If you haven’t got the cash, now you can’t buy the house

Until a couple of months ago, a high-flying young couple might have borrowed the lot. No longer. The borrower may be able to afford the interest, but the lender won't advance more than 90% of a property's value, which in today's climate will be less than the sale price. For a £600,000 house, that means finding nearly £100,000 to put down. Even an average house will now need a cash deposit of at least £30,000.

This is why Sir James Crosby's Treasury-appointed "emergency review" of the mortgage market is no more than political spin. Property prices are heading south; the buyers may convince themselves they can afford to buy, but if they haven't got cash, they are simply window-shopping.

HSBC's clever offer will help re-mortgagers (who have some equity in their home) to avoid a penalty rate, but will not solve the problem for new buyers. The Halifax, Crosby's old shop, still seems in denial; it's discovered that prices in some areas of the country have fallen by 5%, but never mind: unemployment is low and falling, and there's a shortage of new housing. This Pollyanna-like view smacks of estate agents at their worst, and masks the reality of a market that could fall a long way.

Over the last decade, house prices have far outpaced average earnings. That £600,000 Battersea
house cost the current owners just £210,000 less than 10 years ago. We have convinced ourselves that this is somehow the natural order of things, and that it's just too bad for first-time buyers.

Yet in the end, all residential property has to be bought by the next generation, and if they can't afford today's prices, either they will get paid a lot more (which means inflation) or prices will have to come down until they can.

Just as the bull market lasted 15 years from trough to peak, so the coming bear market is more likely to be slow and painful, rather than short and catastrophic.

It's already clear that the era of 100% mortgages was a bull-market aberration; you don't expect to be lent 100% of the price of a car or a carpet; borrowing the entire price of any asset is possible only when both lender and borrower believe its value can only go up, and whatever today's borrower believes, the banks don't.

Having seen their reserves shredded, they are looking to rebuild them from their mortgage books. They cannot afford to take on potentially bad loans, and are fearful of what they've already got.

Their worry is the jingle of house keys coming through the branch letterboxes from failed borrowers; their nightmare is those borrowers going to the Financial Services Authority and claiming they were mis-sold their mortgages.

As the life insurance companies found a decade ago, the bank's records may fall far short of providing the proof that the borrowers knew what
they were doing.

In another era, would-be homeowners had to build up a balance, and then face a grilling from the manager whose idea of credit scoring was to look you in the eye before committing his building society to advancing the combined balances of five other savers. We thought that era had gone for ever. Now we should not be so sure.

A hard place to put a value on the Rock

If you don't like your job, and want to repay your debt to society, then here's your new career. The legislation to nationalise Northern Rock creates the post of valuer of the failed bank, and the queue to take it is likely to be
short.

If the lucky man (or woman, since the state is an equal opportunity employer) can float the Treasury off the Rock, then a cornucopia of state riches awaits — a gong, an automatic choice for the Chancellor's next task force, Director of the Bank of England, etc etc.

The valuer's job is to fix the compensation to Rock shareholders, and the difference between today's grey market price for the shares and what some holders want is nearly £4, putting £1.5 billion of taxpayers' money on the line — not as a loan, but in a cash handout to the offshore speculators who piled into the stock and got it wrong.

As if that wasn't challenging enough, there's the position of £400 million of Rock preference shares. The legal position seems clear enough: until the prefs have been repaid in full, the ordinary shareholders get nothing.

The Treasury won't say whether this rule — which supports the valuation of every preference share in London — will be followed.

Instead, it's passing the buck to the valuer to deal with as best he can within the framework of the scrambled legislation the Treasury itself drew up.

Legal action over the compensation for the shares is almost guaranteed (and just wait for disclosure of the emails between the "tripartite
authorities" last September as the crisis broke) and another one from the pref holders would compound the misery.

A hapless Treasury spokesman is reduced to
waffling that the prefs will be treated "iaccordance with procedure that would be followed if this company were in administration".

So why on earth didn't they put Northern Rock into administration in the first place and avoid all the grief that's sure to come?

Jatropha spells deep doo-doo for D1 Oils

It's a tough job saving the planet, as shareholders in little D1 Oils are finding. Just 16 months after tapping them for £49 million, it's
raising another £15 million in a rescue rights issue. D1 has staked its future on jatropha curcas, a tropical tree which grows on poor
ground and produces nuts from which diesel fuel can be squeezed.

Unfortunately, the company's financial nuts are already being squeezed, and last year's loss
almost equals the previous rights issue. Its founder and chairman has quit, after stating that he might increase his stake, or decrease it, or even make an offer for the business. It's all pretty eye-watering for the new finance director who started in September.

This week's excitement saw the shares jump to 58p before subsiding to 36p after the rescue was announced. It's a far cry from the glorious days of 2005, when the shares topped £4, but there was a hint in the Stock Exchange ticker symbol for the stock: DOO.

Putting more fibre into BT

Ben Verwaayen and Sir Christopher Bland were a vast improvement on the pair of clowns that preceded them at the top of BT.

It seems incredible now that Sir Iain Vallance could step up to the chair after a decade as chief executive and that Sir Peter Bonfield
survived from 1996 to 2002 as his successor. Read the 1997 annual report and weep.

Since then, Bland's drastic surgery (a massive rights issue, cut dividend and mobile spin-off) and Verwaayen's drive transformed the business, but the future looks as tough as ever.

Analysts doubt whether the billions being sunk into cabling Britain with fibre can ever be
recouped, but without it, BT is doomed to decline. If new CEO Ian Livingston can make it pay, he'll have earned his knighthood.