The credit crunch is not just a banking issue: it’s personal

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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.