Friday, 28 November 2008

Mortgage arrears - the nightmare

This chart should give every banker in Britain nightmares. It tracks mortgage arrears greater than three months at the end of every year since 1995. In the case of 2008, it takes the number at the end of October.

Why is this chart so frightening. It illustrates a simple fact; mortgage arrears right now are not that high. Back in the 1995, almost 400,000 mortgages were in arrears, some 3.7 percent of the total. As of October 2008, only 168,000 are in distress; about 1.4 percent of all mortgages.

Yet, somehow the housing crash so far has wrecked the UK banking system. The RBS, Northern Rock and the Bradford and Bingley have all been nationalized; HBOS was swallowed up by Lloyds, and a string of smaller building societies have disappeared.

There is every reason to think that mortgage arrears will reach the levels seen in the mid-1990s. Can you imagine what a 4 percent mortgage default rate would do to our weakened banking system? Hence, the nightmares, sleepless nights and despair within the banking system. They know what is coming next.

The government better have some deep pockets, because this housing crash is going to be very expensive to clean up.


Gordy said...


Barry said...

Its not the government that has to have the deep pockets Alice. They do not have any money other than what they take from us. The taxpayers are in for a grim time of it over the coming years.

Markbaldy said...

"Miracle" economy eh Gordon...
Couldn't have happened to a nicer bloke - you were the architect of this mess and as for steering the UK through uncharted waters... I don't fuc*ing think so, you couldn't steer a duck to the edge of a bath without bolloxing that up !

Nick von Mises said...

Agreed. Although I assume that by "government" you mean "taxpayer"

Anonymous said...

Hi Alice! I noticed recently that in the US not only house loans have been packaged up and securitised, but personal loans of different types as well.

So: The UK banking system is already wrecked because so much of British savers' money has been lent out, now with little hope of return, to support many of the purchases made in the whole US economy over the last eight years.

UK savers may think they have money in the bank, but they don't. They don't: they only have credits. Their money bought SUV's in California years ago, and is long gone.

If UK savers figure this out and... will all be over. Not even BofE credit will be enough to prevent the ncolvency of the banks coming to full light of day.

Put it in the mattress.

B. in C.

HubMaxMedia said...

Great Article....So you know that in the USA we have the Fed which has nothing to do with the US Government it's actually private and they lend money to our banks and to the government but guess what they have lent out trillions of dollars where do you think the Fed has come up with that money did they earn it? No they simply push a button on computer and make the money appear in any bank they want to credit. It's all just quick printing of paper. They are the ONLY people in the work that can have a deficit. Consumers and people like you and I can never have a deficit since banks don't let us go and spend money without putting the money back in. Only the Fed can do it and why is that? Because they are the biggest bank in the world. SO now handing out money is not an economic solution unless you get other banks and governments to do the same thing. And so Japan, UK, France and Germany have done so to follow the Fed in the USA.