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Jonathan Prynn: Banks won't throw good cash after bad
Jonathan Prynn5 Dec 2008
Twenty years ago if you wanted to buy a home you went to a building society armed with at least a 10 per cent deposit and tried to persuade your chosen lender to stump up the money. Three times salary was about the outer limit.
In the Nineties everything changed. Most of the big building societies became banks, the banks that were already banks decided to get into the mortgage game and the now notorious mortgage-backed debt market ballooned from nowhere.
With house prices on the rise and repossessions at an all-time low the banks fell over themselves to shower money on anyone who turned up. No deposit? No problem. We can do 100 per cent for you. Need more than three times salary? Not an issue. We can do seven times. We don't even need to know how much you earn. Let's do a self-cert.
All that has gone, blown away by the chill blast of the recession. In many ways the situation is now far more restricted than it was a generation ago. Borrowers with less than 25 per cent mortgage will find their choice horribly limited. Hardly anyone wants to lend to you and those who do will charge you at least six per cent - three times the base rate.
So what would it take to get back to "normal" lending conditions? Yet more money from the taxpayer on top of the £37billion that has already gone to supporting the shattered balance sheets of the high street banks?
Probably not. Banks that have already written off billions because of bad lending decisions in the past are not about to, as they see it, throw good money after bad.
In a world of falling house prices and rapidly rising unemployment, lending against property when there is only a 10 per cent buffer of equity just does not look attractive without a huge reward in the form of an outrageous interest rate.
It does not matter how much Gordon Brown and Alistair Darling huff and puff, the banks still have a primary legal responsibility to their shareholders.
Only if the Treasury finishes the job it has started and takes the entire high street banking system into public ownership will there be any guarantee that the log-jam can be cleared.
Reader views (1)
A good gambler knows when to walk away from the table!
Unfortunately, this government is the worst gambler ever!
- Geronimo, LONDON MIDDLESEX, 07/12/2008 15:46
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