I see that Mr Brown has this morning waded in to the debate about banks and mortgages, saying he wants to restrain banks from what seem to many people some of their more extraordinary excesses, such as 100% mortgages, mortgages six times your salary, and banks paying you to live in a house in anticipation of you paying them back when you die (OK, I made the last one up but would you really be surprised to hear that such a product was actually available!).
This exercise looks to me as if it’s about trying to reassure us that he is coming from the same place as those of who thinks all this kind of thing sounds just crazy – rather than a serious attempt to tackle the roots of the problems in consumer financial services. Indeed it doesn’t seem to have many specifics at all, other than simply asking the FSA to look into all this.
And specifically it won’t challenge what seems to me to be one of the main ways that banks have insinuated their ways into our lives, which is this.
Quite simply, thirty or forty years ago it was possible to buy a house without having to involve a bank.
Now, however, for almost everyone it is effectively not possible to buy a house without handing over quite a lot of money to a bank, for a mortgage.
I don’t claim to understand exactly how banks have managed to pull this off, but it seems to me a very effective trick by a whole sector – effectively ensuring that you can only get access to one of life’s essentials by paying a lot of money, normally on an ongoing basis over several years, to a private sector. And I really can’t see why anyone would think this is in the public interest. Just compare it to the political debates about other “essentials” of life such as health and education, and the extreme watchfulness and lengths that we as a society go to in order to ensure that no charging regime is able to get between a citizen and these. It seems to me extraordinary that we allow a situation where it is impossible to get access to buying a house without handing over a lot of the money that you ought to be spending actually on the house, or indeed on any of life’s other essentials or desirables, to a financial services institution.
Clearly the point above does not apply to social housing – but unless anyone is actually advocating that private ownership of housing should be abolished, and we should live in social housing, this does not seem to me to answer the point (and unlike health and education where the proportion of the public using the private sector is very small, most of us are in the private housing sector is far higher: I believe the figure is about 70%).
And obviously the comparison between the picture thirty years ago and now is not completely black and white: mortgages did exist then, and certainly some portion of society needed them, and equally there are some still who can afford to buy a house without one now.
But by tying the whole market inextricably into using mortgages, banks have managed to inflate house prices to an extent where the house prices to average earnings ratio is such that for most people, it is now simply not possible to buy a house without a mortgage.
I certainly see that for each individual planning to buy a house, a mortgage can be very helpful in making it more affordable. And certainly banning all mortgages seems somewhat extreme (even leaving aside the not negligible issue that such a move would entail a huge overnight cut in the value of most families’ principal asset!).
But it seems to me that a serious approach to reforming the housing finance sector in the public interest would address this point of why, in stark contrast to health and education, for most people the private sector is able to insist on getting its cut, in order to provide access to housing.