It isn't hard for an economy to grow when homeowners are supplementing their income by 5-8 percent with loans collateralized on rising housing values. However, that scam is over. Property prices are crashing, home equity is evaporating and the banks have turned the tap off.For far too long, the UK depended on home equity loans to sustain consumption. The party is now over. The hangover has just begun.
5 comments:
This is a chart that never fails to shock.
Do nothing but wait six months - then buy a new car backed on your assets.
How could anyone not see this was the road to hell ?
Why didn't anyone see this coming? We were blinded by greed.
Hi Alice,
Nice work once again. I wrote about this very subject in my very first blog post in March of 2007 after warning many of my friends and family about this problem.
The fact is that it was an old problem in disguise and reborn to a new generation of suckers. ERL's (Equity Release Loans) are 'Second Mortgages' rejazzed and given a new name - but are essentially the same product that was blamed for the collapse of the housing market in the late 1980's.
Its this part of the market that will really suffer from this crash. They may get help with their mortgages from banks and governments, but loans are loans and get no help no matter how big they are. This means repossessions are faster and will collapse the main mortgage with them just as in the late 1980's.
Something I wouldn't normally reveal is that I quit a job in 2003 with a big bank because they wanted me to run a free ERL check for every customer on the phone, so the customer knew how much was on offer and to see if I could get them to apply.
That wasn't my job and I was appalled that after the Second Mortgage fiasco we where headed to the same disaster again. I refused and left a 3 days later knowing that this would be part of a larger disaster.
The pain for this trapped group will really demonstrate how negative equity can ruin lives.
Jeff: Many people did see it coming. Some saved ( myself), some sold their houses and moved to rental certain the bubble would bust ( I know a guy who did this twice in his career). Some got fired for telling the CEO of their bank it was going to happen.
Then there are the ones who didn't care, so long as they got their bonus or their tax revenue. Those ones may even have been criminally negligent.
But hey. Its Britain. The savers will be punished. The feckless will be bailed out. The idiots who played fast and loose went to the same school as the tax collectors. So they won't go to jail.
Life will go on, and the middle class will learn ( we hope) the bitter pain of thinking they can vote Labour into power without it hurting them. Some good perhaps.
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