One day I saw the Bradford and Bingley share price was falling faster than usual. The next day I read they were thinking of nationalising it. On the third day I heard they were nationalising the mortgage side of the business.
As an MP I was yet again sidelined by the long Parliamentary recess. There was no chance to debate or question the government. I wanted an opportunity to speak up to try to keep more of the jobs and the business than the government proposal allowed. As a taxpayer I was alarmed. How can we afford yet another portfolio of mortgages on top of Northern Rock? As someone who wants the UK economy to do well how could we afford to see another mortgage bank effectively driven out of offering new mortgage business?
During the fast moving story we were not told what the problem with B and B was. Many companies experience falling share prices, but that does not mean they have to be nationalised. A bank can carry on trading with little confidence in its shares and a low share price, if people remain happy with it as a deposit taking institution, as people did with B and B. If B and B needed more share capital it could seek new shareholders or ask existing ones to put up some more. If it was short of cash it could ask the Bank of England as lender of last Resort to lend it some, failing other sources of borrowing in the market. It could sell assets or seek a deal with another larger bank or a more cash rich institution.
Why should the taxpayer have to end up with a near £50 billion mortgage portfolio on top of the huge Northern Rock one? Why is government better able to manage this than the private sector? Are there any limits to how much debt the government wants to own? On my figures the government has now taken on a massive £1500 billion of debts and unfunded liabilities for taxpayers. Is there no limit? How do they plan to pay all this back? Whilst they claim to have protected the taxpayers with the Bradford mortgages, unlike the Northern Rock ones, there remain liabilities on the taxpayer as result of this deal.
Why do we need another mortgage bank unable to lend anything to anyone at a time when there are too few mortgages? Our mortgage market is starved of new loans already. Under EU rules the nationalised mortgage makers cannot compete to lend more money. Northern Rock is effectively in wind up. Why can’t we try to save the jobs of the mortgage workforce of Bradford and Bingley by looking for a private sector solution which would allow them to carry on advancing new mortgages?
The state of the mortgage market is now dire. Gross mortgage lending fell to £19.2 billion in August, the lowest level since 2002. Net lending slumped 95% to a mere £143 million. Those figures disguise the misery of many would be first time buyers who cannot now borrow to obtain their first home. They reveal a growing difficulty for people wanting to remortgage to obtain a suitable deal. That means job losses at the banks and Building Societies who do not need so many staff to process the loans. It also means redundancies amongst the estate agents, surveyors, carpet and furniture stores and makers and all the other people who earn their living from house purchase and sale. It is also devastating news for the building industry. Many new home sites are being mothballed, and others taken down to a snail’s pace of development as builders struggle to adjust to the sharp drop off in demand.
The government has long said it wants house prices lower so homes can be more affordable. It has long explained that in its view if we built more homes we could make them more affordable. Current circumstances shows us just how wrong the government’s analysis has been. Today we have rapidly falling house prices, when very few new homes being built, the opposite of the government’s prediction. It should teach them that crucial to affordable housing is the availability of mortgages. You can have more “affordable” houses, that is to say lower prices, yet find that people cannot raise the money to buy them. The problem of rising house prices was not mainly one of too few homes, but one of too many generous mortgages driving the prices sky high.
This looks like another very poor decision for British taxpayers, and another bad blow for the mortgage and housing market. Fewer new mortgages means a bigger house price fall, which in turn means more losses on existing mortgage books. The taxpayer is in for more bad news.