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. 
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New year, New You, New hope

A Happy New Year to you – what are we looking forward to in 2019 then?

I was out walking with two friends – the sun was setting – suddenly the sky turned blood red – I paused, feeling exhausted, and leaned on the fence – there was blood and tongues of fire above the blue-black fjord and the city – my friends walked on, and I stood there trembling with angst – and I sensed an endless scream passing through nature.

Oh. Not so much, really. Did you know there were four versions of this picture? I didn’t until now, so I have learned something new today before 10am. Can’t be all bad. There are great parallels between now and the beginning of the global financial crisis. There are some that say there are great parallels between now and the 1930s, but let’s fight that one later on, eh? What do we have in front of us?

It’s an ill wind blowing, young FIRE folk…

The problem with seeing many new bloggers starting on their journey to financial freedom in the last couple of years is the thought in the grizzled Ermine’s fur that you really want to start that journey with a stock market that hasn’t been pumped up by funny money. I wish y’all the best of British luck, but I know from bitter experience that taking a suckout a couple of years after starting one’s journey to fabulous riches financial independence via the stock market is tough as hell if you take a spanking a few years in. Here’s how I did it wrong, so you don’t have to 😉 Continue reading “New year, New You, New hope”

What Colour is your Parachute

I read my first copy of Richard Bolles’ seminal job-hunting tome What Color is your Parachute in the late 1990s. The big cheeses at The Firm had decided to move away from research, and out of electronics towards development and software. I was wondering if I should stay with my first love, which was electronics design, or stay with the Firm.1

Parachute is a great resource and a good read. At the heart its message is as old as the Delphic Oracle itself – know thyself. Around that message, however, is a good periphery of tactics and perspective. There is only one problem. Parachute is a weapon of contemplative reflection. You can’t use it under fire, IMO, and when do most people turn their attention to looking for a job?

When they either need a job right now, or are fearful of losing the one they have already.

I’m not looking for a job, despite Monevator exhorting the early retiree to get their sorry ass back to the workplace for a day a week. Although Britain is a post-Christian country, the feeling that the devil makes work for idle hands seems to run deeply through the personal finance community. I’d fingered Calvin for the problem, but it seems the ‘work and suffering is good for you’ meme runs deeper than him

Here in the West we have a lineage of puritanical belief systems that still leave their mark, and all forms of Christianity teach that suffering brings us closer to God.

Niall Ferguson made the case a few years ago that this Protestant work ethic is the reason that the West is cock of the rock, his crystal ball didn’t show that the fire was burning out rapidly. Sic transit gloria mundi.

Read widely – library ebooks don’t have late fees

The Ermine reads widely, particularly as the library lets you borrow ebooks for free, and a little munging with Calibre gets that onto a Kindle which makes it easier to read in the park, or a particularly favourite little beauty spot near me with a swing seat and a glorious view. So when I saw a copy of WCIYP 2018 I thought I might take a look at what’s changed over 20 years

Billed as a practical manual for job-hunters and career-changers, it is an interesting read. It has been nearly thirty years since I last applied for a job in the open market2, and getting on for eight since I applied for an internal job, so much has changed. The first part of the book is about the conventional approach, and why this doesn’t work. This is the method the DWP push the unemployed into – registering with Monster jobs and scattercasting CVs3. I’ve only actually ever once had a CV work, and this was at the very beginning of my career, and even that was responding to a newspaper small ad which invited applications with a CV.

The problem with resumés and CVs is that they only work when employers are finding it tough to fill jobs. Continue reading “What Colour is your Parachute”

BofE’s Ben Broadbent inserts hoof in gob, message gets tossed in can

Poor old Ben Broadbent, second in command to the suave Canadian fellow Mark Carney at the Bank of England. Mark’s a chap who can fall out of a boat without making waves, unlike his deputy.  In the hoopla about Ben’s  perhaps unwise choice of words – did you know climacteric1 was a thing? his message got lost. but it’s pretty straight between the eyes. In an article for the Torygraph in the guise of Edgar Allen Poe’s Raven, the harbinger of doom says

compared the current slowdown in growth and wages to a lull at the end of the 19th century, when the height of the steam era was over but the age of electricity was yet to begin.

Today’s economy could be experiencing a similar trough as it passes the boom of the digital era and awaits the next big breakthrough, possibly with artificial intelligence.

Ben Broadbent to British economy – you’re over the hill, every which way is down from here for at least a generation

Oy vey. And among other things it’s good to know that the ermine is doing his bit2 for this incoming doom:

something similar happened in the late Victorian era. Towards the end of the 19th century, British productivity “slowed pretty much to a halt” after peaking, as it entered what he labelled a “climacteric” period.

The word “climacteric” is, according to Mr Broadbent, a term that economists have borrowed from biology and means “you’ve passed your productive peak”. It has the same Latin roots as “climax” and means “menopausal but it applies to both genders”, he said.

Mr Broadbent added: “I once got an economist to explain the origins of the word ‘climacteric’. As soon as he started talking to all these middle-aged men – about [how] it means you’re past your peak and you’re no longer so potent – they all said: ‘We understand’.”

Hehe. I understand that climacteric bit, after all I am no longer a productive member of society. For those lucky enough to have the choice, it comes from the age-old arc of a human life, poetically summed up by Carl Jung thusly: Continue reading “BofE’s Ben Broadbent inserts hoof in gob, message gets tossed in can”

Retired accountant fails to understand interest only mortgage, loses house

It must have been so simple when he was a nipper. You buy a house with a mortgage, and you got to pay back a shedload of interest and a teensy bit of the capital. 25 long years later and this happens

how a traditional mortgage builds equity

as the dynamic balance between interest and capital repaid shifts in your favour. The downside, of course, is that you have to pay off the capital. You pay roughly twice as much1 for your house if you buy it with a mortgage than with cash, due to paying interest for 25 years. Which is why some bright spark dreamed up the interest-only mortage.

Although we now think of them as ways to enable the BTL brigade to shaft everyone younger than themselves, the IO mortgage was originally dreamed up to make houses more affordable by halving the mortgage payments. Easy peasy. What actually happened for a while was house prices went up2, because every time you make the existing price more affordable the price adjusts so it becomes only-just-about-affordable, because that’s where premium scarce goods reach equilibrium in a market economy. It’s only the punters that can’t afford the prices and fall out of the market that puts a brake on house prices, but UK governments have never acted on this because most voters want high house prices. Governments will change that when the increasing age people buy their first property means there are as many non homeowners as there are homeowners of voting age.

Enter stage left, an accountant, age 77, mithering about his IO mortgage being called in

who didn’t realise you had a pay off an interest-only mortgage in this lifetime, rather than the next. Len, this post is for you. There’s pathos in this story on so many levels, I mean, FFS, this dude worked as an accountant for a living. It’s fair enough for the interest-only mortgage to catch out young whippersnappers like Joe and Josephine in the hands of Mr big Bad Wolf, but grizzled greybeards of 77 who have only just wised up to the fact that they have aught to pay off the capital have no excuse. These guys had the temerity to complain to the Financial Ombudsman and then when they got the finger from the FOS because of the pickle they got themselves into through overspending in retirement, bleat to their local MP. The MP spins this as a tale of dreadful ageism by Santander. No, they’d just like to get their fricking money back before you die. I’ve done this story too many times before, WTF is it with the British and housing?

I know it’s impolite to mention the Grim reaper but it’s a fact that every 24 hours you live you get a day closer to death. I am nearly three decades closer to death than when I took out that mortgage, which is why I paid the bugger down, and that’s even without the benefit of a life of accounting to see the problem rushing up to meet me. The MP puts this spin on it

Lloyd called on Santander to either increase its age limit for mortgage borrowers or abolish it, and said: “Without such a move, Mr and Mrs  Fitzgerald will lose their home. Is that really what the bank wants to see happen? I will also be raising this vital issue in parliament. I am sure there are tens of thousands of other families potentially facing the same, desperate situation in the coming years, which is unacceptable.”

No. It’s a situation that has been developing over decades, and they can’t say they weren’t warned. The Fitzgeralds chose to stick their heads firmly in the sand, and that’s why they are in the shit. It also shows the folly of another innovation in mortgage finance, the short-term fix. These guys remortgaged in 2007 for 8 years. It’s fair enough, when the 8 years are up, you need to ask again if you can stay in that house if you don’t have the money to redeem it.

You have the option to borrow from someone else I guess, but nearing 80 you just aren’t a good prospect, because you have zero human capital left. If you financial capital isn’t enough to keep you in your house, then you don’t get to stay in that house, and you can’t earn any more financial capital. You are stuffed. The moral of the story is pay your bloody mortgage off in your early retirement, or be prepared to move or rent.

This is not a sob story of somebody who was taken out by events beyond their control. This was wilful overspending on a big scale for decades. I could have had many fine holidays with the money I used to pay down my mortgage. The fact this guy plied his trade as an accountant takes the biscuit. Continue reading “Retired accountant fails to understand interest only mortgage, loses house”

The Global Auction – why learning isn’t earning any more in the West

There have been some interesting studies of work of late, and I took a read of some of these because the general picture I am getting is that the world of work has been steadily getting more and more horrible since I quit the workforce in 2012. A gem of a book that explains a lot of what is happening to work and what happened to my job is this book, which I discovered while web-ratholing via George Monbiot’s recent column. I was always going to be a sucker for his lede

It’s untenable to let salaried work define us.

although perhaps not so much for his line on volunteering 😉

The book is called The Global Auction: the broken promises of education, jobs and incomes, and as I started reading it I immediately thought of a couple I am vaguely acquainted with who have two children. They’re not rich enough to support their desired lifestyle and send both children to public school, so they send just one. This puzzled me as it seems an obvious way to fund an army of therapists in the troubled adult future of the child who is deemed unworthy, but I suspect that it’s a terrible misallocation of capital even in the case of the Most Favoured Child. It’s not particularly that the Most Favoured one is particularly clever or the Most Unfavoured particularly dimwitted. They’re both probably slightly to the right of the bell curve, for all I know they may well be sharper than I am, but the problem is in the conventional assumptions of their parents, that learning is earning.

The prognosis in the book for Most Favoured Child1 is horrific –

We believe that everyone has a right to know that the opportunity bargain based on better education, better jobs, and better incomes can no longer deliver the American Dream.

Continue reading “The Global Auction – why learning isn’t earning any more in the West”

Taking back control

How the holy heck did we get from this

to this

There was once upon a time when Britain had a reputation for diplomacy and pragmatism, but I guess that died with the generation before the boomers who are in charge of things now. This seems like a slow surrender, a bizarre interpretation of Taking Back Control. While I didn’t agree with Brexiters, I could see there were values  there – but oh how easily they are tossed aside. The FT has a point that Brexit is a cargo cult for gentlemen of a certain age.

Hardly any of today’s Tories actually remember Britain’s golden age of ruling India and winning the second world war. Even the party’s ageing members are merely the children of the Dunkirk generation. Economically, they have been the luckiest cohort in British history. But they and many other Tory MPs feel the shame of late birth. They disdain the UK’s tame, vegetarian, low-stakes, Brussels-based, post-imperial incarnation, which in 70 years offered nothing more glorious than the Falklands war. Now they have their own heroic project: Brexit.

A collective incompetence seems to have afflicted  the British body politic. Usually before going somewhere it pays to work out what the preferred destination is, whereas at the moment we are stuck with an ‘anywhere but here’ narrative. The parallels are more with the Psychology of Military Incompetence

arrogant underestimation of the enemy, the inability to learn from experience, resistance to new technologies or new tactics, and an aversion to reconnaissance and intelligence.

Although there’s much to be said for the drunk’s adage that to go there you wouldn’t start from here, it’s possible to envisage a successful Brexit, either in terms of the economy and some sovereignty or in terms of sovereignty and repelling immigration. Sadly at the moment we seem to be headed for a general clusterfuck that will cheer nobody at all. Drafting a view in government of what a successful Brexit looks like would be a damn good start. At the moment I am reminded of Chuck Colson’s poster

If you’ve got them by the balls, their hearts and minds will follow

and at the moment the sack-holder isn’t anywhere near London by the looks of it. Get a grip and get a clue, guys.