The existence of the 50-year mortgage shows lenders are desperate(newstatesman.com) |
The existence of the 50-year mortgage shows lenders are desperate(newstatesman.com) |
But let's think instead of who a 50-year mortgage is bad for: someone who can't quite currently afford a house. Who is a 50-year mortgage good for (bearing in mind this is a UK thing): anyone in the business of lending.
It's a done deal that these will become a commonly done way to buy a house.
Edit: at current interest rates this advice makes less sense, but even so, it could pay in some situations. For example maybe your mortgage is 4.5% but your student loans are 7.5%. Take the mortgage and pay down those loans. Obviously too much debt is bad, but not all debt.
Well because the bank never had the money they lent you. Central banks let retail banks invent money for the loans[0]. Then incentives then to meet some thresholds on "affordability tests". If they do that loan doesn't use up as much liquidity as it's face value.
The net effect? You pay your bank interest on money that cost (used bank resources) less that the face value.
[0] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Nobody says you have to make the minimum payment every month and you’re buying with today’s dollars, err…pounds, but paying with future less valuable money. Pay a little extra in the good times but have a lower minimum payment for when money gets a little tight.
Also, why are governments not creating sensible upper limits on lending and interest rates? For instance, if I can afford to purchase the raw materials and build a house myself in 10 years with my own two hands, assuming I'm not working a job, then why is a bank allowed to extend interest over 5 times that timespan and make me pay e.g. 1000% of the raw materials price in profit to them? They are preying on peoples' basic need to have a roof over their head.
If you can afford to pay the current owner, you don't need a loan. I don't see why the bank is the villain here, "preying" on basic needs. In your ethical framework, that's the current owner, who refuses to sell you his home at a massive loss so that you won't need a loan.
loans/credit are very useful...
profit is great, as long as there's competition, right?
That's the problem. Housing has been regulatory captured. Abundant housing contruction due to a free market would allow people to live in dwellings at a slim margin above mass construction. Houston is still $270k homes while adding 20k people a year.
If your talking loans, nearly all mortgages are conventional mortgages (or a similar defined breed defined by the feds). When you are loan shopping, your really just shopping for a broker, not a loan provider. That's going to be Sallie Mae or Freddie Mac, who in turn are backed the Federal Reaerves. That's why you'll receive a letter pretty quickly that your loan has been sold to one those two.
Your not even shopping for a loan servicer - as that can be sold and changed almost immediately too, or is already subtracted out to Mr. Cooper or someone else.
There is very little competition since it's all defined by the feds already. It's super regulated.
https://www.bankrate.com/mortgages/10-year-mortgage-rates/?m...
However, what things like housing and medicine have shown us are that wholly free markets aren't very good with things that people place nearly infinite value on. My life saving surgery will cost me 10 million dollars? Okay, where do I sign. That number might as well be a billion dollars as long as you're giving it to me. Housing is not too dissimilar. A thirty year mortgage is already in comical territory, it's already functionally synonymous with "a lifetime."
Both of these examples are some of the farthest things from free markets. Try to build an apartment complex and run a medical service on the ground floor. Them being so far from free markets is the reason they're so expensive.
Back in the day, Japan had 100 year mortgages. It was a sign that something was wrong.
If lenders are desperate to lend money, then that's a huge red flag. The 2008 credit crunch happened because there was too much easy money kicking about. Lenders were desperate to lend, and got involved with wacky lending schemes that went pear-shaped. As one commentator put it about the cause of the crisis: "We shall learn a great deal in the short term, some in the medium term, and almost nothing in the long term".
Roll back a few decades, and banks caught a cold on credit card. The credit card business was profitable, money flowed like water until there was a recession and the whole thing turned into a mess. Bankers assured us that they had learned their lessons and the same thing will never happen again.
The truth is, though, is that nobody learns anything. All the bankers and the regulators that oversee them, who presumably should be experts and savvy in the matter are completely blind-sided. Why didn't anyone inform the governments that risk is building up in the system.
UK mortgages are predominantly variable-rate (at least they were the last time I checked). OK, so the bank lends out a bunch of money. What happens if the interest rate rises? You have to plan for this, as you can't just say that interest rates won't rise. We've had historical low interest rates since about 2009. We're seeing a pick-up in inflation, with central banks seemingly more willing to raise rates. There are also indications that the economy is stagnating. OK, so a stagnating economy together with inflation could trigger higher unemployment, higher interest rates, and thus contraction of consumer spending, and consequently a recession with mortgage defaults. It's not the first time such a thing has happened.
Then that's not really capitalism.
(2) Land value can appreciate while housing prices dramatically fall when the land is able to be better utilized according to (housing) demand.
What isn't a serious argument is you offering no rebuttal except "Please stop." Your quip about externalities is tangential; externalities should be accounted for a properly functioning market. Nowhere did I make a contrary claim.
The money supply "increases" when banks lend because of the double entry accounting system. They give you a loan, you can deposit the money in a bank account, and they have more deposits to loan out. It's literally just lending the same dollar twice, not inventing or creating money. (Well... somewhat less than $2 because of reserve requirements).
That's not inventing money.
Since the same money can be spent by the borrower and the saver separately and go off into circulation separately then it is creating new money.
Fractional reserve banking is not how modern banking works. Banks must maintain a liquidity but otherwise the loans are money they made up, they simply tell the central bank they made a loan.
[0] Every sustainable business sells for more than it pays.
[1] Central banks won't make that money available directly to me.