Is the UK property market a national ponzi scheme?
	Does It depend on your definition of a 'Ponzi Scheme'? Surely, not!

This Goverment have always said that they were committed to making housing more affordable.  Well, it is now, but, the problem?  Who can get a mortgage?

Unless you are squeaky clean with paid up credit cards, a secure job, never forget Valentines and have a big deposit (not to mention a partner in the same position), then the chances of cashing in on the property ‘slump’ is not as easy as non-salesmen would have you think.

Less properties on the market due to negative equity, ultimately leads to higher prices – or at least it did when I did economics back in the days of black and white TV.  More ‘creditworthy’ or wealthier buyers means higher prices; more lending to small businesses coming out of recession means higher prices as the market confidence and the buyers return.

Being a property person – that's good news, right?  Well, yes and no…

The last recession saw a massive rise in house prices, in certain key areas, once lending and confidence came back – and, of course, once the lenders unchained their supposedly ‘independent’ surveyors, allowing them to value something for more than a tenner.  This was followed by some stagnation in the market, which was then refuelled by Government claims of record growth, buy-to-let and, not forgetting, sub-prime lending.

We then crash and end up where we are now.

So my worry is that if we continue to follow this Government’s prescribed path, we will end up in the same place BUT, much more quickly and considering that the banks took a massive hit this time around, we may not have 100% mortgages, buy-to-let or sub-prime to prop up our all-too-frail property market.  This 'recovery' appears to be way too soon, after a winter of near financial meltdown.

The Government’s nationalised ‘keep net’called LloydsTsb, have just announced a £4bn loss while Barclays and chums who refused to take the shilling from the Government - opting for a leg up from ‘Johnny Foreigner’ instead - are reporting massive profits in the billions.  Lloyds unsurprisingly blame the bad debts thrust upon them via HBOS and our Chancellor, Alastair Darling. 

There is a core problem.  An Englishman’s home is his castle.  Or it was, until he was encouraged to play the money markets.  Fixed rates, tracker mortgages, unit linked and the list goes on.  All based on the Utopia of market performance. Not property market performance, but money market performance.  Now things have gone wonky, it is a major, almost economy breaking, over-optimistic, over inflated, Ponzi scheme.  Forget Madoff.  He’s a sardine, a minnow. He would be a mere freckle on the backside of the British property market. 

House profits are based on lending and not on practical value or bricks and mortar, if you like. 

When I worked in the Docklands in the 80s (I was very young, OK!), the surveyors’ valuations used to come in:  Value for insurance purposes: £25k, value for mortgage purposes: £180k!!!

More lending, more equity. Less lending, negative equity.  Simple.  Forget the knobs and flashing lights.

So in conclusion, where do I think this is going?  All I will say is that, my emphasis is now on reducing my mortgage lending as a priority.  If I want to have a home and pension in later life that I can rely on, I need to remove my exposure to market forces, as much as is financially possible.  Do you want to be paying a variable mortgage when you are 65?  What about those that have been planning for 5 years to sell up this year and move to sunnier climes?

The secret was always to buy and pay off over years.  That was the original design, but since Thatcherism the smart guys bought houses for fun, easily remortgaging new purchases to fund further investment.  Rolling over and becoming rich.  Who would not be temped to take the risk?  After all, where was the risk?  Everyone knows that if you buy a property it goes up in value, for ever, whatever happens.  At least, that was the perception and the sales pitch.

My way forward?  Bring in a new system of funding home purchase.  That is ‘HOME’ purchase.  Buy-to-let, 2^nd homes etc can stay on the commercial money markets for all I care, but the home of the average British Joe, should not be so severely exposed to international market forces.  Is it good to encourage our young people to burden themselves so heavily with debt for the best part of their lives?

The nuts and bolts of my way forward are for another time but, it would take a politician of incredible persuasion to make any significant changes to the core of the trading of houses in the UK.

Forget Brown, Cameron and Clegg, they are all the same once you undo the wrapper.  Middle of the road, tabloid politicians.  Vote for me instead, I can guarantee you my approach will be different. 

Anti-corporate, anti-war, euro-sceptic, football loving, Sunday dinner, control freak, freedom monkey and letting agent, at your service.

I may get elected, but I would not bet my house on it…

Pasco

P.S. After writing this blog a couple of weeks ago, I have just found out that China is investing $200b in U.S. mortgages 

 China investing $200b in US mortgages

Do you agree?  ..have something to say? Let Pasco know what you think

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