This is irresistible from Martin Wolf, this morning, writing on Help to Buy:
A deregulated and dynamic housing supply could spell financial and political Armageddon. The victims of this vile system are the young and upwardly mobile, who are either unable to buy at all or are trapped in a lifetime of debt serfdom. The political genius of the scheme is that it appears to help these hapless victims, while in fact helping the usual suspects: banks, homeowners, Nimbys and, if it creates another housing boom, the government.
Ministers also pretends the guarantees are a purely temporary arrangement. Nothing is less likely: it is the temporary that endures. The government has increased its commitment to frighteningly expensive housing. It is a trap from which the UK may not now escape.
It's worth noting what mortgage actually means in all this. My Oxford dictionary says
ORIGIN late Middle English : from Old French, literally ‘dead pledge,' from mort (from Latin mortuus ‘dead' ) + gage ‘pledge.'
Another version I am aware of interprets that defintion as 'the grip of death'.
Melodramatic? Martin Wolf clearly does not think so. And I agree.
This is the wrong reform at the wrong time from which there is no political exit which continues to guarantee servitude to may for the benefit of the few.
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In this country, the way the property market works is that prices rise to a level which is as much as can possibly be afforded. Help to buy only enables the prices to rise further as a higher price can be paid.
It is hard to believe that this is the same party that terminated MIRAS, rightly in my view, even though I was a (short term) loser thereby.
The only way to control prices is to increase supply of housing.
Let’s also be clear that rising prices are bad for teants as well. The landlords have higher costs and borrowing costs and inevitably raise rents to meet those costs.
“The landlords have higher costs and borrowing costs and inevitably raise rents to meet those costs ”
Not if you bought the property before a particular bubble -in that case you make money for doing nothing! A fairer system would be that a landlord cannot charge a rent higher than at the time of purchase + inflation -that would kick the ‘rentier’ mentality into touch and still be a minimal hedge without being a windfall machine.
“Not if you bought the property before a particular bubble ”
Agreed, your mortgage stays at the same level as when you bought the property (assuming you don’t pay off capital which is the typical buy to let scenario).
The thing that affects a landlord’s outgoings most is interest rates – i.e. the interest they pay on their mortgage.
So good times all round at teh moment for landlord’s who bought before the last property bubble.
No, the best way to immediately control prices is to tax land values. Two thirds of the average house price is land value. This would increase supply at the same time because no one would just sit on developable land.
From what I understand, it wouldn’t be a bad thing were we to cease being taxed to provide funding for grants and subsidies to landowners as a step in the right direction. At the moment we have a situation which is the reverse of what’s needed for the majority good.
Isn’t there a book about this called ‘The Death Pledge’? Surely, it now beggars belief that people can be still falling for the ‘housing as asset’ nonsense, more like ‘housing as millstone’. people still use the ‘housing ladder’ cliche as if it still had meaning. If it is a ‘ladder’ at all it is one that descends down a manhole and leads to the sewers of debt and debt slavery. But the good burghers of this country must have their bricks and mortar even if it means garroting themselves in the process!
Simon, I think the book you are thinking of is Michael Robotham’s “The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics”
See http://www.amazon.co.uk/The-Grip-Death-Destructive-Economics/dp/1897766408, but try to get your local book store to order it up for you.
It’s on my LONG list of books to read.
Grip of Death by Michael Rowbotham. Written in the 1990s.
You might be thinking of ‘Grip of Death’ by Michael Rowbotham but, checking, I see there’s this
Author is Jeff Rundles
Title is Death pledge.(RUNDLES WRAP-UP)(analyses on mortgage loans)(Column): An article from: ColoradoBiz
Book is written in English
and this
Author is Roberts N.
Title is Pledge of death / Klyatva smerti
Book is written in English
I don’t know the subject matter.
Perhaps it’s timely to re-examine the mortgage itself. On receipt of a promissory note a bank will issue credit, credit it doesn’t have, I remind everyone, on the basis that over the passage of time it will be gifted not only this original sum but multiples of it from the holder of the promissory note already mentioned. I say gifted as opposed to paid back here because, remember, this is money the banks never had in the first place. This process, then, is no mkore than wealth extraction writ large. It’s an enormous, malevolent, utterly antisocial scam and needs to be replaced by a system where wholly unnecessary burdens aren’t placed unfairly on potential homeowners. We’ve grown up with thus scam in place and we’re encouraged to think of it as normal. In fact, it’s anything but.
Bill, may I add the final twist in the tale. The banks then package these mortgages collectively and sell them off as mortgage backed securities. These may be bought by pension funds, looking for an income stream, so in retirement we may be caught again because the pension funds have bought flawed securities.
Grip Of Death by Michael Rowbotham. Essential reading in my view. Although written in the 90’s it is relevant now more than ever to help explain the crisis and futility of trying to pay down government debt through austerity. It exposes the shambles and destructive nature of the debt based finance system in which we live.
I read it when it came out and it was something of a lightbulb moment. Since then I only take seriously those economists who take its points seriously; the destructive role of debt, the social utility of credit. Maybe not the last word on our plight, but an excellent first one.
Read Web of Debt or The Money Bomb Yet? Off you go then… enjoy!
http://oxforddictionaries.com/definition/english/mortgage?q=mortgage
noun
a legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt:I put down a hundred thousand in cash and took out a mortgage for the rest
–
the amount of money borrowed in a mortgage:a £60,000 mortgage
–
a deed effecting a mortgage
Your comments are from mortgageable
Do you always look in the wrong place for answers?
I like the comment on that article about the impact of the Abolition of Schedule A taxation on the property market.
Perhaps something for you to look at.
You have another prestigious fan. Steve Keen has retweeted this blog.
Apparently there is already the prospect of over a quarter of a million on interest only mortgages that won’t be able to pay the capital as mephistopheles knocks on the door in 2020 -the madness gets worse!
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10036240/Interest-only-mortgage-problem-The-solutions-explained.html
But from Oxford online dictionary it goes on to say the following which suggests it is to do with the death of the pledge itself should the mortgagee not pay his debt, so “the land pledged …is taken from him for ever, and so dead to him upon condition” :
“Word History: The great jurist Sir Edward Coke, who lived from 1552 to 1634, has explained why the term mortgage comes from the Old French words mort, “dead,” and gage, “pledge.” It seemed to him that it had to do with the doubtfulness of whether or not the mortgagor will pay the debt. If the mortgagor does not, then the land pledged to the mortgagee as security for the debt “is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the [mortgagee].” This etymology, as understood by 17th-century attorneys, of the Old French term morgage, which we adopted, may well be correct. The term has been in English much longer than the 17th century, being first recorded in Middle English with the form morgage and the figurative sense “pledge” in a work written before 1393. “
Apart from precious metals and stones such as diamonds, that go up in value because they are rare, housing (which is being left intentionally rare) is the only purchase that goes up in value as it ages. All other purchases (cars and consumer goods) all depreciate in value as they get older.
If housing was left to genuine market forces, they would lose money and depreciate with age as most other purchases do, but housing is not subject to normal market forces, it is intentionally blown up with easy credit to give the banks and financiers massive profits!
Many artificial booms have been created by artificially inflating house prices and, in almost every case, it has eventually led to the collapse of the economy.
Housing should be left to find its own price and new council houses should be built for rent. As there are around 5 million on waiting lists to be housed, building council houses will help create many jobs, boosting the economy!
It is time neo-liberal economics was consigned to the dustbin of history where it belongs!
House prices do not go up as they age. They require maintenance and enhancement to retain their value. It’s simply the land price which increases, because that does not wear out and is in fixed supply.
Correct Carol
Not sure I completely agree with that. Banks give mortgages and sell them onto investment banks, who turn them into derivatives. The mortgage is based on the price of the house. Second hand cars have to be kept in good condition to fetch a good price, but apart from one’s that are collector’s items, they depreciate and have to be sold at a lower price. Due to the money pumped into housing, house prices rise whatever their age. Yes, a standard of maintenance has to be maintained, but this should not stop depreciation.
I say again, house prices are artificially inflated. The mortgage is based on the price of the house, not the land.
According to the RCIS, the price of the average home is 63% land value. When prices rise ahead of general inflation it’s the land value which is increasing, not the bricks and mortar. You can see that from the stats on actual new building costs.
OK Carol, I’ll take your word for it! Still not sure on this one though. However, would you agree that these land values are artificially inflated by manipulation and easy credit?
Isn’t this kind of housing support one of the seeds of the banking crisis, which led to the packaging of unsustainable loans into CDOs?
Yes it is!
I picked up Michael Rawbotham’s book in an Oxfam shop in Wales on holiday this summer. I’ve been wondering when it would get a mention here. Seems to me to make more sense than a lot of works by more fashionable economists. Good to see others share my view
Error on my part
Carol’s figure of 63% land value will be correct on average, particularly for a 4 bed detached home on freehold land. We have good examples of how developers can change this ratio, though. In high value areas such as Sandbanks, Dorset and Ilsham Marine Drive, Torquay, freehold properties worth over £1 million have been demolished and replaced with perhaps 12 luxury apartments, each valued at over £1 million, but the freehold land area is unchanged. Think also of No. One Hyde Park. Unfortunately, nothing in the financial world is that simple.