100% mortgage backed by BOMAD? I’ve seen this movie before – it didn’t end well

Rich kids will get to bid up house prices aided and abetted by BOMAD1 and a Lloyds bank 100% mortgage. BOMAD are on the hook for defaulting rich rugrats in the first three years, then Lloyds bank should be OK with the equity said kids2 have built up in those three years. Let’s hope Brexit doesn’t make the housing market go titsup, eh?

No, actually scratch that. I wish exactly that. I have no sympathy for these featherbedded chillun – let them suck up the negative equity, and let BOMAD be rocked for a chunk of the debt as a useful playing-field levelling action. Bring it on.

Perhaps after that’s happened some other poor devils will get to afford a house, should they be fortunate enough to still have a job in post-Brexitland.

BOMAD-backed mortgages are tough luck for kids who don’t have well-heeled  parents, because, natch, the rich kids will bid up house prices. So we can understand the delightful sentiment behind Frank Field’s letter to the Grauniad which proposes extending the largesse of the 100% mortgage to all those who don’t have access to BOMAD. Bless your egalitarian cotton socks Frank me old mucker, but you happen to be older than I am. So how come in your 76 turns around the sun you haven’t noticed yet that if you subsidise people’s mortgages, what happens? House prices go up. The maths is simple.

Punters have £x they can spend on housing, and in general when you are young an inexperienced as to the vicissitudes of financial life you deploy all of that £x, because everybody around you tells you that you can’t lose with housing. You also don’t tend to have much capital behind you and are in the first part of your working life, so your earnings are limited. You’re running on empty once you’ve committed your £x to the rapacious maw that is UK residential property. There are no reserves. If you’re £x is more than someone else’s you soak it up by having more house or living in one of the more tony districts, or reducing the zone on your London Underground ticket if you are rich enough to buy in the Great Wen.

The market is set by some punters finding their £x just ain’t enough to own where they want to live, so they leave the market for the rapacious BTL rental market, reducing demand of housing to buy. So, Frank, you go and subsidise that buyer’s £x by £y allowing these folk to borrow more than they can actually afford, guess what happens? Prices rise by £y, or if you subsidise mortgages by £y, by the increase they can borrow with that extra £y, which is a lot more. Result misery. This is an area that needs tough love because of the law of unintended consequences.

We’ve been here before. MIRAS, Help to buy3, LISAs. Get the government the hell out of the home loans market and keep it out of it, nail their feet to the floor. That includes you, Frank. Sure, BOMAD ain’t fair and the rich will screw everybody else. See also: private schools, moving to catchment areas, the lot. If you have the money you will always shit on other people’s kids to get yours ahead.

Government – stay out of the home loans biz. Get into the house building biz

The government can do something about housing – build the bloody things as social housing, don’t subsidise the buying of houses. Leave that to the market. Fewer that half of British households can afford to buy a house IMO. It’s a tremendously expensive capital asset that sucks up roughly 6-10 years of your gross earned income4, and in earlier generations before 1979 we catered for these people with something called council housing.

Let’s not over-romanticise that – some council housing was ghastly, I remember playing on some of the elevated walkway council estates as a kid where some friends lived, and they were dire. Council houses were often terrific, though, particularly for families – far more space than the typical four bedroom premium executive detached-in-name-only5 rabbit hutch constructed now.

Typical taste bypass of a modern estate aimed at those with more money than taste, this one in Turkey. Someone’s missing the whole point of a castle, these ones are definitely DINO. A castle should be 10 miles from the nearest one 😉

The government should stay out of the homes loans biz. Totally, other than to regulate charlatans, minimum lending standards, and to deny BTL lending totally IMO. I’ve nothing against private landlords, if they really own their properties. If they are competing for mortgages with homebuyers, well we survived perfectly well without BTL mortgages up to 1994 and nothing about the British housing or rental market has gone in the right direction since then for the poor bastards that have to live in the properties.

If the government wants to do something about housing, then look to the days before Thatcher screwed it all up to buy votes giving away free money to council tenants with Right To Buy. They were council tenants because they weren’t rich enough to buy their homes, and 40% of these houses are now in private BTL hands, shitting on the generations after. Thanks, Thatch.

We could roll this back  – build social housing, which we used to call council housing, and employ the best lawyers in the land to place a perpetual restrictive covenant on council housing so that any politician that even thinks of doing a Thatcher Right to Buy to sell them for votes is threatened with an official summons to be put in the stocks at the Tower of London to be pelted with eggs by everybody that can’t afford to buy a house until they think better of it.

In other news, personal insolvencies reach a seven-year high and household spending is at a 13 year high often fuelled by credit or depleting savings. Just the sort of situation that absolutely calls for 100% mortgages , natch?

  1. That’s Bank of Mum and Dad if you are one of the lowlife oiks that don’t happen to have mater and pater with the odd 10% of your starter house kicking around in loose cash they don’t need for three years. 
  2. In the curmudgeonly Ermine worldview you’re still a kid whatever chronological age you are if you are financially dependent on your parents. Paying your own way in the world was one of the key rites of passage to adulthood in my day. I do appreciate that such non-launched kids like to be called adults nowadays, but this is my narrative, so bite me ;) 
  3. Help to buy was on new houses, FFS. Yer typical first time buyer isn’t rich enough to spaff their money on a new house, you whazzocks. This was straight bung from taxpayers to Dave’s housebuilder chums 
  4. At a purchase multiple of say 5* one salary, and typical mortgage terms at typical multi-decadal British interest rates of ~ 6% means you pay about twice the capital sum over 25 years 
  5. DINO is when there is separation of about two inches from one ‘detached’ house to another. You need a few feet to get away from your neighbour’s bad taste in rap and to keep your squealing grandchildren out of their beauty sleep. 

24 thoughts on “100% mortgage backed by BOMAD? I’ve seen this movie before – it didn’t end well”

  1. Dear Sir, that sounds like socialist talk, which leads to dangerous levels of empathy, a slippery slope to bonds forming between family members, radiating out to friends, neighbours, until communities are formed. You might get a country that was nice to live in, with a lack of brutal inequality and that wasn’t divided or hell-bent on suffocating on it’s own waste. So why are you advocating all this anarchy, what has neoliberalism ever done to you?

    The govt. are so ideologically opposed to people feeling safe with a good chance of basic shelter that they even make it difficult to build your own or otherwise get creative, like allowing, nay, making it easy to put up quality modular, (so as you can afford each step in your life) pre-fab, passiv-type housing. Let alone directly helping people who have no real power.

    Re: 100% mortgages, so what? Are you against the poor being able to borrow themselves senseless thus guaranteeing that they never get off their knees, what could possibly go wrong? My hamster is getting old now and doesn’t need so much space, so wants to downsize to a bedsit in London, so I’m helping Percy Murine fill out the forms from Unicorn (the not-listening) Bank. It’ll be alright on the night, as long as the economy is the best in the world just for the duration of that 50 year mortgage period; now theoretically something could happen to derail his dream, but if it does, we’ll be shocked, shocked I tell you!!! Nobody will have been able to see any greyish swans coming. But, even if it happened, more monopoly money will be printed and we can restart the game with the 0.001% another log scale wealthier. (rinse and repeat)

    Liked by 2 people

  2. I’m completely with you on the issues, Ermine.
    Having said that, the best get-rich-quick financial advice I ever received, which (just my fookin’ luck!) I happened to not take, was given to my young & good looking self by a middle-aged secretary whom I shared with a few other junior managers more than 10 years ago. I was thinking of buying a beachfront apartment in Sydney. She said, with these beachfront properties the best thing you can do is borrow as much as you can and buy the most expensive property you can afford – the price will only increase. I didn’t do it. I put the money in a securitised willow plantation instead, which (eventually) returned most of my capital (little as there was) but didn’t compensate me for countless fookin’ days spent … oh, whatever. Had I bought the flat, I could’ve sold it a few years later and doubled my money in AUD terms, plus the movement in GBP/AUD fx rate over that period would’ve added another 30% or so. A colleague who did buy a flat, in the development that I was considering, now owns a house in London mortgage free. There’s no way he can get negative equity, whereas I have a mortgage, and could, in theory, end up underwater. And he was always such a lazy fucker!


    1. > securitised willow plantation

      My sympathies. That sounds like the sort of thing that sounds a sure fired bet on one’s younger and perhaps less realistic self 😉


  3. When it comes to property, some are born luckier than others.
    Introducing extra props to an already rigged market is no guarantee of solving pronlems without generating new unintended consequences.

    Best for house prices to fall and investment put into productive assets instead.

    Liked by 2 people

  4. They are trying to squeeze the last drops from the stagnating housing market. I live in Nottingham and house prices appear to be falling – there are a large number of “price reduced” on the listings of the usual estate agent websites. There just isn’t the spare money available in many segments of the economy. People are put off from moving due to the high cost of doing so and instead will add features and extend their property wherever possible. Property was seen as a solid investment for a long time – I’m sure we remember so many people stating ” I don’t have a pension – property is my pension …. prices only go up”. Life isn’t fair I’m afraid. I’m one of those terrible people who bought another house because of the school catchment area. I still have my original house and I don’t want to sell it and renting it will most likely be a drain on my time and not worth the financial return so I’ll suck it up and pay the extra council tax to keep it largely empty. If I sold I wouldn’t know where to put the funds. I’m hoping that funds will allow me to gift a property to my son ( he’s presently 4). It won’t be fair such is life.


    1. There do seem to see more extensions and whatnot – in Ipswich I was on an estate of semis and in the last few years there were all sorts of carbuncles added on all over the place. Mind you, I don’t know where they will get the builders from post-Brexit


      1. > “carbuncles added on all over the place”

        Hmm, I’ve observed the same over recent years – the sort of thing that stops you in your tracks and leaves you thinking “how in the hell did THAT ever get planning permission ?!”

        There’s been a bit of a running battle round here for a few years concerning some developer wanting to build (pick a different number each time detailed plans appear) houses in a field just off a narrow lane. What I don’t get is that this is STILL being considered despite the fact that the main route to the proposed site is a very narrow lane (effectively one-way/single track for a chunk of it – 100 years ago it was a track that only served a couple of farmhouses and the odd cottage). The layout of existing property in the area prevents another way in and widening the existing lane, there’s no shops/amenities close by and no bus service of note, yet still this is being put forward as some sort of flagship development – it’s crazy, and I’ll bet it’s being repeated all over the country in similar, tightly packed old village locations where the major route into it is simply not up to the likely increased traffic. There’s clearly better places to be doing this sort of thing, where the infrastructure’s more expandable, but no, we have to persist with this madness. I thought current authoritative thinking was to build close to larger built up areas because it’s close to existing facilities and they are equally well served/accessed by public transport, cycling or within easy walking distance. I thought councils/planners/etc were being prodded to get away from building things out in the sticks ?

        As to your footnote 5 (re DINOs): oh brother, I’ve seen some absolute classics not a million miles from me. There’s a a row of “detached” family homes in town where I swear they’re detached by about a foot or so at best ! I’m left thinking “Ok, so the builders (somehow) managed to actually build the walls new, fine, but, er, how exactly do you get in to rake out and re-point any eroded mortar should either wall need it in the coming years/decades ?! Barking !” Cue picture of Glenbogle – probably taking things a little far in the opposite direction (in both senses :-)) …

        Liked by 1 person

      2. > how exactly do you get in to rake out and re-point any eroded mortar should either wall need it in the coming years/decades

        I’m intrigued how they built those in the first place. By observation they seem to build the outer skin from the outside. Unless it’s prefab, I suppose. having said that I’m sure on some developments in Ipswich the spacing was of the order of inches. What happens if a bird drops the seed of a tree down the middle. It might be paved, I suppose.

        > The layout of existing property in the area prevents another way in and widening the existing lane,

        I don’t think that would be allowed – developers usually offer the owners of an existing property enough wedge to clear off – particularly as a load of houses will detract from their amenity. Then demolish it to get a ROW through. Many things become possible if you are prepared to pay over the odds, with the big stick of ‘if you don’t sell the other guy might and then you will be living next to our development’


    2. “I still have my original house and I don’t want to sell it” … “I’ll … keep it largely empty”

      But why? Some imminent family purpose?


  5. Gazumped to a topic again by the great Ermine.
    “- Sir, the younglings are getting uppity about house prices again. Say they can’t afford to live. Our adoring voters are also complaining that their house hasn’t gone up in value. What shall we do?
    – Pump it up some more Mr Chancellor, pump it up some more. Those immigrants will vacate the tenements and the mewling youngsters can pay with their souls”

    Liked by 2 people

  6. Just glad I’m out of the madness now. Bought mortgage free after saving hard for 10 years and putting up with various slumlords and dreadful properties for 20 years. Eventually this madness will collapse, but I’ve thought that for around 15 years. It’s a multigenerational scandal, an amplifier of inequality and a drain on the economy – but not enough people seem to care.


    1. Same, same. I have a 20% deposit now but it’s tempting to just hang on and save another 30% at least. Feels like it really is the last gasp of the QE bubble now, and I’m too old to be the sucker who buys at the tippy top and sees a 10 year suck out.


      1. > to be the sucker who buys at the tippy top and sees a 10 year suck out.

        I can tell you from bitter experience that sort of thing is no fun at all 😦


  7. BTL seems to be less of a phenomenon in Canada – we see it only in the real estate mad areas where folks are willing to lose money on condo rentals with the expectation of capital gains. We never had a large inventory of social housing that turned into retail sales and eventually BTL.
    What we do have is the mentality that it is a God-given right to own property – and this mentality has led to some brutal government intervention in the most delusional areas like Vancouver. You can read about it at https://www.greaterfool.ca/

    Liked by 1 person

    1. Blimey, I’m jealous of your RRSP – according to what he sez here it appears your version of our SIPP lets you put money in gross and – wait for it – draw that down say you aren’t earning the next year. I so just didn’t believe that would be allowed that I second-sourced it from the Government of Canada

      Now although it would have been of sod all use to your career arc or mine, it must be an awesome tool in those who can control their incomes or choose the tax point when they receive it. Get your company to pay you double one year, RRSP half of it and then drizzle that out under the tax threshold for the most in the fallow years, while the company holds your earnings to be released next year with that year’s earnings, as working capital for this year 😉

      A fun read elsewhere – like here

      Nationalism may be exciting and charismatic, pure nectar for those longing for times past, but in this world it’s a failed concept.

      Yep. Globalists, 1. Trump, 0. So stay invested.

      Nationalism is selling very well here in Blighty 😦 Even in the case of the orange excrescence, I’m not sure it’s time to sound the trumpets just yet!


      1. An RRSP isn’t quite that good. You are limited to 18% of income to a max of $26,230 in a given year. And if you have a pension at work then there are adjustments which further limit your contribution. That said it’s pretty good for time shifting income. You can also make contributions to your spouse from your RRSP headroom and income split if she’s making substantially less than you.
        I am in the decumulation phase now so I have a RRIF (you have to start drawing it down and paying taxes at age 71.) I can shelter some of the proceeds in a TFSA (your ISA) but I have to pay some of it back to the govt. I am still better off because my marginal tax rate is lower than when I was working.


  8. This reminds me of that Mark Twain quote “History never repeats itself, but it does often rhyme.” There has been a surprising amount of comment in the press about how this 100% mortgage isn’t the same as the last time. Well, technically that may be true but it’s close enough for jazz.

    Totally agree with your broad thrust on the need for the government to build more homes. Also on the issues with Right To Buy. It’s led to the horrible situation for too many families being housed in temporary accommodation for far, far too long. Yes council housing back in the day had its issues but for those who are at the sharp end I’m not clear how things are better now.

    Liked by 1 person

    1. Spoilsports like to point out that Twain didn’t say it. I’ve never checked but I shouldn’t be surprised if they are right.


  9. I am hopefully going to be exchanging on a flat soon and I was advised by lenders/brokers that I could afford to borrow about £100k more than I actually wanted to or was comfortable borrowing. It would have been a ridiculous debt for a single person to be burdened with.

    I looked a lot into the various government affordable housing schemes and for the most part they seemed like they were just pushing people into buying somewhere bigger and pricier than they could sensibly afford. They were helping people who could have afforded a “decent” place anyway get a swanky place. And not helping the majority of people at all.


  10. “that sounds like socialist talk, which leads to dangerous levels of empathy, a slippery slope to bonds forming between family members, radiating out to friends, neighbours, until communities are formed. You might get a country that was nice to live in”: Christ. you must be young. Actual existing socialism wasn’t much like that.


    1. In the 1960s which I just about recall houses were colder, the ice froze on the inside, adults were often decrepit at in their mid 40s(*) due to the toll of musculoskeletal pains like arthritis and rheumatism, and respiratory trouble was rife, as was smoking. But people did know their neighbours more, and the young ‘uns weren’t scattered far and wide. You could get jobs across the ability spectrum, CEOs didn’t ‘earn’ pay two orders of magnitude more than the average grunts and there was a lot less pain assocaited with housing than there is now, even if said housing was a bit shit.

      Studies seem to indicate that despite it being run by Red Robbo and Arthur Scargill, people were happier in Britain in the 1970s when it was the sick man of Europe than they have been since (other source here and here. Sure, other things weren’t bugging us and separating the variables is tough, but if that was socialism it wasn’t quite so terrible for most people as people paint it in hindsight.

      * Dunno is this was because I was an ankle-biter and anybody over 30 looked like Methuselah to me, but I do think health was poorer in many ways. Not in all ways – look at photos of Britain in the 1960s and 1970s and Brits weren’t such fat bastards as we are now.


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