It's jobs, stupid
Robbie Fowler, the former Liverpool and England striker, has been investing in property for 15 years and is long of more than 900 houses. They may not all be up to WAG standards but that's quite a hoard.
So says John Goodfellow, chief executive of the and chairman of the Building Societies Association (in an article published in "").
A less ambitious buy-to-let tycoon is Joanna Page, the spellbinding Stacey of "Gavin and Stacey". She says (in this week's ) that she owns eight residential investment properties, worth around £1m (and also a house in South London that she occupies).
They're in good company. Senior civil servants, former ministers, an erstwhile City watchdog, broadcasters and bankers have all swanked to me at various times about their mini property empires.
Now that buy-to-let looks as fashionable as pebbledash, and has become a byword for bungling, they're feeling a little bit anxious, a touch sore. But so long as they bought over several years and haven't borrowed too much on short-term fixed rate deals, they'll lose capital but probably not the lot.
As for Goodfellow, he says Skipton contemplated making a takeover bid for B&B and that his building society would be interested in swallowing .
Goodness knows whether his regulator or Skipton's members would be altogether relaxed about this mutual quintupling its size with one of these deals. But it's rather touching that mutuals like Skipton - which just a few years ago were written off as irrelevant and obsolete - can swagger a bit, while the likes of B&B perhaps regret their institutional sex changes.
More exposed to real hardship than many buy-to-let investors are hundreds of thousands of owner-occupying families, with 90% or 100% mortgages of recent vintage.
Many may end up with negative equity in their homes during the current market downturn. If they're relatively young with little in the way of other savings, their personal finances may be in the red for an extended period.
The prospect is daunting for them, especially since younger families are also being disproportionately squeezed by the jump in energy and food prices.
Naturally, it's the plight of low income homeowners which is prompting bankers, builders and estate agents to bend my ear and insist that the government absolutely must do something to put a floor under collapsing house prices (those who run these battered businesses may also be worrying a little about their own career prospects).
"The electorate won't forgive the prime minister if he allows the housing slump to continue", or words to the effect, is a menacing claim I hear a good deal.
But the bankers should be careful what they wish for. If the were to directly intervene in the mortgage market, by - for example - providing mortgages directly or guaranteeing banks' homeloans, there would be consequences for the banks.
Taxpayers would I think be reluctant to allow , for example, to lend their money unless that bank became a much simpler, more risk-averse organisation. The government, as protector of taxpayers' interests, would probably impose severe restrictions on how and where the banks operate. And bankers might have to be paid on a par with civil servants.
It's quite an amusing thought - although for all the way our banks miscalculated risks over the past few years, it probably wouldn't do us good for the creativity of our financial sector to be wholly regulated away.
Just look at the mess at and , the so-called state-sponsored US mortgage banks, for two good reasons why you wouldn't necessarily want the government underwriting British mortgages.
So if a Treasury bailout isn't such a brilliant idea, some bankers are looking for succour from the , the City watchdog.
They whinge that it's the FSA's fault that banks are not lending enough - because the banks are being forced to strengthen their balance sheets by holding more capital as a proportion of loans, which means they can't lend as much as the economy needs.
Here, in fact, are the horns of a proper dilemma.
It would be crazy for the FSA to allow the big banks to weaken their balance sheets - or to cut their capital ratios - at a time when the economic outlook is troubling, to put it mildly. Without a cushion of capital to absorb future losses, the financial system could come properly unstuck.
However, precisely because the banks are lending less to both consumers and businesses right now to build up their capital ratios, economic activity is slowing down. And that slowdown increases the likelihood that unemployment will rise, which in turn would trigger massive writeoffs in the value of homeloans, as the jobless found themselves unable to keep up the mortgage payments.
Or to put it another way, the very act of forcing the banks to hold additional capital relative to assets or loans at this sensitive moment could magnify future erosion of that very capital and batter the financial system at a later date - which would send the economy into a more vicious downward spiral.
To perform my normal trick of stating the bloomin' obvious, what matters far more than the fall in house prices is what happens to unemployment. But quite how the government could pre-empt a possible future rise in joblessness when its own balance sheet is stretched and interest rates can't be cut lest inflation takes off, well that's a riddle I can't quite unlock.
UPDATE, 14 July, 07:05AM:
When the US Treasury Secretary makes an emergency statement on a Sunday from the steps of the Treasury building in Washington, something has gone seriously awry in the world's biggest economy.
In the past few days the machines that fund the US housing market - or the two so-called government sponsored banks, Fannie Mae and Freddie Mac - had come perilously close to collapse.
After two years of falls in the US housing market, investors believed they were almost bust - for all the denials issued by regulators and politicians.
And if they were unable to lend, well the US housing market would probably implode - with dire consequences for the financial system and the entire global economy.
Mr Paulson has asked Congress for the authority to lend unlimited amounts to Fannie Mae and Freddie Mac and to inject unlimited amounts of new capital into them.
Separately, the US Federal Reserve has said it will give them access to emergency funds.
All this will be viewed as an unbreakable pledge to nationalise these colossal institutions, should that prove necessary.
It means Fannie Mae and Freddie Mac won't collapse - but at quite a cost to the US public finances.
For decades the US government and international investors have conspired in a convenient fiction, that Fannie Mae and Freddie Mac are supported by the state and yet are not formally on the public sector balance sheet.
That's allowed them to raise money for lending to US homeowners at much lower rates than would have been possible had they been normal commercial banks.
Mr Paulson has now made a formal promise to bail them out.
Which means that if he were to claim that their five trillion dollars in liabilities are still not liabilties of the Federal government, well I'm not sure anyone would take him terribly seriously.
Arguably therefore America's national debt is now equivalent to more than the size of its economy - which may make international investors more wary of holding dollars and dollar assets.
I'm 
Comment number 1.
At 13th Jul 2008, virtualsilverlady wrote:Some with Buy to Let mortgages are assuming a huge demand for rented properties with rental incomes rising. This on the back of those losing their homes through repossesion. They probably haven't thought it through for if people could not afford their mortgage it's probably 'cos they've lost their job so couldn't afford rented anyway. Looks as if we all have to tighten our seatbelts. Good Luck!
Complain about this comment (Comment number 1)
Comment number 2.
At 13th Jul 2008, lordBeddGelert wrote:The rather facile idea that turning the clock back to house prices at the turn of the millennium and wiping out 'windfall' profits is going to be such a catastrophe that it requires Government intervention is the most asinine nonsense I've heard in a very very long time.
The people have suddenly realised that 'what goes up must come down' and are upset.
Diddums !
If this scheme is approved can I have a bail out because the shares which went shooting up over the past decade have fallen down a bit.
Yes I know I've been taking the dividends over all those years, but hey - I could do with a bit of cheering up as I review the downward slope of the stockmarket rollercoaster...
And of course, I haven't been so stupid and idiotic as to spend the windfall gains on the shares before the disappeared, but I still think I should be compensated as the point is I might have spent that gain if I had been stupid and idiotic enough to have spent that money as though it were cash by assuming those gains were locked in for good...
Er, hang on...
Complain about this comment (Comment number 2)
Comment number 3.
At 14th Jul 2008, markus_uk wrote:So is the (ridiculous) idea of saving the bubble the only answer that Britain comes up with as it realises the (absolutely surprising, unexpected, unthinkable) house bubble crash is for real. Nothing else? No idea how to stop these pointless boom-and-bust cycles?
Complain about this comment (Comment number 3)
Comment number 4.
At 14th Jul 2008, YummyCarolKirkwood wrote:"The electorate won't forgive the Prime Minister if he allows the housing slump to continue", or words to the effect, is a menacing claim I hear a good deal.
Ah, yes, of course! The King Canute solution!
They whinge that it's the FSA's fault that banks are not lending enough - because the banks are being forced to strengthen their balance sheets by holding more capital as a proportion of loans, which means they can't lend as much as the economy needs.
Gosh, yes, just how can the banks obtain more funds to loan out? If only there were a way for them to attract people to desposit more money with them so that they could then lend it out! Perhaps they could enter people depositing money into some sort of raffle or lottery to win prizes?
Or perhaps they could simply PAY HIGHER RATES ON THEIR SAVINGS PRODUCTS.
I've said it before, and I'll say it again: the solution to the credit crunch is HIGHER INTEREST RATES.
Rocket science it ain't.
Complain about this comment (Comment number 4)
Comment number 5.
At 14th Jul 2008, YummyCarolKirkwood wrote:Re: #3 markus_uk
No idea how to stop these pointless boom-and-bust cycles?
Simple: STOP SLASHING INTEREST RATES AT THE FIRST SIGN OF AN ECONOMIC SLOWDOWN IN A FUTILE ATTEMPT TO DEFY THE NATURAL ECONOMIC CYCLE (ie stop trying to avoid recessions)
(I think there might actually be an argument for simply fixing the base rate at an arbitrary level - say 7% - and letting the economy adjust to operating under such an environment come hell or high water, rather than trying to use it as an instrument to control the economy. Pretty radical I know, but in time I suspect it could produce a pretty stable, if fairly unexciting, economy.)
Complain about this comment (Comment number 5)
Comment number 6.
At 14th Jul 2008, SportBillyGoat wrote:Hope you enjoyed your holiday Robert.
I too would be a bit cheesed off to see my tax contributions subsidising those who took out mortgages they clearly couldn't afford if interest rates went to the dizzy heights of 7 or 8 percent. Not least because I sat on my hands in my modest semi with more kids than bedrooms as trading up was just way to expensive. Can I have a handout for all my ill advised financial decisions too?
It wasn't for austerity that mortgages were traditionally a maximum of 3x salary and a chunky deposit was required.
Then came the new age of base rates at 4% and these "creative" bankers confused constants with variables, decided it was all about affordability and that house prices were essentially irrelevant. Add to the mix Self Certification mortgages, which seem solely to exist to enable people to fraudulently obtain mortgages beyond their means and it was obviously going to end in tears one day.
It seems to me the effects of the credit crunch have been severely exacerbated because the FSA was way too lax with mortgage lending. I don't see further kid glove treatment of mortgage lenders a good idea. As a rule, when you're in a hole, continuing to dig is rarely the smart choice.
Complain about this comment (Comment number 6)
Comment number 7.
At 14th Jul 2008, foundalive wrote:"Now that buy-to-let looks as fashionable as pebbledash"
Just wait until shopping becomes unfashionable... and spending money is seen as vulgar.. then the scales will tip!
Complain about this comment (Comment number 7)
Comment number 8.
At 14th Jul 2008, Peter wrote:The other aspect of higher interest rates is the effect on small businesses who are already struggling with a fall-off in work and rising labour legislation, plus labour and red tape costs.
Add to that the unattractiveness of new employees because of the lumped-on legislation 'extras', and you'll understand why so many companies (especially housebuilders last week) are dropping workers as fast as they can.
We have shed jobs and running expenses by moving factory closer to home last year, and aren't we glad that we did! 2 minute walk to work now....
Peter
Complain about this comment (Comment number 8)
Comment number 9.
At 14th Jul 2008, Trevor Wright wrote:I wonder which of the remaining Building Societies or demutualised versions will be first to take the brave step to raise savings interest rates.
A very significant headline-grabbing hike by one, applying to notice-free accounts will drag in funds and force the rest to follow suit.
Complain about this comment (Comment number 9)
Comment number 10.
At 14th Jul 2008, damicol wrote:Its now 2.5 years since i quit the uk and left for Asia. In that time 5 friends of mine have also left the UK.
Selling up and starting overseas has been the best possible thing i could have done, even when others were saying its a mistake.
It weas so easy to see this coming, my timing may have been a little early , but regret it. not one big. i now OWN my own house, far cheapper than equivalent in Uk , but bigger and better than the house i had, swimming pool brand new and every luxury, no mortgage, and savings in the bank rising every week.
Add to that Im now expat and pay no taxes in Uk and enjoy a salary far above whats on offer in UK and enables me to play in Kuala Lumpur or Singapore or Hong Kong and lo0cal places like that at weekends and you can see why so many are leaving the UK now.
I just hope you can get it all together and join us and leave it for the likes of Brown and the stabbers and muggers and criminals who have little hope of any future now whatsoever.
Complain about this comment (Comment number 10)
Comment number 11.
At 14th Jul 2008, Nick Drew wrote:"But quite how the Government could pre-empt a possible future rise in joblessness when its own balance sheet is stretched and interest rates can't be cut lest inflation takes off, well that's a riddle I can't quite unlock"
Robert, perhaps with the best will in the world there is simply no answer to your riddle
This time we have
The time for action was quite a while ago, but we have not had, and do not have, the appropriate political leadership
Complain about this comment (Comment number 11)
Comment number 12.
At 14th Jul 2008, random_thought wrote:It's the period of change while house prices are falling that is the problem.
House prices are going to fall another 25-30% - the banks have suddenly realised this and that's why they're asking for 25% deposits.
The very last thing the Government should do is attempt to prop up the bubble Rather they talking down prices so the bubble deflates as fast as possible.
Once the market has bottomed out, there will be plenty of money to satisfy demand (as in money terms the demand for mortgages will be 30% smaller), the banks will no longer be asking for huge deposits, builders will start building again, estate agents and solicitors will be back in business again.
The best way of avoiding recession is to get this unavoidable (and in the long term beneficial) price readjustment over with as quickly as possible.
Complain about this comment (Comment number 12)
Comment number 13.
At 14th Jul 2008, Hippy god says Peace and Love likes RT wrote:Well, until the moneymarket is sorted out the Base Rate is relatively meaningless.
Fewer Houses are now being built.
People who lose their job have their Rent paid by the DSS (up to a certain level).
As Banks consolidate, Savings Rates will fall through the reduction in competition.
And Inflation, imported in commodity prices, continues to rise without any restraint from Interest Rates.
You just have to hope you have a job whose pay rise will be 4% or more........
Complain about this comment (Comment number 13)
Comment number 14.
At 14th Jul 2008, eddie3428 wrote:Robert, you say "it probably wouldn't do us good for the creativity of our financial sector to be wholly regulated away."
Why not? I understand technical and artistic creativity as something that enriches our lives, but financial creativity is designed solely for the perpetrator to make money and does nothing to enrich other peoples lives.
Financial creativity is the tool of criminals laundering money and gamblers with our pension funds.
Finance should be kept very simple and if that means regulation so be it.
Eddie Hatfield
Complain about this comment (Comment number 14)
Comment number 15.
At 14th Jul 2008, Red Lenin wrote:Of Growler Fowler - the Toxteh Terror's 900 house estate, a fair proportion are in the area of Hathershaw in Oldham. This is clelbrated on the terraces of Oldham Athletic bu the song 'We all live in a Robbie Fowler House' sung to the tune of yelleow submarine.
Actually, he's a very good landlord. The rents on his houses are realistic and affordable and they are maintained to a good standard
Complain about this comment (Comment number 15)
Comment number 16.
At 14th Jul 2008, Hippy god says Peace and Love likes RT wrote:Building Societies change their Agenda !
At least I spotted the obvious pun!
I read an article talking about spread betting the other day.
Allegedly it involve Share investment.
Just sounded like a Booky at a Race Track!
Why are people so down on Renting Houses?
Some people don't want the commitment to buy.
Even when Mortgages were more freely available, there were always waiting lists for Council Property, and Housing Association property.
Now unfortunately, the amount of new Housing becoming available is set to decline to the lowest level since the 1950's.
Ö÷²¥´óÐãlessness will undoubtedly rise.
People who can afford Houses won't be able to find ones they wish to buy.
And of course some Rich men will buy cheap repossession Ö÷²¥´óÐãs at auction making themselves even Richer.
The rest of us will just have to hope our pay rises keep up with galloping Inflation.
I still think Convertible Preference Shares are a great way to raise equity capital.
Complain about this comment (Comment number 16)
Comment number 17.
At 14th Jul 2008, angelicSimonSays wrote:Robert
Surely it's do nothing or the lesser of two evils time?
I agree employment outlook is the factor, my guess is that the financial services sector will be under severe pressure.
Furthermore with builders and major construction projects being scaled down or mothballed around the country ( such as Lumiere in Leeds, The UK's tallest residential building) we're likely to see many of our Eastern European friends who have taken the jobs many of the Brits woould scoff at on their way home.
We have to wake up to the fact that our economic power and aspirational lifestyle for the masses faces its greatest threat since the 1930's
Complain about this comment (Comment number 17)
Comment number 18.
At 14th Jul 2008, Lord_Koshy wrote:The problem economic problem is simple. People wants always to trade up. UK has had growth in the last 10 years but with a lot of jobs going abroad unemployment has reduced only slightly. So in a downturn business lay off employees in UK rather than in foreign countries. This rise in unemployment gives rise to further credit crises and then there is a snowballing effect.
I agree that house prices are high, but remember UK is an island there is a limit to the no: of homes that can be built. Hence the solution is pay rises on to tackle inflation and stronger commitment from business and government to restrain offshoring of jobs.
Complain about this comment (Comment number 18)
Comment number 19.
At 15th Jul 2008, msmj64Ferris wrote:Why can there not be a restriction on the number of properties owned?
The 900 houses owned by one person is excessive - this kind of ownership also drives prices up as availibilty is short.
Also what would happen if these 900 houses owned in the same area were put back onto the market due to financial issues of the owner?
I live in a Sailing village on the south coast - the majority of these homes are second (or 3rd or 4th) then we have a man who owns about 600 and rents them out - this scenario means that the house prices are severely inflated - largely by the local estate agents and that rental is also above market value.
If there were tax implications for multiple ownership surely this would prevent some of the property market greed - and make it a little fairer for those of us struggling to own our own home. Living with the fact that the landlord is well within his rights to give 2 months notice - can be very unsettling - and does make it difficult to settle.
We both work and have a young child, but we wouldn't qualify for a Housing Association so we have no option but private rental - and the hope that the market does crash and drop by 30% just so we could have a chance at a home of our own.
I think that this tax should be put into play while the market is a mess then when it does level it surely would be far more realistic?
Complain about this comment (Comment number 19)