five Live that a bank has estimated for the Government that the scheme will help perhaps 9,000 families who would otherwise have lost their homes.
That's rather smaller potatoes than the Prime Minister implied - although, as Mrs Beckett also said, the existence of the scheme may alleviate the anxiety of many more hard-pressed families.
I'm 
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Mr Prudent a hardworking taxpayer who has no debt, has savings, has a pension plan, has lived within his means on a private sector job and taken the hurt of those flashing their 'unrealised profits' from asset appreciation - raises his hand and says, "Mortgage Guarantee for the feckless, just put it on my bill Mr Brown"
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I think it is a good idea. It is an "air bag activation system" during this economic crash. Or a "shock absorbing mechanism" to give it another auto analogy.
However, it will only slow down the inevitable.
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Mr Peston,
Contrary to what you may expect I think this is excellent news.
It removes an amazing amount of stress from the workforce.
They can become more mobile and flexible.
These are intangibles but deadly impotrtant intangibles to the country
I like this policy.
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I know that this is intended to stop people from being chucked out of their homes, but if the bank delays a repossession in a falling market, doesn't it also risk getting less money when it finally does sell it off? And since tax payers own a fair bit of the banks that risk is transferred onto all of us.
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And, Mr Peston, now the bloggers cant accuse you of never posting good news :)
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Hang on a minute, I was talking to a chap the other day who has forty B&B interest only 'borrow to let' mortgages.
He told me that he is sitting on £1m of unrealised profits - when the market returns to the normal 2007 levels - fundamental demand you know. I figure he had 10% equity at that point.
Will he be able to roll over 40 mortgages? Or just one? Is there an upper number of mortgages? What about the Wilsons 900 mortgages?
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This is a good scheme.
Everything must be done to stop repossessions ending up in a fire-sale.
Fire-sales cause an immediate massive loss to banks, and now taxpayers.
The losses under this scheme are tiny by comparison.
At last, at last, governments, banks, estate agents and the public now realise the huge dangers in over-pricing and mis-selling property, the root cause of the entire crisis.
Regulation and control must be rigid in future.
The free-for-all in property must never happen again.
Property ownership and even buy-to-let are a great idea IF THE PRICE IS RIGHT.
There are many people who buy property simply because it makes money, and this scheme will not affect them, they will still run away.
Controls, Gordon and Mervyn, controls.
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This is a transfer of risk from homeowners to the taxpayer. This seems wrong. The housing market will wait for a delay in house prices falling - and paralysis will be extended. Why should the taxpayer subsidise these risks - the only answer is that this will delay pain to voters until after the next election. The cost will be to the housing market and to taxpayers - but hey by then who will remember that?
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Two years should see Gordon through the coming election but it won't resolve the issue. It merely puts off the evil day.
The assumption is that the economy will be back on track in two years. Who is kidding who?
We already know this is going to be worse than the Nineties and that took five years for any significant recovery to get in place. It was the surge of positive feeling that engendered which brought this mad government into power in the first place. Remember when `things can only get better'? Indeed!
So what happens in year three? Dispossession? Quite possibly because by then the property will be worth half the mortgage on it and who on earth would want that millstone round their neck.
No, this is a ruse to get Gordon re-elected just like all the other so-called initiatives to help the economy. Vote Gordon or the Tories will do something nasty to you!
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smart move
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Here we go again.
Let’s look at your example but with a few tweaks.
Price 450,000 August 2007
Mortgage 400,000
Value December 2009
450,000 minus 15% say (and in this market you will be lucky)
382,500
Interest rolled up let’s say 30,000 as you did. New debt 430,000 ignoring compounding.
Value in two years, December 2011 assuming only 15% further drop net (and at present you will be very lucky.)
382,500 minus 15%
325,125
Thus net negative equity 430,000 minus 325,125 is 104,875 who is going to cover this?
Oh silly me, the government.
Oh no!!! Silly silly me the government does not pay anything. You do, and I do, the ordinary taxpayer.
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Robert, you are describing an American "Pay Option ARM" with the addition of a government guarantee of the negative amortisation. Ask the Americans how well that kind of product worked out, or the banks that are forecasting default rates of over 40%. Quiet for years, then an avalanche and the banks which specialised in them went bust.
The taxpayer stands to lose HALF the £900-1400bn you expect to be covered by this guarantee on the basis of recent experience.
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..but two questions:
what happens to principal payments (as most mortgages are amortising). do these get deferred as well?
what happens to the large number of mortgages that have been securitised - i.e. sold to spvs and no longer held by the bank that made the original loan? i thought one of the big problems with securitisation was that the new owners have no relationship with the borrowers and are not incentivised to renegotiate terms in order to avoid repossessions even though this can result in a higher recovery value to the investor..
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There is a typo in my previous post: it should have read £900m-1400m. Half of which, the market says we will be throwing away.
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Hmmm. Not so sure about this. What are the impact of laws of unintended consequences here.
Take one 'together' 125% mortage owner.
No hope of making payments now, property now 40% negative equity at least.
Enter the Government, with a gaurantee to Northern Wreck that for next 2 years, payments can be made with assistance. bank insures itself against loss?
2 years time, property now 50% underwater at least. bank forecloses, very costly, loses its shirt, along with the 'extra' taxpayer loan (or insurance cost if it could get it, very unlikely).
net result; lots of money lost, someone lived virtually rent free at taxpayers full expense for 2 years.
The govt see lots of votes in mortgage payers though, whatever the cost.
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I think it should be called Unemployment Mortgage (+ Bills) Protection / Insurance sold as a product.
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Still waiting to hear whether this is the end of mortgage interest paid for by the government after 13 weeks for an indefinite period.
Important for those presently in this position especially the sick on long term benefits who may not be able to return to work within the two year period and have some sort of security at the present time.
This is not as straightforward as it seems and could lead to even more repossessions if it hasn't been thought through properly.
But when was anything this government introduced properly thought through.
Just another political measure which will backfire on them down the line.
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Wow, the Government have played a blinder and got themselves the ultimate win-win situation:
http://news.bbc.co.uk/1/hi/uk_politics/7763044.stm
By buying the banks he's been able to force them into deferring mortgage interest payments for up to two years. In one move he’s made it look like he actually cares about the public and probably win some votes, whilst effectively protecting house prices to support his property price driven, debt based economy.
By the way it's hard lines to all the tax paying FTBs. Best you save hard and set your sights on a shared ownership two bedroom apartment.
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"..the £30,000 would only end up being a genuine cash cost for us as taxpayers in the event that the income of the Slightly-Stretcheds were never to recover or the value of their property were never to rise above the value of the mortgage."
I'm one of those who thinks house prices are going to fall much further, to say 3.5 times aversge earnings, and then stay at that level indefinitely. So I would say that the second of these conditions is extremely likely in many cases.
My big concern here is for those who are already in or close to negative equity. Allowing them to stay in their homes as house prices fall by another 20% or 30% will just leave them in even greater negative equity, both from the value of the property falling and the size of the mortgage increasing by 10% or so as it is "rolled up". It would probably be in the best interests of many just to declare themselves bankrupt and start again.
On the other hand, I suppose if they wait the two years and then declare themselve bankrupt they won't really have lost out - they'll just have had two years free rent at the taxpayers expense. Is that really the Government's intention though?
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''The plan is designed to give those who lose their jobs or take a big cut in their income an extended breathing space before their home is at risk.''
''the cost to the taxpayer of the scheme likely to be about £100m''
''The scheme will cover mortgages worth up to £400,000''
Why £400,000, that's nearly 2.5 times the average house price?
£100 million is £4.16 milliom per month over 2 years.
So thats 13866 homes at £300 per month that the govermnet could help out over 24 months.
And if these dual or single income homes can't gain a salary equal to the one they lost in order to cover the payments by the end of this measure then the house will be taken back by the bank. More long term solutions need to be found for people facing losing the home they have a mortgage on.
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These various 'deals' all sound very nice. Well they would do wouldn't they? They're being presented to us by politicians.
Of course, these arrangements are dependent upon reliable and trustworthy banks and bankers.
Do YOU trust the banking industry to help you out when things get tight, or do you expect them to find umpteen reasons to opt out of the scheme when they want to?
Interestingly, I've had a situation recently when a bank agreed with the FOS to pay me some money, but so far have not delivered on that agreement. I wonder how many other FOS settlements are being defaulted upon? Perhaps someone would like to do a FOI request on that one.
But, for Jo Public, if the FOS can't bring banks to heel, what's the point of even talking about these arrangements and deals with banks and bankers?
Do YOU believe they'll materialise into anything other than a string of sound-bites and photo-opportunities for politicians and financiers?
Or perhaps you wonder, like me, if what we'll actually get will be a poorly implemented, feebly monitored, weakly regulated, scheme that will deliver PR and spin but not deliver consumer protection when consumers need it most.
Or am I just getting too cynical?
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I am confused about it all but am sure it is a good thing, after all, those in charge have clever advisors from oxbridge and I am just a person surfing the web.
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The cost is neither here nor there now, we have stopped counting a while back.
Pity about the guy who borrowed carefully and even took out insurance on the risk of redundancy though. I guess he'll need his house soon to sell so he can have some health care when he's old.
I feel very sorry for the people shafted because of the housing bubble but every time the careful are overlooked we simply endorse reckless behaviour and withold benefit from those behaving as we need. That's the longer term problem.
The irony is that everyone is expected to thank the fool who supervised the inflation of the bubble for handing out Mr Carefuls money. Such a generous man, that Crash Gordon.
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I cannot stop paying taxes but I think I will cash in my Premium Bonds to sop the Government using the money to fund such schemes.
As a saver, and someone who has always been careful, all I see s the fool hardy risk takers being rewarded. This does not encourage people to take responsibility for their actions. In fact it incentivises further risk taking.
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Post 1 has sumed it up.
It just stagnates the problem for the future rather than letting economics run its natural course.
Mr Brown is a joke.
Mr Preston write about how the saver is losing out on this.
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You cannot accuse the government of failing in their attempts to assist the victims of repossession. In another of the new bills announced in the Queen’s Speech today, “the government suggests more park benches”.
http://news.bbc.co.uk/1/hi/uk_politics/7762808.stm
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Thank you Gordon!
I can now slack off a bit at work, wait to get made redundant, then get meself a two year payment holiday on my mortgage.
That way I can lounge about for two years, then eventually drag myself back into work mode to try and pay back an even bigger outstanding mortgage.
Fantastic plan! Rather than knuckle down and earn our way out of this mess, Britain can now slouch its way out.
Pure genius.
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I don’t agree with this but the Government have to do something as they are ultimately responsible for the whole over pricing of the housing market.
Please remember that you shouldn't consider the arsonist a hero because he saves you from the fire.
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This sounds OK so long as the houseowner has only one charge on the property. If the debt is allowed to run up it would appear at first reading that the government would only cough up if there was a shortfall to the first mortgagee. This means that if the debt is allowed to increase the amount left for subsequent chargees could be eradicated. Their only course of action then would be to bankrupt the borrower. In many cases a quick repossession and sale would be better for the borrower than hanging on.
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How about some help for the savers badly hit by falling interest rates? Why should income be transferred from the prudent to the feckless without also giving help to the prudent?
What is the reduction in their purchasing power and what will be the hugely negative effect on the economy?
Or doesn't the Govt care about pensioners and the retired who are faced by rising costs and falling income?
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I may as well cancel my ASU policy now and pay it straight to HMRC, yet again the prudent are going to bail out those who have not taken measures to protect themselves.
Note, I do not wish this scenairo on anyone however people with mortgages are adults and need to take responsibility.
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This is unbelievable.
It is the final gold leaf edging for the speculators' charter Brown put in place ten years ago.
It's a helping hand to anyone who bought into a ludicrously overinflated bubble without thinking, and a kick in the teeth to anyone who prudently analysed the financial situation and said (correctly), "This doesn't make sense".
Effectively, this is the end of money in the UK - if you can borrow without needing to pay back, getting the taxpayer to pay the costs for you, and if you need never assess risk, then there is no point having currency.
This is communism.
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The prudent bailing out the reckless. Time to buy gold or take any savings out of the sterling and put it in the dollar. I'm not subsidising this sham by having my capital eroded.
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"Quite possibly because by then the property will be worth half the mortgage on it and who on earth would want that millstone round their neck."
No, because GB intends to devalue sterling and inflate his way out of trouble. In real terms the property will have plummetted, but in nominal terms the idiots who overextended themselves will have had their debts slashed. So who pays for this? Any holders or earners of sterling: savers, bond holders, regular working people, pensioners. The people who will be crucified are those who stayed out of the housing market for the last few years to save up a deposit.
Gordon Brown has destroyed social justice in the UK, and destroyed sterling.
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You have to wonder how many of the "slightly-stretched" more than slightly stretched their income on the mortgage application. In the USA they or their mortgage brokers would be done for fraud; here they get a hand-out?
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Seems like another way of 'deferring disaster' - as Mr Peston commented yesterday at some point there is going to be a glut of repossessions as finances break down, house prices fall like a stone but bottom out and begin a very slow rise. This just defers the inevitable abd house prices will fall as horrendous amounts of debt are deferred.
Gordon B has a problem - his economy is built on mega house price inflation and easy credit, there's only so much propping up can actually be done here before the dam breaks.
What this does tell us is just how bad the government beleives the comming recession will be. The spiralling sums of taxpayer money being pumped into trying to get us spending again is beyond comprehension. They would not be doing it if a major recession were not on the cards
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Just posted (#77) on your previous piece mentioning this new scheme so we're now on the same page Bob!
Would it no be far simpler to fix the following stupid DWP interest rate policy?
The DWP currently ignores the fact that c.51 per cent of the 11.7m UK mortgage holders (source CML) are on fixed rate deals.
Jobseekers with a fixed rate who have managed to survive to qualify for Mortgage Interest help (now 37 weeks/ GBP 100k loans, April '09 13 weeks/ GBP 200k ... why delay?) have been hit hard.
Since Oct, the interest paid by the DWP has been slashed by 44 per cent, matching the fall in base rates.
The combination of the DWP ignoring fixed rate deals and declining BOE interest rates means that arrears will mount and eventually repossession will threaten many Jobseekers.
Please ask Crash Gordon why the DWP does not recognise the fixed rate mortgages of Jobseekers and pay benefit accordingly instead of slashing it by 44 per cent!
Can this really be classed as helping families through the recession?
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This proposal will have far more impact on the economy than the VAT cut!
Now there is no reason for anyone to lose their homes which means cut price property will be a thing of the past within 6 months. This will bring a floor in prices in the property market which in a downturn are driven by repo sale prices. I was an estate agent in the early 90's and saw how repo's create a false bottom for the market first hand.
Crash Gordon has at last done something good!!!!
Now the next stage is more mortgage lending, lets hope he takes up Crosby's recommendations, then lower interest rates...........hopefully leading to a stable market, more house sales, removals work, legal work, furniture and carpet sales...and on and on....i.e. a recovery!
Well done Gordon.....but you still deserved to be booted out for a decade a sheer incompetence which has brought many households dependent on their income from the private sector to their knees.
Crash Gordon you have been an arrogant fool who can only come up with one good idea out of 100!
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So Robert when are you going to be arretsed for receiving all these leaks?
Oh, I'm glad to hear they are Government leaks so you will be a recipeient of frequent leaks.
And of course you have been groomed to receive them but ..
Seriously :
Have the banks agreed this scheme?
If not, it's all cow excrement.
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When is this government going to realise the taxpayer has no money to cover payments on a shoe box let alone a house or flat.
Are they going to pay for the negative equity loss as well?
This 'generous ' act is typical of the governments complete inability to manage anything where accounts and accountability are concerned.
The Childrens minister says that we should not reward failure or poor performance but its o k to leave overpaid useless bankers secure as well as reckless citizens.
Those who try to live within their means and do without if necessary might as well slit their throats now because this government intends to bleed them dry if they don't.
This is the caring concerned face of Labour.........yeah right on brother!!
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"every time the careful are overlooked we simply endorse reckless behaviour and withold benefit from those behaving as we need. That's the longer term problem."
Yep.
(Sigh.)
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In a falling market, better to cut your losses and sell than wait two years while the debt rises and the auction value goes down. The banks also will be looking at their risk increasing, and a guarantee from a dying government isn't worth the paper it comes on.Like all Brown's schemes, somewhere in the small print will be conditions that can't be met anyway.
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Good in principle but to what extent has it been thought out?
Just heard on the news that much of the scheme is news to the banks, despite 8 supposedly having agreed to it.
Key questions have not been addressed which appears to alarm the banks, such as how much they will be charged.
This government with the incompetent BoE have destroyed several banks already, and much asset wealth and confidence in the UK (including our pensions and savings), and now appears to be dictating to the banks (which our pension funds still largely own) without consultation, potentially destroying further value and investor confidence.
Let's hope the government gets it right this time with this scheme, and actually creates a win-win situation rather than the lose-lose farces we've had so many of.
They do seem to be acting more and more Stalinesque whether in the arrest of opposition MPs or in the running of the economy.
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Could I deliberately default on my mortgage now and save/invest the money for repayment later, then accept the difference, be it plus or minus in two years? (rates are low now and the stock market is volatile). Is this a new investment mechanism?
My real point is that free market economics are not the cause of the current financial situation, the cause was always an inherently socialist government ready and willing (keen) to step in. The reassurance that gave to the greedy 'risk' takers is where the problem began. Real free market economics would have killed off the first bank to go under and made the rest shape up pretty quick, if they ever would have allowed themselves to get in this shape in the first place. As it is we have massive distortions and false parameters imposed by terrified politicians who are trying to save their own skins, not ours.
Stop now!!
History is repeating itself but this time we have no Thatcher to save us. We have some pain to go through thanks to Labour (New?) but don't worry we can do it. Plenty of us can still remember the last time, let's just get on with it.
No more interventions.
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Finally some good news that will help stabilise the current market fall of 10%.
This is all about "smoothing out the curve", preventing Banks panicking and dumping cut price property on the market, thereby causing further destabilisation.
From a social point of view, it will also assist some (but not all) of those unfortunate families who are currently going through the horrendous experience of potential repossession, in many cases through no fault of their own. These families have enough to deal with right now, with redundancy and drastically curtailed income and would welcome the chance of a breathing space to regroup and find another job. They should not have to be evicted from their homes in order to satisfy the short term gratification of the Banks, whose only interest is in re-building their balance sheets and repairing the crisis that they causind in the first instance.
In terms of cost to the taxpaying majority, this is a drop in the ocean and in the long term will be considerably cheaper than the alternative do-nothing approach which will result in further job losses (and therefore tax receipts) and further costs in unemployment benefit, housing benefit and all the rest of the palaver that goes with the re-possession process.
It is no suprise the Banks have jumped on board with this - it will cost them less and takes out a large degree of the market risk element. Who knows, it may even cause them to start lending to each other again!
In short, we should all welcome this move and congratulate Mr P for finally coming up with a story incorporating some humanity and good sense.
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Here we go again! The ordinary prudent and hard working people that save and not borrow as much as the banks and any credit agency wishes to lend to them will have to step in again.
I have just about had enough of this, any Labour canvassers turning up on my doorstep will get 'short shrift'.
This government is lost in the woods, this latest attempt to 'help' people is only postponing the inevitable.
Let the markets find their own level!!
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We have our own "sub-prime" disaster looming in this country...its called buy-to-let.
The losses here could be staggering, including large numbers of bankruptcies.
Brittanicus Brokus?
All us bloggers must scream the internet down if we see this sort of disaster coming again.
PS whilst I'm no fan of Gordon Brown, I think stress is showing and he needs to take a break for a while.
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And who the heck lent 400 000 quid to an estate agent!
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For many years I have been a lone voice asking 'Did Gordon Brown attend the Enron School of Economics or did Enron attend the Gordon Brown School'? The only reason that Brown needs to maintain the current absurd level of value in the nations housing stock is that it is the only thing that underwrites the value of the pound. Remember that other Labour leader that spoke to us of 'the value of the pond in your pocket', during his devaluation speech?
Will we ever get a true figure of repossessions, because we will never know how many sold their houses to Companies which promised they could live in them for ever, then promptly defaulted on their loan repayments, so people were made homeless, but it was not counted as a repro??
Do you agree with the Government saddling you with more debt, without asking you, the taxpayer if you are prepared to fund it?? We know that you cannot force a Government to stand by it's manifesto ( so on what basis are you supposed to select who to vote for? ), but all this rubbish was never even hinted at at any time during elections....let's have one but first let Parliament pass a law that says a Party must stand by it's manifesto.
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Can someone tell me how this helps the careful person who is living on the income from their hard earned savings accumulated over many years who have seen their monthly income reduced by more than 50% over the passed month.
It is even worst if you are renting and can no longer afford to pay the monthly rent. How does it help ? This is very stressful as well.
The UK has a lot more savers than borrowers so their spending power has significant reduced.
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The Government knows that if peoples homes were repossessed, it would cost the Government more, as the State would have to find alternative accomodation and pick up the cost for these homeless families through the benefit system.
This is a cheaper alternative. A clever move, but also comes with risk.
The gamble is that after 2 years if these people can find similar jobs to support the mortgages they were on, there would be a big balloon of repossesions taking place.
So in effect it gives Gordon Brown 2 years breathing space to get the economy on the move. Otherwise we be heading for the Big Bang of Repossessions in the UK economy.
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"From a social point of view, it will also assist some (but not all) of those unfortunate families who are currently going through the horrendous experience of potential repossession, in many cases through no fault of their own."
In most cases, it will be people who bought in the last few years, at 6x salary or above. These are not people who are in trouble "through no fault of their own". They're in trouble because they mis-assessed risk. If you don't allow the market to punish risk-taking as well as reward it, the system breaks down, and the economy become uncompetitive. The UK's future will be catastrophic with these kinds of policies. Most of those here being grateful that "a floor will be put under house price falls" are purely self-interested: either they bought at too high a price, or were speculators looking for a quick buck, or both.
The only sustainable way out of this mess is to LET PRICES FIND THE LEVEL DICTATED BY THE MARKET. If you interfere, you are sowing the seeds of disaster.
I would advise any young and talented person in Britain to emigrate. The place is headed for economic disaster.
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There seem to be 2 main problems with this
i) it is grossly unfair to Mr and Mrs Renter who realised that the risk of buying a house was too great and rented instead. Mr and Mrs Renter will be out on the street if they can't afford to pay the rent (and let's face it, Mr & Mrs Slightly Stretched are effectively renting the house from the bank and so should not be treated in preference to others)
Or is it only homeowners who are helped because GB is actually trying to stop the bursting of the housing bubble that he caused.
ii) it is grossly unfair to Mr and Mrs 'Insured against this risk'. Some people who realised that they were exposed to the risk of redundancies insured against it.
Once again, penalise the prudent.
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If government borrow and spend now, the pain of the recession can be reduced.
No-one disputes that.
The question is; how much will it cost after the storm has passed?
Well the answer is, to do nothing now, as the Conservatives propose, may well cost a LOT more. You can't just let people go to the wall. That was the approach in the 1980's. And it costs a LOT to keep 4,000,000 people on the dole...
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I guess any prudent borrowers that took payment protection insurance can consider cancelling it now, and saving the premium.
One wonders how far Gordon Brown will go in offering the taxpayers money to ensure any nasties happen after an election.
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Forgive me, But some of the so called in the know posters on here need their head examined!
This scheme is simply putting folk into more debt, you know the same folk that bailed the banks out!!!
Outrageous Idea, I'd rather hand the keys back or rent the house out!!!
Stealth TAX brown to the rescue, cannot believe this has been swallowed by 'intelligent' people.
also many on here are utterly unaware of the law that it replaces, you know the law that the so called nasty tories implemented:
If you are made redundant, 39 weeks later the state pays your interest (not capital) indefinately. Now most folk have mortgage protection insurance so thats a more sensible idea by MILES!
And Yes, I'm fully aware of the new scheme that pays out after 13 weeks on interest only but now for only 2 years.
Who on here thinks the jobs situation will improve in two years? I remember when job centres were called Joke centres btw.
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I know of people with well over £200k equity in their house (they bought in the 1970's) who are on benefits.
Not only is the taxpayer paying the interest on the mortgage (low in their case) but they also had the house redecorated, a new downstairs toilet put in, new roof, new double glazing - all paid for by the taxpayer.
Since they have so much equity, and their children will inherit the improved property that the tax-payer has paid so much for shouldn't a charge be taken over their equity not only for the mortgage interest but all the improvements and their other benefits as well.
They have the equity to cover it all - why should the taxpayer pay for everything?
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The politicians, and indeed the general public, are all focusing on issues such as unemployment, repossessions, bank lending, etc. No-one appears to be addressing the real issue caused by this Government's incompetence, namely the value of the Pound. It has already fallen by some 20-25% and as the Government borrows more and more it will fall further. A fall of 25% in the value of the Pound will inevitably lead to an increase of some 30% in the cost of imported goods, for example cars, electronic and electrical goods, clothing, fuel, and even much of the food we eat. The Government is talking about deflation but the reality is that we are facing inflation on an extreme scale in the very near future. The economic crises created by past Labour Governments will be as nothing compared to what lies ahead. Every one of the Governments proposals to cope with the current situation will result in more borrowing which in turn will lead to further falls in the value of the Pound. Britain is heading for disaster!
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Its a blatant attempt by Gordon Stalin Brown to move the goalposts when the hoards hit the dole queue's next year, wake up !!!
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This is appalling.
Brown is rewarding those that played a major role in inflating the property asset bubble.
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This type of product was tried in the US, it failed, the results can be modelled with accuracy. This scheme just modifies existing mortgages into a sub-prime variant and postpones defaults for a time of the government's choosing, which at two years means after the next general election. The government will be throwing away 40p of every pound they throw at this and leaving the unsightly evictions and a new bank reserve capital crisis to the next one.
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44, EXACTLY what I was thinking!
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I'm scared of all these knee jerk economic policies. When I retire (if I'll ever be able to afford to) ol' Bubble Brown and Debtboy Darling will be long dead having sat out their aged years on their nice fat public sector pensions...
...while I and the rest of the population born post 1970 will still be paying off the mortgages of those who's primary financial reasoning behind taking out that overstretching mortgage was "everyone's doing it, we can't lose"
And they were right.
Good one Gordon, ease the pain of those who might keep you in office for 4 more years - and let some one else pay for it for the next 40.
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#20 The Midland 20 wrote: "If government borrow and spend now, the pain of the recession can be reduced.
No-one disputes that."
I dispute it. Quite a lot of people agree with me.
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#57 you make an excellent point, but let's not get excited..... they'll just have a baybee and make themselves untouchable again.
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Although this is potentially a smart move by the government, isn't it in effect keeping house prices up? I thought one of the main problems we faced was that house prices were too high in the first place.
I just think that when the State begins to subsidise 'private property' it ceases to be 'private' it becomes 'social property'. If private property is the main principle of Capitalism, social property is the main principle of . . .
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The conflict between supporting those that are vulnerable and using the tax revenues of those who are secure thru luck of caution is clear. However a 25 year mortgage is in principle an agreement for 25 years and a deviation from a schedule of payments, provided it is containable, should be accommodated. It is reasonable. It also probably helps stablise to some extent at least, a market in freefall. It is a great shame that Browns measures are so dwarfed by his previous mistakes because he has done a great deal more to mitigate the situation than the Conservatives in the early 90s who did diddly squat. However, the question is whether we are facing a very dismal future and the government does not wish to panic the public or whether the exceptional measures, because they are exceptional, are effective. The situation until now was that however reasonable a repayment proposal was, it could be legally rejected by the bank, whatever the court felt. The reality is that a huge of mortgage holders are probably in default however small or delayed in process and therefore in technical breach of contract. It is about time this area was strengthened. The banks have made a huge mistake and are having their position eroded, thankfully. This is as near as we are going to get to negative equity trading. Personally I have no sympathy with those who oppose these sort of measures and preach hell and damnation on others from safer ground.
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Tim Warwick (post 44)
Well said, sir.
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Even this scheme could be avoided with a simple alteration to mortgage payments.
Instead of spreading the mortgage over 25 years the monthly payments should be spread over 23 years within a 25 year term giving the mortgage holder a 2 year payment holiday at a time to suit...i.e. jobless.
Simple.
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# 52
Many people who find themselves currently unemployed as a result of the existing economic situation do so through no fault of their own. They certainly did not plan it this way and would undoubtedly still be paying their mortgage if they still had jobs.
Your assumption that they have a mortgage of 6 times their salary (or more) is an unfounded generalisation, no doubt subliminally influenced by the day to day media reporting of the last twelve months.
In fact average house prices are of the order £160k, or four times an average joint salary household income of 40k....historically this is not a large multiple.
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Is there any chance of the Goverment comming up with a scheme that dosn't involve me footing the bill as a tax payer? How many banking sector people from the city, who have lost their jobs, will be eligible for this I wonder. Yes, genuine people, with familys, who were in low paid jobs and had modest loans should be helped. However this is a blanck cheque to bail out any greedy person who speculated on house prices rising forever.
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"In fact average house prices are of the order ?160k, or four times an average joint salary household income of 40k....historically this is not a large multiple."
Yes, but this is AFTER the price falls of the last year, and the people most vulnerable will be those who bought near the top.
Historically, 4x JOINT salary is a HUGE multiple. 2.5x joint is the historical norm. Check your facts.
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I have been saving up my money so I can afford to buy a house at some point. I did decided not to get a huge mortgage just to 'get on the ladder' in the next few years. So I welcome falling house prices from the insane levels they reached in recent years.
But now Gordon Brown seems to want to keep house prices artificially high. On top of that to add insult to injury he wants me, someone who did not take on risky debt, to pay for the lifestyles of those who overextended themselves.
Well I am not taking it lying down. I am young at 26 and will potentially be paying taxes for many years to come. But I am utterly sick of the way this government is punishing savers, tax-payers and those who refused to participate in the debt binge. When working out how much his "package" will cost I hope Gordon Brown took into consideration the fact that I will be looking to emigrate from away from this country and its punitive regime against prudent savers as soon as I have opportunity. I don't think I'll be the only one. I wonder who Brown will get to fund his give-aways then when savers like myself decide not to be taken for a ride in this country any longer.
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btw the handle "houseflogger" does rather unveil you as having a vested interest in talking up the property market...
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Aah! The bleeding heart of of New Labour; a love story between those who voted for them and a treasury full of fools gold.
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Robert
Just wanted to say, 'Excellent job, please keep it up.'
I really enjoy your blogs: you explain everything clearly, add context, have the courage to make one or two comments yourself, etc etc.
If only everyone else could be as honest and insightful . . .
Jeremy
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"I hope Gordon Brown took into consideration the fact that I will be looking to emigrate from away from this country and its punitive regime against prudent savers as soon as I have opportunity."
I heartily encourage you to do so. The UK has become a joke, where work and reward are virtually uncorrelated.
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# 67
Well said........ time for some humanity and humility on this blog.
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great - I've been offered a nice redundancy package. Going to take that, travel round the world a couple of years, whilst the tax payer guarantees my mortgage. Even better, I'll rent out my flat on the quiet and earn a nice little income while not having to pay a penny on my mortgage.
Meanwhile pensioners and people who have carefully saved all their lives suffer from interest rates that could fall to zero % - and will have to pay higher taxes to pay for ever increasing public debt.
Have we ever had a more incompetent PM before? He won't be happy until he's got the whole country out of work and onto state benefits.
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what person in their right mind would take on a £400.000 mortgage?
MORAL HAZARD!!!!!!!
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# 74
.....never judge a book by it's cover!!
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#45
At last some common sense in an ocean of smug self righteous people.
Mrs Thatcher was absolutley correct that a home owning society was good for society.
Gordon Brown appreciates this fact unlike the present Tory party who have no answers to our current world wide problems.
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Well it is certainly ok to try and help families to keep the roof over their heads, even if they are to blame for their own misery. However, this needs to be done responsibly and can only apply to cases where there is a realistic chance that repayments can resume relatively quickly. Because, apart from helping to prevent as many personal tragedies as possible, the governments most important thing to do is to finally stop gambling away the future of all of us. I am very concerned that this isn't what the government has in mind.
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73
It's not about 'keeping house prices artificially high'. It's about preventing the kind of carnage which has taken place in the US housing market over the last 3 years. Prices here will still fall, but hopefully at a more gentle pace.
It's not in anyone's interest, not even yours, for the country's GDP to shrink by more than a couple of percent a year. There is a danger as we speak that 2009 could see a lot more than that go from ours, Europe's and Japan's.
Try to think about the bigger picture. Keep on saving, and you'll get to buy a property at a decent price- they'll be fair value in about 6-9 months from now, even with Brown's plan. Achieving your goal at the cost of the misery of millions would be rather miserable, wouldn't it?
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So If I read this latest GB play correctly what I should now do is re-mortgage the house (loads of equity in it) spend the money on the house, new car, holiday and put the rest into yen. Then get myself made redundent and I have a two year interest holiday on the whole lot!
In fact I could put the whole lot into a currency that a) gives interest and b) will apreciate against the pound over the next couple of years, which is probably about every currency.
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There is no point in being prudent. Brown is bent on destroying anyone who is sensible rational disciplined and fair. Under Brown you are a winner when you are a loser! Borrow to hilt, bid up a property and then if your stupidity becomes apparent say the magic words "I am a loser" and Brown will give you suitcase of money to give you "breathing space".
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so I borrowed stacks of money by claiming I earn more than I ever earned; bought an over valued house with a 125% mortgage; the value of my home plummets by say 40% maybe more? I continue my loan for that new porche etc ... don't pay the mortgage; continue my slightly curtailed lifestyle; pay my loose cash into my/wifes pension scheme to protect my assets & at the end of this my house remains in negative equity, I enjoy an extra 2 years of living effectively rent free; & the thrifty carefull bloke down the road in the small flat bails me out... have I got that right?
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Many here seem to think that this will keep house prices artificially high.
It will not.
Banks are aware of the chronic overpricing, and their lending policies are showing this.
You'll need a hefty deposit from now on, and governments and banks have no choice but to allow property to find sensible prices.
Buy-to-let casualties will also keep prices falling.
In my area, houses that were at 120k a year ago, are now up for auction at 60k.
The trick of these sort of policies is in not allowing these losses to be realised.
And all us careful folks?.....hard luck.
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Not read the small print on this one but I would like to assume this plan of Gordons is not applicable to Buy To Let mortgages as they were bought as investments rather than as someones primary residence/home.
There are other areas people will have invested in that have gone down in value, but you wouldn't get assistance for those.
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You all realise that there are possibilities of modifying mortgages besides this specific model which is KNOWN to be broken?
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Great news for highly leveraged, amateur buy to let landlords on shoestring budgets struggling to pay their homebuyers mortgages. This is the biggest crime of all; that the government are going to use taxpayers money ie your money to subsidise these "rigsbies" who will delight in being able to take two more years of profit without having to dispose of the keys just yet.
The real victims of 50% of repossessions are the vulnerable tenants who more often than not know nothing of their landlord's pending insolvency.
What has Gordon Brown to say about this; the fact that 50% of all repossessions are buy to lets. Does he think that he can fool you tooor hasn't it yet occurred to you. Are you all stupid; unregulated buying to let caused the housing bubble and now the government want to bail them out too. Get a life.
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Let's say Mr. and Mrs. More-Sensible could have moved to a nice new home but it would mean having a £400,000 mortgage.
Both have jobs. Ronald More-Sensible is a designer in the electronic industry and Mary works in education.
Toward the end of this year, he's after many staff cuts it is likely that he will be made redundant but she should be ok having survived 2 years of restructuring.
Having decided upon prudence 5 years ago they paid their mortgage off 7 years early rather that take a big risk in what looked like at the time another housing bubble was building.
Whilst they are both ok with 1 salary but the loss of 1 job will certainly affect their retirement, which is not far off.
They now, have to, at the minimum, provide guarantees via higher taxes for Mr. & Mrs. Slightly-Stretched and possibly pay for their ill judged extravagance.
Clearly the message from this, and probably other governments, is show no restraint in financial matters as someone else will pick up the bill.
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This really annoys me. I've been saving for a long time to get a deposit on a house. I'm 32 and live with my parents still! This si the final nail in my coffin.
I've always been very careful with money, never had any debts, have a great credit history, never claimed a penny in benefits.
2 Weeks ago i was made redundant, and am now spending all my savings (for my house deposit) just to live.
I've never broke the law, but now i realise being 'decent' no longer matters. That's it from now i'm goinf to:
Steal, lie, cheat borrow well beyond my means, and basically become the scum of society. I've woken up. They are lots of others like me.
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#87: Have you ever considered a career in the civil service?
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#87
In a vanishingly small number of cases yes you have got it right - live with it.
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What about those of us that remain in employment and are now over-stretched and in negative equity?
I'm thinking about those of us who were encouraged by previously over generous banks to borrow to the hilt! Oh and don't forget they also offered the easy to get credit card as well to get you even more in debt.
Yes people like us must take some responsibility as well as the over generous banks for the state we now find ourselves in.
But I can't help thinking that HMG is more than prepared to throw over extended borrowers like us to the wolves.
We were sold a lie Mr Brown!
We were sold the lie of boom with no future bust!
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84: "Prices here will still fall, but hopefully at a more gentle pace."
Why do you hope for a gentle pace? There are many people now who need to move but can't sell. The only reason is that the prices are still far too high for mortgages to be funded, now that this incredible debt bubble scheme finally collapsed. Prices need to come down fast to a level where transactions can happen and people can move where they need to.
And 73 is very right about his point that it is immoral to bail out the insane debt junkies after they ruined the country and punish the decent instead. But this is exactly what happens at the moment. Again at the expense of the future! So this country will likely limp from crisis to crisis over the next few decades instead of making a U-turn once and for all.
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I for one feel that Brown is only drawing out the recession, this could drag on for years, all at the tax payers expense.
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#92, it is the end of moral hazard as we know it.
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57 jiltedjohn
re - gripes about unemployed people etc...
Did the people you know pay between 43 and 46 pence in the pound total tax direct and indirect when they where working. If so they are simply recieving a tax rebate. or dont you think they should qualify under what is a highly regulated statute which I am told piles some 3 to 4 feet high (0.0M to 1.2M) if the volumes are stacked up.
Have you ever totalled the sum you personally have paid in tax, you will find it truely stunning. Just total your income over the years (adjusted for inflation) before any deductions and say it is nearly half. It is heart sinking.
Do you think somebody needing say 140K of healthcare should be refused it, that they should be healthy come what may. In the same way somebody who has worked and paid into the system should be refused support whenever for whatever reason they fail to get work, which is the ethos embedded in your statement. My response if that is your position is - fine, but you then do not pay tax at 43 to 46 pence in the pound, which like it or not is actually what the public want, because they want the social support and it has to be paid for. It is the difference between a US system or a European system. Or even a so called Tiger economy system where no effective social support is present so the labour cost is dramatically reduced allowing the undermining of the UK economy.
Incidentally, as a side issue, most of the young longterm unemployed are a result of the failure of our education system, I have met a large number of them, and the curent so called reforms will not address the problem, and that is before the growing shortage of jobs is considered. Most have some sort of problem, not always their fault, and have been shunted to the back of the class and abandoned as the easy way out.
Incidentally if you want a forecast it is that the problems of enforced unemployment are due to be exposed in the next year or two, in the same way the problems of poor personal injury compensation for the armed forces have been exposed.
My tip is stay healthy and employed and uninjured and enjoy grumbling. You could do a great deal worse and it is actually better not to have to find out the hard way. : )
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I've been reading these blogs for quite a while but am still something of a novice in economic matters so please bear with me.
Have I understood this correctly? That if the homeowner defaults in the future, HMG are going to make good any loss that the banks make on the deferred payments? Not that HMG will be paying the deferred interest during that two years.
That means that in the short term the income of the banks will decrease (through lower repayments) even if they aren't going to lose out in the long run.
This surely means that the banks will have less to lend out causing a further reduction in the availability of credit (rather than an increase as the government would like).
So my question is, will this really have a stabilising effect on house prices, as many are suggesting? Will the effect of less repossessed property coming onto the market be greater than the effect of the futher reduction in the available of credit?
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This is not about helping people. If it was, then all the people who are gong to hurt over the next 5 years would in some way benefit. As it stands, a very few will, with luck, only get slightly deeper into debt, without luck, a whole lot deeper into debt. Come to think of it, as an ex mortgage slave this madcap scheme will pass me by and, based on previous evidence, I should come out of this better off than the mortgage slaves.
I must say that this is the best government gimmick this week, since they took 2.5% off VAT last week. I just cannot wait for next week and the next hair brained idea, sorry, deeply thought out idea, to buy votes wrapped up as help for the poor.
You just cant make this stuff up.
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Let's hope this is the death knell for the so-called specialist lenders i.e. sub-prime lenders. They are the ones who got us into trouble with reckless lending to people who can't afford to pay their mortgages. I hope the FSA will not authorise any new specialist lenders and also outlaw any sale and rent back companies who are looking to exploit people in distressed situations by making money on the sale of the properties. Are you listening FSA?
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The govt plan is a combination of two things - a response to the worst economic situation for 60 years as the Chancellor commented a couple of months ago so it is no surprise. At the same time it is purely an electioneering tactic - the govt could not care less about the situation described by total_injustice ( in post 24 ) cause all such people pay their taxes and cause the govt no grief. Mind you I have already cashed in my Premium Bonds as I refuse to lend the money to the govt at such a pitiful rate of return. More should do the same.
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This scheme will do more than it appears. If there are less repossessed properties on the market then house prices will be more stable. All we need now are some 90% first time buyer mortgages at below 5%, and 85% buy-to-let mortgages and the whole property market will kick start.
For the first time in many years you can now buy a property for less than the rental value. I think we are near the bottom of the market.
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Excellent idea but with one major flaw.
The vast majority of homes in the UK are repossessed by the secondary charge lenders (see Loancheck Foundation data).
This is a step in the right direction but is of little comfort to the people who have just been made redundant with a few years to go on their 25 year mortgage whose home is repossessed by the lender who funded their replacement windows and conservatory!
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Robert
You say the COST is some 1Bn, well it is a liability but it is not a cost, although you did use the word liability earlier your negativity comes through at the end. It only becomes a cost if the worse happens. We are back to the issue of AD and GB wishing things on the banks but it being a great deal less clear that the banks want to comply, and then even less clear that AD and GB can insist. And the banks wishing to ignore court opinion, just a small point, proven recently. However if you consider that some impact on the housing market, which is seen as vital to recovery, is possible, then this could be very cheap. The UK housing stock is measured in Trillions. Looks better than piping money to bankers. That is before you consider the cost of homelessness to the public purse. It also allows some easing of the mind of the 1 million plus that are likely to slide into negative equity and vulnerbility thru no fault of their own. Or dont they count. Once negative equity is entered a sale is not possible because the mortgage cannot be redeemed thru the sale of the property. Of course the banks won't like it, it castrates them, removes the Final Solution.
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There is no need to keep paying rent anymore! Let all renters out there tell their landlords: "We are deferring our rents for two years - Gordon says it is OK". If it is OK for landlords / house owners to defer payments on mortages so it MUST be right and fair that renters can defer paying rents!
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96 - You need to lose job as soon as possible to benefit from the scheme. Ask you boss to "help" and free you up so that you can enjoy living on the taxpayer.
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Comment 1
So cynical, not everyone who is made redundant and has difficulty with their mortgage is "feckless". The "feckless" are unlikely to have bought a house in the first place.
Robert, despite your note of pessimism regarding simply delaying the repossesion two years, I'm damn sure if it happened to me i'd be grateful for the opportunity to find alternati9ve employment and I think the majority of people would think exactly the same way.
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Till how long is this govt going to patronise those who acted irresponsibly and lived beyond their means ? As somebody who has been hardworking and acted responsibily, never had any loans or ever borrowed, I am now thinking in terms of relocating my business out of this country. AFTER ALL NOW I AM NOT PREPARED TO BE TAXED AT 45% and be penalised for my hardwork SO THAT GOVT CAN WASTE MY MONEY IN SUCH FOOLISH SCHEMES. Well done Mr. Brown you have added 25 more people who are just about to loose their jobs coz of me deciding to move and relocating my business.
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The thing about taxation is that there will always be some people who get more out of the system than they pay in. There will be also some who will get less out than they pay in.
The people who we are trying to help are not the usual targets of this forum, but decent hardworking people who ended up in the wrong job (which became a non-job). Yes it may be your taxes that are being used, but then if you develop cancer it will be someone else who pays for your expensive treatment. It's called human co-operation and we all will need it some day.
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- Help for mortgage payers in arrears - what about those who rent?
Six months grace for those with mortgage arrears? Great.
What about those in rented Council property? Local authorities will apply for repossession in less than six weeks - let alone six months - for those in similar straightened circumstances.
Those evicted from private properties become homeless and may apply for Council housing. Those who rent and are similarly evicted are deemed to have made themselves homeless and the local authority is not obliged to house them.
Not a mention of help[ with rental arrears by the PM today - odd for a Labour government.
What do others think? Do tell
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Post 105. SurveyorJohn
You're spot on mate!
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This new protection offered to mortgage holders is very inequitable!
What about those of us who are renting accommodation --> if we suffer redundancy, will Gordon Brown pay the rent for two years??
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#72 - But isn't it the case that for a large part of the historical comparative period one adult has stayed at home therefore todays 4 x household salary would only be a small increase in the multiple to the historical 3 x main salary?
Also, can someone who survived the 1990s crash explain to me how the market was kick started?
As I see it people are forecasting and hoping for falls of up to 50% which would put a huge % of owners in massive negative equity, of which a large majority would be in properties typically identified as a first time buy/starter home.
Therefore if these are in negative equity then they can not move and the bottom rung of the ladder is blocked to new entrants to the market = stagnant market.
So am I wrong in thinking that stable prices to today should be encouraged?
Should the government be guaranteeing purchase price plus 15 - 20% equity to all homeowners?
I have such a property bought two years ago, we can probably ride out another 5% fall max before not being able to afford to move if we wished to.
Our mortgage of £100k is 2.5 x my salary or 2 x the household income, not an unreasonable multiple. Unfortunately having to pay back the investment made in my education and the general cost of living, including the modern robbery that is a wedding, has prevented us from building up a 'buffer' in those two years.
Its situations like this which (in my mind anyway) will hold back any housing recovery. Can anyone tell me otherwise?
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Post105 - some reckless borrower who needs to offload a load of properties so is talking up the market.
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we have to welcome any help given to families to keep their homes . but what pazzled me is any one knows that housing market is falling so i wonder if this drop in the ocean form GB just another way of helping the banks from holding negative equities hoping that the housing market will bounce back soon .
.
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77 and 73
Great idea, was thinking of doing the same myself (emigrating). It will be interesting to know over time the impact of these measures on house prices. I am earning above average income and have still not got on the housing market as I refused to lie about my wage and buy into the +100% mortgage. I have instead saved meticulously in the hope prices will return to acceptable levels. I don’t want to be punished 2 to 3 years down the line by coughing up my hard earned cash to save market abusers and thoughtless risk takers. In my opinion the measures Gordon has introduced will reduce the impact on the economy by some amount only to introduce a new problem as soon as we get out of this one.
Just roll in the punches one after the other.....
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#105#114
With crude oil down 6.5% today, interest rates down tomorrow, Vat down last week property down for 12 months, there never will be a better time to buy property.
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What's this 'negative equity through no fault of their own' business? Proof if it were needed that abdication of responsibility has reached epidemic proportions.
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What about the equity risk the (I presume) banks are running?
If property values fall a further 20% in the next two years the banks may not suffer a loss on the unpaid interest but still potentially lose a lot more when repossessing an asset that is deep in negative equity?
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Re 113 - Omega_Cassandra
Bailing renters won't prop up the housing market so I think you've got two hopes and one of them is Bob (the other being no).
This is a vote grabbing stunt. However, we must all remember how we got here, and it wasn't all the American's fault.
The Brown bounce is perhaps the worst that can come of it all.
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Every one of you here complaining about how the feckless and irresponsible are being bailed out by the prudent and thrifty have missed the point. You are in a minority of the population as a whole, you should have joined in the gambling free for all while it was going on because when the day of reckoning came it was obvious that the government would have no choice but to bail them out.
The worst position now to be in when you retire is to have a modest nest egg, carefully accumulated over a lifetime of self denial and restraint. The value of your savings will have been severely diminished by the effects of inflation over the years, but worse, you will not be entitled to any benefits or social support until you have made yourself destitute like the vast majority of people who make no provision whatsoever for ther retirement.
You have to understand that all of this is about politics, not economics and been cynical enough to take advantage of it. I am really not being ironic here, what I have described is just the reality of modern life in this country.
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I'm amazed. The government has thrown Billions and Billions at Investment banks and High Street Banks and now propose to give a few taxpayers some of their own money back and suddenly all this vitriol.
I don't think the government has any choice. Borrowing to throw money at those who have over borrowed may be crazy but they have probably realised that everything else they could do would be far worse. They HAVE to get people borrowing and spending again because they have no alternative.
All of those castigating the feckless, the price we pay for having a society where no one is allowed to starve (unless old) is that there will be some who seem to take advantage. All of you complaining about paying 45% tax - do you actually pay it, think of us poor sods on PAYE.
Finally, to those talking of leaving the country all I can say is STOP TALKING AND GET ON WITH IT. We need to reduce the population.
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After (somewhat ironically) royally buggering everything up to do with the economy and social values, this will be the least he should have done (if it works). 10 years in the making this has been, and he hasn't just sat and watched; as he is so fond of mocking the Tories for; no, he MADE it happen, it is a by product of government profligacy and ineptitude.
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This scheme is clearly bonkers - the most hopeful reading is that it is more hype and spin and that its proponents have no intention of doing anything to give it meaningful effect.
#3 Oh Yeah, how are people going to be more mobile and more flexible? Negative equity prevents a voluntary sale and this scheme prevents an involuntary sale. If you make both voluntary and involuntary movement impossible then you get no movement at all.
#6 On what rational basis can you imply that house prices in 2007 were at "normal levels" Oh wait you don´t need to think rationally because all the rational people are being dragooned into bailing out your fantasy economics.
#38 Repo´s do not create a false bottom to the market, they are the transparent mechanism in the property market to verify that the real bottom has been reached. Also there is no possible chance that the UK can exit a recession of this magnitude based on the reinflation of a property asset price bubble.
#45 & 70 With a monicker like houseflogger no doubt you equally vociferous in your exhortations to "smooth out the curve" when it was sharply up as opposed to down.
If you think that house prices at 4 times joint incomes is not histroically high then maybe you also think that Elvis is alive.
#67 You are wrong. This proposal does not support the vulnerable, it increases the length and depth of their vulnerability.
There is merit in the argument that the law on repossessions is is blunt and angled in favour of the banks - but this could have been dealt with at any time in the past 11 years by fairly non controversial amendments to primary legislation.
#82 What arrant rubbish you write. Owning anything is only a good idea if you can afford to own it and can afford to care for it. Persuading (or in the case of Thatcher, bribing) people to own things that they cannot afford is a moral fraud with effects that are little different to slavery.
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Also meant to say that I hope that after taking the emergency measures the idiots in government will try to sort out the real problems, if they just think that more borrowing is the long term solution then I agree that they are just brewing a worse problem in a couple of years
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I think this is another rediculous policy. As a mechanic I was taught that when you drop a tool your first reflex is to try and catch it. But in doing so, you could seriously damage yourself. Just let it drop.
My point... all this interfering will cause greater damage. This will spread the problem over many years. When other countries pull out of the recession we'll be still in it. Great!
AND, SORRY FOR STATING THE OBVIOUS, BUT THE GVMT HAS EFFECTIVELY MADE REDUNDANCIES GUILT FREE FOR EMPLOYERS!
3m unemployed, you say? Try 5m not in 2010 but 2012. Have to start a war or something to put people in jobs. I hope you all sleep well at night. Sheep.
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Err... if the slump is really bad they may never get jobs and 2 years down the line everybody will have lost out - they'll be bankrupt and/or in emergency housing, the government will have footed the bill and the banks will have a house with a whole 2 years of depreciated value to boot. It will also keep houses off the market and keep prices artificially high. The combined effects 2 years down the line could be dreadful - but hey that's after the election!
Another thing on banks - aren't we getting close to the big bank charging repayment decision? Remember how those poor and needy folk at HBOS et al charged £50 for a letter etc when we went twelve pence overdrawn? - well I distinctly remember that the government was on the poor public's side then but what about now?
Assuming the banks are found against they will owe c. £12-15 billion back to us which will make...lending harder and suck up all our tax money given to them.
Or we - the poor consumer - will be out of pocket (to the tune of well - about the same amount of money that Chancellor Captain Darling has given us (well... borrowed to give us so that we can pay more back later) in his glorious PBR.
I honestly think a tame gibbon and pet Labrador could have made a better fist of running the banks and treasury over the past, say, 30 years.
Dear Mr Peston if you get this far down these ramblings please could you look into the bank overcharging/repayment business 'cos I am working on memory.
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"I've become a bit wary of the Government's claim that the eight biggest banks have backed the mortgage-guarantee scheme, having spoken to a couple of them.
They're not prepared to attack it in public. But they're not sure it will have much of an impact, unless they are strong-armed into keeping the genuinely feckless in their homes - which the banks feel would be a bad thing."
I appreciate that you are a business reporter, not a political one, but what would be your reaction to the government claiming something that proved to be blatently untrue, such as the support of the 8 banks? Not merely your reaction to the specifics of this incident, but whether you think, in general, that government deceit is just part and parcel of politics. Or whether you think that government announcements should basically be expected to be honest.
Thank you.
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By now it should be abundantly clear that the government and its chattering class acolytes have no vision at all as to what the future shape of the economy will be and simply hanker for a return to the past of fantasy economics however dysfunctional that might have been. If something so ill thought out as this scheme ever takes off then the consequences will dig the hole we are in ever deeper. Where is proper leadership to come from? the cast of characters that present as the current choices seem woefully inadequate.
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* how big is the fee the bank adds on to the mortgage for this to be paid for at a later date?
* are the banks going to make extra interest on the deferred interest which is guaranteed by the taxpayer? if so, how much? at what percentage?
doesnt the government think its dangerous for interest to become due again after two years, around the same time as taxation increases to pay for the £20 billion "giveaway" we have just seen?
we know the "giveaway" actually recovers £10 billion more than we were given from the treasury!
Gordon brown and his government does not appear to know what they are doing, in two years or so, this country will be in an even worse state than we are now.... a fact that 6 months ago, i didnt think was possible!
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Isn't it about time the BBC announced some redundancies ... hint!
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I fear the help for mortgage holders will not quite be the easy ride some allude to.
Little phrases like "those suffering a temporary loss of income" etc will most likely be used to exclude many from the help they thought was just around the corner.
As is normal with such statements from GB best check the details and fine print before booking a holiday on the money saved from not paying the mortgage for a couple of months.
Better still, keep paying your own mortgage, then I wont have to help fund it as well as funding the banks, I running a bit short of ready cash these days.
The CAB could give GB some sound advice on managing debt, he ought to call them in.
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What do those who complain about this package want? More repossessions and people thrown into the Public Housing log-jam? The real culprits are not Government Ministers trying to alleviate the social problems caused by this crisis, The real culprits are those who through their excessive greed have caused the crisis. So, don't complain about the feckless, complain about the idiots who lent to them.
For me, the proposals don't go far enough. Even if we reduce repossessions by 9,000, what about the 69,000 homes that WILL be repossessed and the impact on the families involved.
I wish more could be done but with the high volume of Government debt, we can't really do any more. Privatise the banks anyone?
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Like the idea. 2 years will at least give the Slightly-Stretched time to realize they are living beyond their means and sell their house at a price higher than it would be if the banks repossessed and fire-sold at auction. Not to mention the saving of cost and distraction to the banks, and the saving of cost and distraction to the owners, who can get on with looking for new jobs, rather than fighting off banks and bailiffs.
And the chances are it will be a softer landing for the family who will do their penance through harder times, but it won't be catastrophic.
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Um, did Brown miss the collapse of Fannie and Freddie in the US this year?
What he's done here is set up a British Fannie and Freddie.
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27 - Brilliant post.
I think i'll join you, lay back and take tomorrow off as a sicky.
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12#
Pay Option ARM started in the US around 1980 and was very useful because of its flexibility for whom they were designed,the very wealthy.Once unregulated brokers started to flog these to the masses because of the higher commision paid by the banks and due diligence was not a requirement, it was doomed to failure. Wrapping these types of loans with others slightly better then selling them on to investors is now history.
Apart from the amortization part of your post I do not think that can equate the Gov scheme with ARM.In Robert's example the borrowers and the lender appeared to be
diligent when the loan was set-up and they had just fallen on hard times (temporarily we hope).I read that the scheme is to provide a reasonable period for people who are made redundant to get other employment which must reduce the stress factor to some degree.
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So I was a little more prudent and did not join the madness of expecting house prices to rise and rise and rise until a council flat in Enfield was £1Bn as some expected, so now I live in a rented property and have a full time job. I wonder whether the Kinf of Prudence will also subsidise my rent for a couple of years should I also lose my job.
If I had gambled on horse, the banks and property and lost I would be better off than being prudent and saving what little I could.
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124 - This guy is the spawn of Brown's policies... Good job you've done GB!
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Comment 70 : houseflogger
"In fact average house prices are of the order ?160k, or four times an average joint salary household income of 40k....historically this is not a large multiple."
Q1 : Is 40k correct as the average joint salary household income? It seems large. The latest Halifax Price Earnings multiple (4.92 : Aug 08) indicates an average income of 35.5k.
Q2 : So 4 times is not a large multiple. It's true. Again, from Halifax, the average since 1983 has been 3.99. But the median over this time period is 3.64, and the bottom of the trough between the late 80s bubble and this one was 3.09. Halifax October will be approx. 4.75.
Why should we no expect a continued fall at least to the median (23% from October) or to the previous trough (35% from October)?
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'Negative equity' is a contradiction in terms, yet this scheme will produce a huge dollop of just that, sitting in the middle of the economy.
The more accurate term would be 'unpayable debt', would it not?
If the idea is to buy for time while the economy turns around, why not simply lengthen the term of the mortgage, from 15 to 30 years, or even 30 to 50? If things turn around, the homeowner can then accelerate the schedule of payments in order to get themselves out from under the mortgage. If the mortgage is made 'assumable', the homeowner could more easily sell, and get out from under the mortgage.
Let the banks do that, as a transaction between themselves and their customers, and keep the government out of it.
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Passininterest (No. 49)
For your information, Gordon Brown did not study economics at the Enron school, he studied history, during which time he was clearly inspired by the career of his compatriot, John Law, and his Mississippi Scheme.
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I've got labours next election theme tune.
Uh uh, we're in trouble,
Someone's come along
And burst our bubble.
The comments above that speak of UK inflation averaging over 10% pa for years are spot on. Sorry but I can't be bothered to do a layman's explanation of why. Too many factors. Just remember these 2 points:
-Printing money and giving it to the hoplessly indebted is not a Keynesian fiscal stimulus.
-UK Mortgage Backed Securities over 3x income won't sell for a decade.
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So how does this help people who rent?
Once again looking after the people who feel in the trap of interest only or 100% mortgages.
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Having not read the posts before for personal reasons I would like to suggest that this further spin on reality will extend the pain to all rather than the defaulting.
By suspending welfare for the incapable, keeping them in homes at our expense is another way of cooking the books and preventing the inevitable. Once you cant pay a debt/mortgage the chances you can regain ground is minimal.
You can support people until an election, but the true reflection of what is happening is in every ones mirror.
adopt socialist policies now and stick your finger up to the suited and booted benefactors
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84 : MunichMadrid7980
"It's not in anyone's interest ... for the country's GDP to shrink by more than a couple of percent a year."
Isn't it then imbecilic of a government to use one-off pumping that causes GDP to grow to a level that becomes unsustainable? Isn't the inevitable result of this that we get major misinvestment, utterly useless other than in a boomtime bubble, which has to be painfully unpicked and re-directed, before the economy can start moving again?
Maybe imbecilic is the wrong word. Could it be that this catastrophe is exactly what the government was hoping for? Perhaps Machiavellian would be a better adjective to use.
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100 - Glenafon
I have just added up the taxes I've paid - its staggering.
Maybe if taxpayers weren't paying to do up privately owned homes the taxes would have been lower. Or am I being naiive - this Government would probably just squander in other ways eg £20bn on the Trident replacement or talking down the price of Gold before selling it off.
The point I was making is that if someone has £16,000 of cash assets they are not entitled to most benefits but if they have £200,000 or even more of property equity assets they are. Not only that, the taxpayer will pay to improve the value of the property without taking a charge.
I didn't even mention healthcare - its is a totally different issue. Healthcare is fundamental to quality of life; quite literally life and death. In a civilised society everyone deserves good healthcare. That said the money still needs to be spent wisely. Doubling Gp's salaries hasn't improved the Health Service - another example of this government's incompetence.
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I am a higher rate tax-payer in rented acommodation, and I resent my taxes being used to support people who made rash property 'investments' and who would have kept 100% of the profits had their gamble been successful. The proposed bail out prolongs the housing bubble and attempts to outweigh market forces; it is therefore likely to fail.
However, I am interested to know whether anyone in government is considering similar state support for tenants falling behind with their rent to private or public landlords, through no fault of their own. The emotional stress of eviction from a rented property must be similar to that of a freehold homeowner in the same circumstances, surely.
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Robert, what about the loss the bank makes if, instead of repossessing now and selling in a falling market, recouping 90% of the loan, they repossess and sell in two years' time, getting only 50% of the loan back.
The Government's guarantee of the 30K interest deferred doesn't cover the 40% drop in asset value, 160K with your figures.
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Hey #124 CityGambler.
You are right. Without a pension fund over £250,000 I'm better off on pension credits, living in a council house, watching telly all day with bob hope. And all paid for by taxes on you and your firm.
But it is better to be a man of honour. Because the life of sheep and wolves is boring repetition.
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#54 "Well the answer is, to do nothing now, as the Conservatives propose, may well cost a LOT more. You can't just let people go to the wall. That was the approach in the 1980's. And it costs a LOT to keep 4,000,000 people on the dole..."
Let's hope that it is only 4 million, though I think that is rather a low figure. It is a global recession with the UK much more exposed than in any previous big one - it has to be significantly deeper than the 1990s.
I don't see how this policy affects the number of unemployed anyway?
As you suggest, this government are trying to trade depth of recession for length of recession. This one will have a very long tail indeed.
A non-intervention approach should be nastier, deeper but shorter.
I doubt if either government has seriously costed either scenario in depth to find out which is better for the country long term financially or socially.
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We were already covered for full mortgage interest on mortgages up to £200k for anyone who became unemployed and had no savings. This exists today under income support rules.
As fas as I can tell, GB is proposing to remove this for new unemployment claimants and replace it with a part payment holiday - only part of the interest element will be covered, not all of it.
Why is this good news? And in any case, most of the coming repossessions will be:
(1) buy-to-let properties, not family homes, and hence not covered by these rules
(2) people who thought they could spend 50% of their low income on a mortgage - these people bought because the option of secure long-term rental property was not available
The lack of consultation with the banking system is ridiculous. And that the taxpayer who cannot afford a home is being asked to prop up the private homeowner who has a £400k mortgage but had an income drop from £150k to £0k for a short period - well this is a joke and very far from socialist values.
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I think Mr 'No more boom or bust' needs to heed his own words and focus squarley on the economy. I think this scheme is aimed squarly at massaging the repossession figures prior to the election. We shouldn't really be surprised about this as it follows in the wake of the PBR last week. A lot of the recent policy is aimed at deferring the pain of the recession. I have a feeling that what it will ultimately achieve, is to extend the recession for several years as the economy is dragged down by the grenades that the government is currently planting.
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Why don't the Slightly-Stretcheds swap the £400,000 mortgage for a smaller £200,000 house, downsizing should be in fashion in this economic climate. Would this not save us poor old tax payers from bailing out the feckless middle classes who lived on tick in the good times.
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#120:
"there never will be a better time to buy property."
Don't talk garbage.
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We seem to have a government that is totally financially illiterate. When people take out loans and mortgages, they are expected to pay them back. Before they take out the loan/mortgage, they should consider the risks. Why is this government so obsessed with making the sensible majority bail out the mistakes of the minority?
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"Finally, to those talking of leaving the country all I can say is STOP TALKING AND GET ON WITH IT. We need to reduce the population."
I agree. Get on with it. Leave the greedy boomers and other tax thieves in the UK, their children and grandchildren abroad, alone, with only wave after wave of immigrants to support their retirement.
Let them reap what they have sown with their short-sighted selfishness.
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"142. At 10:40pm on 03 Dec 2008, roman221 wrote:
124 - This guy is the spawn of Brown's policies... Good job you've done GB!"
I wasn't suggesting that what has occurred over the past ten years was desirable, just pointing out that the majority of people in this country really do just live for today and have funded their lifestyles from an ever expanding bubble of debt. This spending has given an illusion of prosperity which means that if the spending stops the illusion is shattered. Therefore, for political reasons the spending must be made to continue, because this is all that most peoples sense of well-being is based on.
Like Philip Green said at the nadir of the crisis a few weeks ago ' Believe me, Christmas will still happen' He was speaking in the context of doom-laden predictions for retail sales in the run up to Christmas. I bet the numbers will be 'surprisingly good' but only surprising to those who don't squander every penny they earn on non - essential fripperies or do not have peer-pressurised kids emotionally blackmailing their parents into giving them everything they want.
To repeat myself, THAT is the reality of modern Britain..
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You are naive, having spoken to the banks you are not sure if they are enthuastic or have signed up to it? This is the same old thing with Brown, the devil is in the detail. Every day we have some labour politician on TV expressing their concern for all of us, posturing about what they are doing for hard pressed families. How dare they behave in this condecening way wthout once taking any responsibility for any of the fall out. This mountain of debt we are all swimming in is ours, the government borrowed like there was no tomorrow, they encouraged borrowing and now we have to borrow more to get out of it. To talk of this as all being all some ill wind form USA is rubbish. We are poorly placed to weather a global situation, as our boat is rotten and leaking and we are in for a tough time, thanks Gordon, for making it worse. at least be honest and accept responsibility. We, the public are the ones that will work to pay it off, not a bunch of isolaed form reality politicians who sit in Westminster and never have to worry about the journey to work on poor transport, hugh bills on our only house with no txpayer to subsidise us with £23,000 for our second home.Oh give us a break and stay off the tv with your great pronouncements.
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Actually with the new changes our systems can not monitor the various classifications to identify what's going on.
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Although it is making big headlines in the newspapers who are hoping their sales will go up because of it as Jeremy Paxman said on Newsnight it seems to have been made up on the back of a ciggie packet or prune packet whichever way you see it.
The banks must be wondering how on earth they're going to make any money in the future with all these government giveaways and interest rates heading towards zero.
Perhaps they should just put the whole Queen and country up for auction to the highest bidder.
They bought the QE2 so how much would Dubai pay for the real thing.
We try to keep a sense of humour.
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Yet another liability for the future. Why not let market forces run it nature course. There is an inherent risk in anything financial. Why must the prudent suffer for those whom have been less than prudent. My comments appear harsh, however where is the rewards for being prudent.
Furthermore, if the BOE cuts rates today, it is the savers whom suffer, as the cuts are immediate, and the effects to the mortgage holder longlasting.
We are now one of the top debtor nations going forward, if this continues we could well be seeking funds from the IMF. This is not good. Need real solutions which there are many and many which this adminstration are missing.
It is the failed policies of this adminstration which has lead the country into the wrong direction. It is time for a change!
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#105, I think not, there is more bad debt to write off throughout the economy. Noting the IMF recent report which seem to be a fair and candid account of UK GDP, we have seen nothing yet. Prices in the housing market has some way yet to go. Assets acrossed the world are being repriced, and the UK housing bubble went on for far too long, and need to return to realistic pricing. Prices say around 2001 levels, adjusted for inflation etc.
I am not stating prices will fall to such levels, however if you look at the USA market, and this comparison is made as our ecomony is very much aligned with the US woes, prices are still falling. Until the US house prices stop falling sentiment around the globe will not change so why should the UK prices stablise?
There is no new money in the system. Plus with interest cuts pending we seem to be going down the same route as before. Flooding the system with liquidity to lead to another boom and bust cycle in the near term. This is not good!
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Who decides whether the Slightley-Stretched's can't pay their £400,000 mortgage? The Bank or the Gov?
Will there be means testing?
Do the Slightley-Stretched's get to stay in their house? If so does the gov retain a percentage stake in it? or is this money lost forever?
Do people who recklessly borrowed and were always going to struggle despite the recession qualify?
Many tax payers can't afford to buy a house, could they apply for a £30,000 bung to help them on the ladder. Or is this just for Voters who might switch?
When can I get my £30,000?
Do I have to threaten to vote Tory?
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To those who wish for a return of Thatcherism, it seems to me that the seeds of the current situation were sown during our last dose of that medecine.
For example, whilst the so-called 'Big Bang' was a necessary revolution in the financial world, it started the process whereby the UK thought it could live on the never-never rather than relying on the dull grind of actually getting to work and making things that the world wanted. We thought we were above getting our hands dirty and were now all service-industry workers. Mrs T was after all, the daughter of a shopkeeper!
As a result, now that the financial bubble of make-believe has burst, all the govt seems able to do is to continue with the great con-trick.
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Mr Brown just loves to pull these rabbits out of the hat without warning. On closer inspection the rabbit turns out to be dead or at least seriously ill but by that point the headlines have been grabbed and the newshounds/public moved on to the next story.
All this does is enable interest payments for struggling borrowers to be delayed until after the next election. After that the borrower has an even steeper hill to climb but the good thing (for labour) is by then the vote is cast...
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Couple of points I would like to add;
Repossessions are driven at the moment by Northern Rock, sub-prime mortgage lenders, and second charge(often sub-prime) mortgage lenders.
They might be happy to have a state guarantee to cover their loan arrears, but given the rates they charge, the outstanding debt will grow much quicker than Pestons calculations allow. And they will repossess the day they can get back their original loan back from the borrower, plus the accrued interest from the state. If they are included in the scheme, their interest rates must be forcibly brought down, as they reflect a risk that no longer exists.
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So the price of voter bribery has come down substantially.
£2.7 billion (10p tax reversal) was required to try and get a couple of thousand voters out at Crewe and Nantwich and now for less than half that £1.0 billion an extra 9,000 may be bought.
I think the salient points have been made:
1) The banks dont like it.
2) All it does is defer interest repayments.
3) This means that the LTV of the mortgage will substantially increase - probably increasing the negative equity on the property - and thus trapping the owners ever more firmly in the quicksand of debt.
4) I assume that the bank will be charging interest on the interest - however that will not be significant.
5) After two years, 6 months (assuming banks won't commence reposession for 6 months after the scheme ends) then in worst case scenario i.e assuming there is still no employment and house prices do not go up.
a) The mortgage on the house has gone up by £15,000
b) The price of the house will be anything up to 30% lower than today - meaning that the bank has lost £135,000 on a repossession or the owner has lost £135,000 by delaying the sale.
Based on this it would be far better for people who are starting to get behind in their payments to sell up AS SOON AS POSSIBLE. That way they may be able to leave the property in good staid .Unfortunately they willl
a) use their hearts rather than their heads as they will feel emotionally attached to their home
b) fall victim to the prior-investment fallacy - having spent so much on the house they will continue to throw good money after bad.
Instead of accepting that they have actually been paying a rental to use the home.
This has all the hallmarks of a Labour 'spin' - a policy announced in the glare of publicity - but of very limited effectiveness.
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With respect to MPPI Insurance.
Trditionally the Government doesn't take the payments from these policies when considering benefits as the income goes straight to the mortgage lendor/ bank and that people who took out insurance against the bad times shouldn't be penalised.
In which case if you keep the policy going you will STILL benefit by having 1 years mortgage payments knocked off the rolled-up amount and/or having an extra year to sort yourself out and find another job.
With respect to the payment of interest only on mortgages - remember that this benefit only occurs if certain (pretty strict) criteria are met e.g. you must be the sole breadwinner in the home and qualify for income support i.e. have minimal savings - not everyone qualifies by a long way!
So don't cancel the policy just yet.
(Declaration of interest - I am an insurance broker that offers MPPI/ PPI/ ASU)
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This scheme is utterly bonkers. By far the best thing for everyone is for the banks to reposess now, waiting another two years means more debt, less value in the collateral, bankruptcy for sure for the mortgage holder, greater difficulty for the banks in recovering the balance of the debt. The only advantage is that its after the election.
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To the estate agents NorthernThatcherite #38 / #114 and SurveyorJohn #105
Your rank ignorance and lack of understanding of these problems beggars belief.
Your wish for a speedy return to the debt bingeing that is going to cause so much misery is one of the main sources of the problem. And it is a disgrace that idiots like estate agents are able to advise relatively financially illiterate home-buyers on their life's biggest purchase.
Or perhaps I am the idiot, and you are the geniuses, who knew this all along and have profited fom it handsomely whilst mugs like me try to behave sensibly.
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what is the possibility that government's plans to allow deferred interest payments on mortgages might lead to a rush from the banks to get the current crop of repossessions through?
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#168 Credit Crunchy
Living within our means was also a major part of Thatcherism!
Unfortunately this Gov & Banks didn't just add water to the 'seeds of the current situation' ........ it re-potted them in a grow bag, put them in a greenhouse and have been feeding them on Baby Bio for 10 years!
Don't be selective please. Manufacturing was dead on its feet in the late 70's. A combination of poor management, foreign competition, a complete lack of any foresight from ALL previous Governments....... and of course the Unions had a finger in the pie
We were becoming a 3rd world country pre Thatcher, looks like the very next Labour Government is taking us there again!
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The laws of unintended consequences tell me that this will result in more hardship for the country, Could it perhaps create an incentive to volunteer to become redundant. Somehow this seems unlikely but what may be on the cards is that house prices will take longer to settle down to affordable prices. That lengthening of the economic gloom might mean even more lost jobs.
Even this does not quite seem right, you see most mortgages in the UK already have this feature and all this really does is transfer insurance costs to the government. What this seems to me is the government going into what was the monocline insurer business. Perhaps the headlines should read Government tries failed and discredited business model in desperate attempt to ramp up house prices again.
For those who are about to loose their jobs and did not get a mortgage with this facility already in, then this has to be good news. Personally I would rather the house price correction is not delayed and the sooner we know where we stand the better. Do we want 10 years of recession?
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Comments 124 and 161 : citygambler
Spot on.
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150 jiltedjohn
Thought you would like to add up what had been taken from you in taxes. It is mindnumbing at this end as well. The principle was established a long time ago (with road tolls) that it is better that taxes are not too obvious. It is very obvious, isolated - in your face - tax takes which cause problems for the collector, eg the poll tax, replaced in part with a rise in VAT. Or fuel duty which for most car owners is 1.5K pa.
There are a large number of illogical measurements on defining wealth, or poverty, with respect to acessing a number of government money sources, including student finance, but most of them appear to be deep seated and based originally on the influence of a wealthy sector when laws where being developed and then carried forward.
I can take your point about healthcare but I do see it as a similar circumstance, a claim against payments made into an pot with an element of insurance central to it. However the issue really is that if you are paying between 43 and 46 pence in the pound you expect something in return, and infact your neighbour would not be looking after their personal interests if they did not seek to claim everything which could be applied for. Your complaint really should be against the statute not your neighbour. However changing statutes is difficult.
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127 armagedion
Time will tell whether the latest mortgage releif proposal helps the vulnerable or not. It is small beer in budgetary terms compared with what has gone on recently. There is effectively no market at present in the housing sector. Therefore anybody dependent on a genuine market is in trouble. Bankrupt stock sales do not define a free market value, all it does is define a market for bankrupt stock. Typically bankrupt stock sells to cash buyers who are not representative of the normal buyer profile.
The problem is the situation is here. There are a great many things which could have been done easily in the last decade, and in particular the last 5 years which would have mitigated the current mess. Warnings were given including the IMF, and ignored.
What are your positive proposals, because your comments on this post, and earlier posts are entirely dismissive.
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This comment was removed because the moderators found it broke the House Rules.
I believe that the VAT reduction and the reduction in the interst rates below 3% is just tinkering by the government. Helping people who have over-extended themselves whether deliberately or through ignorance really only encourages people to take on more credit or default on their current loans.
I am interested to know what the impact of scrapping stamp duty on properties below £400k and reducing the rate above that might have on the economy.
The springboard effect of encouraging people to make a move they were previously considering may be what is needed not 2 1/2% off VAT
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Would posters please note that not all of us have overborrowed and overstretched ourselves yet when the recession hits, it is going to 'clobber' us normal everyday people big time. I borrowed at 2x salary in order to buy a home, not a house. I've not splashed out on wide-screen tvs or flash cars. I live within my means, saving what I can in an ISA and putting any spare cash (which isn't much) towards overpaying the mortgage. Having studied and trained for 7 years to to work in my current profession, I face a real prospect of redundancy with little hope of finding a comparable post. The announcement yesterday was the first glimmer of hope in this increasingly dire situation.
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Isn't there something missing here?
In return for helping out homeowners, the taxpayer should be allocated a percentage share in their house.
If the house is eventually repossessed all the money should go to the bank, but if not the taxpayers should be able to claim their share of the eventual sale price.
This would hopefully make the scheme self funding (assuming that the percentage equity accounted for risk).
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It is truly amazing how many people on here are in a stable job and dont have any mortgage worries.
I do so hope that it stays that way for them.
Repossesion is a very real prospect if you are made redundant etc. and where does it say that people with mortgages had to have inflated their incomes etc, seems like the doom mongers want to tar everybody with the same brush
My advice, dont throw stones in glass houses, bad times can hit us all
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Does the scheme only apply if your mortgage is with one of the eight lenders signed up to the scheme?
If so it would appear unfair that a percentage of the population gets treated differently purely bsed upon the mortgage lender.
Could somebody please confirm the position.
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People seem to be focussing on the cost to the taxpayer here. But this could be a VERY bad idea for the Slightly-Stretched's of this world too.
The missing payments are NOT to be made by the taxpayer. They will be "rolled up" into the mortgage. That could add a really significant amount to the mortgage - in Robert's example £30,000. If they had say £20,000 of equity in their property before taking advantage of the scheme, they could end up with nothing at all (and the taxpayer with a £10,000 bill).
If someone's in trouble with debt, it is not necessarily the best thing to provide an opportunity for them to increase the debt further "to tide them over".
What's more, many of us have true mortgage payment protection insurance that actually pays the repayments for a period if you lose your job. People may well think this government scheme is equivalent to this (which it is not) so there is a danger fewer people will take that insurance.
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#180 There is no mystery here - house prices still have a very long way to fall. They will be much lower in 2 years time than they are today. Therefore if you are going to be repossessed then from a financial perspective it is better that it happens sooner rather than later.
Extending the pain serves to increase the indebtedness of the poor and increase the opportunity value of the rich - more wealth distribution from poor to rich.
There is no way out of which I am aware. The most appropriate historical analogy is with the Great Depression - and that didn´t end well. This time around people are much less self sufficient and have higher expectations of entitlement, and governments are less honest and have access to vastly more destructive weaponary.
...and that is why you can reasonably conclude that I am entirely dismissive.
However I am neither mad nor consumed by ego and would be delighted to be proven wrong.
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I am deeply annoyed by this little plan. Yes, if Rory and Melissa can't afford their mortgage payments, that's tough. But the fact is no-one put a gun to their head and made them take out a 400,000 mortgage. They took a gamble that their good financial situation at the time they took it out would continue, and they lost.
Whatever happened to personal responsibility? Why should I have to pay to sort out the mess they got themselves into?
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As a young person who has been patiently waiting to get on the housing ladder I feel screwed again.
House prices have rised to crazy levels over the last 4 years, far outpacing my ability to get a mortgage. The recent falls are not even close to me getting my first house especially with the increased deposit that banks are asking for now.
This plan attempts to stop the decline in the housing market which contrary to popular belief is beneficial to many young people. On top of this, I am expected to pay for people who couldn't afford the loans they took out in the first place......arghhhhh....
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*sigh*
1 In two years, when house prices have fallen another 10-20%, many people will look at the sums and realise they can't afford to pay a mortgage on a house worth substantially less than their mortgage. They will then default...
2 This won't protect the value of housing- the only thing that will do this is confidence that values will not continue to fall. That's at least 18 months off.
3 This will be abused by sharp operators. I'm sure there are many people (especially those who are in trades and can work cash in hand) who are already considering how this can be fiddled to their advantage.
On the plus side, I sold up at the start of 2007, kept the cash in the bank (despite everyone telling me to get back in) and am looking forward to buying a cheap house. It's just a pity that interest rates are rubbish and inflation is high or I would be laughing.
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So much for people who have paid for insurance to cover their mortgage payments in case they were made redundant - will they get their premiums returned?
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Everyone here is missing the point. That is that this collapse was deliberately engineered by the government... just as it deliberately engineered the destruction of the private pension system.
The Labour Government believes in a two tier society, with the majority of people (the proletariat) dependent on their rulers (the dictatorship of the proletariat).While the majority are impoverished, the rulers live the life of Riley at their expense.
This was the model followed by the Soviet Union, and which was espoused by so many of the current government when they were students. Leopards do not change their spots.
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Anyone giving GKB's latest promotion an ounce of thought will realise that the mortgage payment holiday is just delaying the inevitable at enormous cost to the Country.
The market will have its pound of flesh either on the down side or on the upside, courtesy of the inflation wave backing up as I write.
Any recovery, such as may be, will not be in the form it once was for it cannot be allowed to follow the same path. We all knew what was happening was wrong, we are all paying the price for it and will continue to do so for the next decade.
The conditions that promoted this debacle are unlikely to arise again for a long time, if ever. The implied threat of increased financial regulation will put an end to the get rich quick schemes that blighted the housing market along with quite a few other elaborate accounting schemes and rightly so.
The latter conditions coupled with the enforced equity holdings, currently 20-25%, required of prospective purchasers will prevent the housing market from recovering the dizzying heights recently reached for many years to come.
It takes time to save such deposits and whilst recessionary periods with the potential for high unemployment will no doubt encourage people to hang onto more of their money, the more they do so the greater the recession will become, a black hole so to speak!
Without repossession equalising market forces those currently showing negative equity will remain in that position for an indefinite period, dying a 'death of a thousand cuts' springs to mind.
But a house will remain a home as long as the repayments continue to be paid, well, as long as it is within a couple of years or so!
Continue watching this space for the Baby Boomer Disappearing Endowment Mortgage Saga coming to a street near you, soon!
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This is a good idea of Mr Browns. We have a mortgage with the Bank Of Scotland and whether they would allow us to do this could be a different matter. We could only afford paying them £200 for two months instead of our full payment of £530. We now have an outstanding nearly £1000 even though we have been paying them an extra £50 per month for the past 4 months to clear the arrears. They have never been helpful to us. Quite happy when you are paying full but when problems happen they are not at all helpful. I am an agency worker and at this moment in time work is scarce. We try our best to keep above but it starting to get difficult.
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Defer repossessions to 2011 and increase LTV in a sliding property market? This is an entirely politically motivated sticking plaster to an open wound and is a veiled attempt to postpone the real impact of the wreck of an economy he himself has created. It sounds scarily similar to last month's policy of Present Valuing 2011 and beyond 45% new tax band receipts to fund today's problems. The net result of both is to postpone the current dire economic and social situation for the next government to deal with and will only prolong this agony. Im almost terrified at what next month's Credit Crisis policy statement has in store for us? The IMF, the FSA and generally any economist with a view on the financial markets has long held the belief that Brown's management of the economy allowing our banks to emulate the US dumbed down and hyper-leverage credit model was leading us to financial armageddon. With Blair's foreign policy disaster in Iraq and Brown's destruction of the economy, surely a change of guard is long overdue. The opposition needs a substantial upgrade, but they cant make matters any worse, can they?
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As one of the unfortunate ones who lived through the last propertty crash with a big mortgage and mortgage interest rates that peaked at 17% (yes you read that right!) I am having a hard time understanding why this is needed now. Back then we cut out holidays, unnecessary expenses, and lived frugally for a couple of years. I don't hear too much these days about 'cutting your cloth to fit your means'. If 'rescue' is needed, then why not a shared equity scheme instead of the great British public bailout scheme? I don't want people thrown out on the street, but I do want to see resonsible citizenship and responsible lending. The nanny state can go too far.
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On the whole this is a good idea and remember that if a jobless family is made homeless its the tax payer who picks up the bill. Its unlikely that houses prices will continue to fall at 15% per year although it will probably take a few year for them to start rising but keeping families stable is the whole point of government. and sorry so mr and mrs sensible who save etc but your private pension is worth less than u think so u might need help one day too
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199
You are the only reasonable person on this blog, congratulations!
To all of those young people waiting for property prices to become affordable:
If you only buy somewhere when you have a job which you are sure will last for ever and pay the mortgage whatever happens to interest rates, utility bills etc., then you'll be waiting a long time.
Flat prices will bottom out in mid-late 2009, so do not delay too long. They will have fallen 50% from their peak by then, so no need to be greedy. Until then, save a decent deposit, so we don't have to bail you out as well if it all goes wrong!
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I am sickened by the response of the government to the financial crisis. The government is rewarding those people who have done all the wrong things and is rewarding those who have been prudent. I am also not looking forward to the tax increases which are going to pay for all this mess in the future. Why should I pay more tax for those Losers who decided to take mortgages in excess of what they could afford? Let them have their houses repossessed and rent like many other people who could not afford to get on to the housing ladder but did not take out obscene mortgages. Experience makes fools wiser.
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201,
Just to clarify something; not everyone who could end up in a financial crisis is a "Loser".
I recently took out a mortgage that I CAN afford, providing that either myself or my partner are still in work (a sensible precaution I thought). However, if both of us are made redundant why shouldn't I get some help? Forgive me for being naive but I have paid taxes for a fair few years and have taken very little out of the system.
Oh, and one of the reasons we bought was because we could not afford to rent! We are both qualified professional people, who work extremely hard; to rent a small 2 bed house was costing almost 40% of our salary. We have now bought a small run down bungalow and are devoting all our spare time and energy into making it livable. Our mortgage is significantly less than our rent was; but this has come at the sacrifice of almost all creature conforts. So, please think before you brand everyone in the same way; we have hardly borrowed excessively to live a lavish lifestyle!
I'm not a fan of Mr Brown, but he finally seems to have done one (actually very small) thing to improve the lives of the working person.
Please remember that those that could "benefit" (by not ending up on the street) are those that have paid taxes for years; and will also be paying higher taxes in the future.
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As many have said this scheme is insanity and will throw billions down the drain and create an even bigger problem later. Letting prices fall back to pre-bubble prices is essential. The impact of this has been overstated. A fall helps anyone seeking to move up the housing ladder - the only loosers are the rich people at the top! For the rest of us it is a massive tax cut!
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making the working lower class pay for someone elses inability to pay for thier own mortgage is just plain wrong.
If they are living beyond their means then they should sell up and rent or get a place more within their means not make the working class pay for thier fool hardy over extending of thier finances.
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