The FT has reported:
HBOS is to consider disposals or winding down businesses as it gave a gloomy assessment of the UK economy, predicting house prices would fall by 15-20 per cent over the next two years.
So, it's having a sordid time. I accurately predicted that almost a year ago. But it's just raised £4 billion to see it through (it hopes).
What the report does not note is the impact of this on HBOS customers, many of whom were induced by HBOS to assume more debt than they could afford. They haven't got £4 billion to see them through. And a 20% fall in house prices is going to leave a great many in both negative equity and unable to afford the mortgage. All the FT says is:
About a third of HBOS's mortgage customers own less than 20 per cent of equity in their homes, so would be in negative equity if prices fall by that amount.
That's not enough. Banks need to suffer their pain too. The government needs to make them bear it.
Letting banks sell mortgage books at a discount is not the way out: ensuring these banks provide continuing support to those they helped get into debt is. That's why I think we're overdue for a plan of the sort I published earlier this week.
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Richard,
Shock/horror, complete agreement with your post. I would add one addendum:
Let those individuals who willingly signed on the dotted line suffer the pain as well. They willingly chose to agree with the mortgage terms offered by HBOS. Perhaps a learning experience for them as well is in order (albeit not pleasant).
It takes two to tango.
Georges
Perhaps you’re unfamiliar with the concept of asymmetrical information? It exists in this market. Therefore pain should be born assymettrically as well.
Until it is the banks will dance us all into financial oblivion.
Richard
Richard,
Only if the individual willingly signs up to the terms. Hard cheese for HBOS, hard cheese for those individuals who willingly chose to enter into an agreement with them. Let the market sort them out.
“Asymmetrical information”, are you claiming that HBOS knew the crunch (credit and housing) was coming and willingly set themselves up to be skewered?
Georges
I presume you are being obtuse for the sake of it: I am saying HBOS had asymmetrical advantage in the relationship, and used it to induce customers to sign contracts which they may well have been unable to afford. The market was as a result inherently unjust, and that is why HBOS should suffer a greater loss.
Your assumption that mortgage account holders were in possession of equal information and so must suffer is plain straightforwardly naive.
As for your ‘hard cheese’: it is typical of the callous indifference that shows why the Right can never be trusted with the well being of people.
Richard
Richard,
Of course HBOS has more knowledge just by sheer experience, they do mortgages everyday – the individual does a mortgage very rarely. One can make the argument that every business transaction is asym.
It is therefore up to the individual to close the gap in knowledge as much as possible before they willingly sign up to an agreement with HBOS or any other company/individual. The burden of knowledge falls on both sides of the contract.
The well being of people is of course important. However, those individuals in this particular case made a willing choice and should learn from the experience. Experience is a very good teacher.
Would there ever be a point, Richard, where you accept that some people are the architects of their own misfortune?
The fact that someone takes out a 6-7x salary mortgage has nothing to do with asymmetric information and everything to do with sheer bloody stupidity.
And I don’t think the problem of asymmetric information is particularly pronounced – consumers nowadays have a HUGE array of data available at their fingertips through websites and suchlike.
Georges
Candidly your attitude is one of knowing callous indifference: it marks an attitude of willing exploitation. You may be happy with that. I am suggesting that banks were too. But society needs protection from those willing to exploit in this way.
And I believe that the odds should be changed: right now it is too easy for those who exploit to get away with it. I am quite candid about my desire to make them pay.
I also, and quite clearly unlike you, have concern for people who will suffer in this situation. Perhaps you have never known anyone who has been made homeless?
And I wholeheartedly disagree that people made a willing choice: it was reckless bank lending that forced up prices; it was reckless bank advertising that induced people to take mortgages. And people had no choice but participate when this is pretty much the only housing option available to many families in the UK.
This correspondence with you is closed: I find your attitude to repugnant to allow further postings from you on this subject.
Richard
Peter
Of course I accept people can be architects of their own misfortune. Your argument in absurdum by extrapolation is just that: absurd.
But the point was people weren’t stupid: they were assured they could repay such loans by people who knew the facts, were regulated and they trusted to advise them. That’s HBOS in this case.
So HBOS could and should pay: they are culpable.
But you will note that in my model the mortgage account holder also loses.
Richard
It’s a great pity that the govt didn’t take the opportunity when it was available to impose a windfall tax on the banks who have been one of the main beneficiaries of house/land price inflation. The banks in effect have been receiving rent whilst the speculators have partaken of the capital gains.