25 Apr

Frisk the thrifty, punish the prudent

I’d really like a £180K sports car but I couldn’t attempt the monthly repayments, so I shall have to cut my cloth. Perhaps I’ll buy a cheap second had motor, or maybe just hire a vehicle when I feel like going on  a trip. Imagine the following scenario… A bloke on £22K pa gets ideas above his station and signs up to buy that  Lamborghini. He pays the first instalment but then defaults permanently. Should we expect the dealer to say, “No probs – I’ll just reduce the monthly payments to next-to-nothing. Keep the smart motor, mate!”

Well, of course not.

But this is effectually what has happened in the mortgage market. In 2008 it became clear that mortgage lenders were being irresponsible on an industrial scale, lending purchasers as much as eight to ten times their annual salary. Result: house price crash as part of the general economic slump. What to do about this emergency? The government did something similar to the crazy Lamborghini salesman and reduced interest rates to next to nothing so that irresponsible borrowers could afford their recently-acquired houses.

This had a catastrophic effect on the income and long term financial prospects of savers, especially pensioners and others on low incomes. Thus the profligate were rewarded at the expense of the prudent.

Today we learn that the Financial Conduct Authority is to make new rules concerning mortgage applications and lenders will have to take into more realistic account the income and outgoings of prospective borrowers. Naturally, this has been greeted with squeals of outrage. But irresponsible borrowers don’t need to worry: the scheme will prove unworkable as lenders will find a way to continue lending – because, in most cases, it is in their interests to do so.

So injustice is institutionalised and excessive usuriousness celebrated. I call to mind some words of C.H. Sisson:

“What Ezra Pound exposed in The Cantos is the monstrous aberration of a world in which reality is distorted, down to a degree never so comprehensively indicated before, by the pull of a fictitious money. It is a noble subject and may be the only possible one for a long poem in our age.”