Monday, 11 August 2008

Building societies take cash out of the housing market

UK building societies are trying to minimize their exposure to the UK housing market. In June, gross repayments exceeded gross lending. In other words, building societies took more money out than they pumped in.

From the building societies perspective, it is the right thing to do. Anyone trying to buy a house right now would be taking on an asset that will see significant capital loss. Sensible banks don't need stupid and financially naive customers.


sobers said...

Hopefully this is the start of a return to the mortgage system of 25-30 years ago, before the Big Bang loosened everything up. If you wanted a mortgage you signed up with your local building society, saved with them for a few years, thereby a) proving you had stable employment, and b) built up a cash deposit. They then, after much kissing of the managers backside, lent you 2-3 times your salary to buy your house. Which you then lived in. Not rented out as an investment, or tarted up with some emulsion and MDF and tried to flog on to some other unsuspecting idiot for 10-20K more than you bought it for.

If we could return to something approaching this, all the current capital tied up in houses could be put to more productive use in industry. Heaven forbid - actually making something!

aSteve said...

I love that graph!

Anonymous said...

For the first 6 months of 2008 net lending was 3.4 billion and net saving was 6.3 billion:

If Junes stat's continued for the second half of the year then net lending would be -3.5 billion!
A complete turn around as the graph clearly shows.

Some of the increase in savings is no doubt attributed to investors selling off properties and stashing away their money.

The net inflows of cash clearly show the building societies are not short of cash. So it's unclear to me why they are not lending other than due to being over-cautious in a falling housing market.

On the other-hand I wonder how the building societies are actually making any money. Normally lending at a higher rate would fund some of the interest paid to savers. Where will the money come from now. Perhaps some of these building societies will go under since this finance/business model no longer makes sense...