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Daily Mail
20 hours ago
- Business
- Daily Mail
Dishing out super-sized mortgages won't solve the problem of high house prices: SIMON LAMBERT
'Up, up, up go the house prices.' That was the TV news reporter's opening line the first time I was invited to go on the television. It was November 2006 and the reason that a much younger version of your correspondent had got ITV's call to comment was that I had reported on a plan by a major lender to offer bumper mortgages. Abbey, at the time the UK's second biggest mortgage lender, had decided first-time buyers and home movers should be allowed to borrow up to five times their joint salary. The early 2000s property market boom was about to hit its peak and an Abbey spokesman said: 'Lending five times salary may sound high but really is something we have to do given what is happening with house prices.' You can read the This is Money article on Abbey's five times salary mortgages here. It noted that while Abbey had made a fanfare about extending its lending, it wasn't alone - some other banks and building societies including RBS and Cheltenham & Gloucester were also offering supersized loans. We had written: 'Some lenders go even higher - Northern Rock said its maximum loan was 5.9 times salary but added that it rarely allows borrowers to stretch that far.' Almost 19 years later, the big financial news this week was that Chancellor Rachel Reeves is planning to allow mortgage borrowers to stretch that far. Rules put in place to protect borrowers in the aftermath of the financial crisis will be swept aside to usher in a new era of bigger mortgages. Banks and building societies will no longer be bound by rules that say only 15 per cent of their mortgage lending can be at more than 4.5 times income. Instead, individuals and couples will be able to borrow up to six times their salary. For a couple on a combined £80,000, this means potential borrowing would rise from £360,000 to £480,000. Understandably, there are some deep concerns about the impact of allowing a pair of near average earners to take on an extra £120,000 of mortgage debt. The ratio of house prices to earnings has fallen from its recent peak, as wages have risen faster than home values - but it remains far higher than the long-term average Stretching your mortgage to the limit in this way dramatically increases the risk of discovering you have overextended your finances, particularly if you come off a fixed rate mortgage term at a time when interest rates have jumped. First-time buyers and those moving up the property ladder also have a habit of discovering that the cost of running their new home comes in at more than they budgeted for. Many of us who are lucky enough to be homeowners will have been there. You take an optimistic view of what your bills and running costs will be to justify thinking: 'Yes, we can afford that home we really want'. Reality bites about six months in. Something that was especially true for those of us who bought in the pandemic and then got whacked by bills soaring in the cost-of-living crisis. When it comes to mortgages, we are in a very different financial world to 2006. It was a lot easier to borrow and overstretch back then and banks were eager to dish out interest-only loans. The eagle-eyed will notice all the banking brands named above didn't make it through the credit crunch-driven financial crisis that arrived in 2008. The banks that are around now are much more robust. Meanwhile, the rules may say six times salary is possible, but that doesn't mean you will get a mortgage that big. Lenders assess now on affordability and if your incomings and outgoings don't tick the boxes, they won't lend you that much. It's also very easy to criticise this from both the comfortable position of being a homeowner and from a top-down zoomed out viewpoint. Whereas, on an individual level, if a prospective borrower is already paying more per month in rent, then who can blame them for being very happy to take on a mortgage instead and at least be working towards owning the property. Nonetheless, I can't help but think this mortgage bonanza is a bad idea, as it will only serve to drive house prices up further. You don't need to be an economic genius to work out that if you lend people more money to buy homes, the price of homes will rise. And this is unfortunate timing, as homes have got more affordable in recent years. The house price to earnings ratio has fallen from its pandemic boom peak, as wages have risen faster than home values. Looked at from a broader perspective, homes are still very expensive though, at about 5.7 times earnings compared to the long-term average of 4.6. Albeit, this long-term average itself has been pulled up by the very high levels over the past 20 years. Ideally, we need a prolonged period of wages rising faster than house prices to correct the market not a short-term fix of bunging people bigger mortgages, Extending borrowing on the demand end also undermines the benefit of building more homes on the supply end. I would argue too high house prices are a root cause of much of Britain's economic ills over the past 20 years. Bumper mortgages only make things worse.
Daily Mail
4 days ago
- Business
- Daily Mail
Rachel Reeves vows to slash red tape 'choking innovation' - and is warned deregulation could lead to a replay of 2008 bank crisis
has vowed to slash the red tape that is 'choking off' Britain's 'enterprise and innovation'. But it came amid warnings that her plan risks causing economic chaos – with a similar push for deregulation blamed for the financial crisis and global recession of 2008. Delivering her annual Mansion House speech tonight in the City of London, Ms Reeves also confirmed plans to make it easier for banks and building societies to offer more mortgages at 4.5 times a buyer's income – a restriction brought in after the financial crash – which is expected to benefit more first-time buyers. On Tuesday night Ms Reeves said: 'In too many areas, regulation still acts as a boot on the neck of businesses, choking off the enterprise and innovation that is the lifeblood of growth. 'Regulators must take up the call I make this evening, not to bend to the temptation of excessive caution but to boldly regulate for growth in the service of prosperity across our country.' The Treasury is carrying out a line-by-line review of regulation affecting financial services, with a view to stripping it back to make the UK 'supercompetitive'. Ms Reeves believes that ensuring Britain is in sync with its competitors – which includes reforming strict rules on investment banking brought in after the great financial crisis that saw Northern Rock collapse – will make the country a more attractive place to do business, driving growth and investment. But she also hopes that reducing regulation for financial services will encourage businesses and individuals to take informed risks when it comes to investing in stocks and shares. To this end, Ms Reeves will launch an advertising campaign on the benefits of investing – which has drawn parallels with the 1986 'Tell Sid' adverts encouraging ordinary people to buy shares in British Gas when it was being privatised. And banks will be able to alert customers about specific investment opportunities, in the hope it will encourage those with cash sitting in low-return current accounts to move it into stocks and shares. But deregulation also comes with risks, and economists have pointed to the recession that followed the financial crash. Chaitanya Kumar, head of economy and environment at the New Economics Foundation thinktank, told the Guardian: 'It feels like groundhog day. We've been here before, expecting the financial sector to do most of the heavy lifting in terms of growth. 'The 2008 crash and what followed should have been a very strong lesson to everybody in not completely letting the financial services sector off its leash, but that's what we seem to be doing.' And Jesse Griffiths, chief executive of The Finance Innovation Lab charity, said: 'Buying the City's push for deregulation risks increasing the risks of costly financial crises.' In 2011, then shadow chancellor Ed Balls apologised for Labour's failures when in government which contributed to the 2008 crisis. He said: 'All around the world the banks behaved irresponsibly, but regulation wasn't tough enough. We were part of that. I'm sorry for that mistake – I deeply, deeply regret it.' Treasury officials insisted last night that financial stability remained key for the Chancellor, and that her reforms were aimed at a regulatory culture which 'excessively' focuses on risk. The Chancellor also said new powers to force pension funds to invest in UK assets – such as infrastructure projects – were 'sending a clear signal' the Government wants to deliver higher returns for savers and more investment for the economy. 'But I am confident I will not need to use that power because firms see the urgency and importance of this as clearly as I do,' she added. On Tuesday night, Shadow Chancellor Mel Stride said: 'Rachel Reeves should have used her speech to rule out massive tax rises. 'The fact she didn't should send a shiver down the spine of taxpayers across the country.'
Spectator
4 days ago
- Business
- Spectator
Rachel Reeves's mortgage reforms reek of desperation
Just how desperate is Rachel Reeves to achieve her elusive economic growth? Desperate enough, it seems, to risk a rush of repossessions in a future housing crisis. One of the big announcements in her Mansion House speech this evening, it has been reported, will be a new, permanent mortgage guarantee scheme, plus changes to mortgage eligibility to make it easier for homebuyers to borrow high multiples of their income and take out high loan-to-value mortgages. What could possibly go wrong? Reeves looks like she will be following the example of Gordon Brown, who presided over an era of deregulation in the mortgage market. This culminated – even if Brown could not be blamed for it personally – in Northern Rock's infamous 125 per cent loan-to-value mortgages. Older readers will remember what happened next. The tragedy of the housing market is that memories are short. There is a whole generation of buyers for whom the name Northern Rock will mean nothing. Even less will they remember the repossessions of the early 1990s when homebuyers were caught out after a similar lowering of barriers in the mortgage market, followed by a sharp rise in interest rates. Following the crash of 2008/09 there was supposed a total rethink on mortgage lending, with ideas floated including a ban on high loan-to-value mortgages, as well as high loan-to-income ratios. But it didn't last long. By the time he left office in 2010 Brown – by then Prime Minister – had already started to backtrack. By 2013 the new Chancellor, George Osborne, had grown frustrated by the slow pace of the housing market. If banks were not prepared to advance loans of more than 75 per cent of the value of a property, he decided, then the taxpayer would underwrite the risk instead. There followed the Help to Buy scheme, which enabled 95 per cent loan-to-value mortgages once again, with homebuyers taking the first 5 per cent of losses in the event of a slump, the taxpayer suffering the next 20 per cent of losses – and the banks only suffering losses if a property on which they had secured a loan fell by more than 25 per cent in value. It was a dream scenario for the banks – and for housebuilding companies, whose shares soared. In what other business is the taxpayer forced to stand as a human shield against losses? Reeves now appears to want to reintroduce this kind of scheme, this time making it a permanent fixture of the market rather than a supposedly temporary one. Osborne and his Conservative successors as Chancellor might have got away with it, but that doesn't mean that Reeves will. The era of ultra-low interest rates, which for a decade all but extinguished the risk of repossession for most homebuyers, is well and truly over. Unsustainable levels of government borrowing are threatening to force up interest rates sooner or later. Reeves herself nearly pulled the rug from under the mortgage market by reducing the limit for cash ISAs – until banks and building societies reminded her they are an important source of funding for mortgages. Reeves' latest initiative comes back to a problem which has been evident for the past three decades: the UK economy is horribly reliant on the housing market for growth. As Gordon Brown found, if you want to keep the economy growing, the easiest way to achieve it is to find some way of stimulating demand for housing – until, that is, the market turns sour. Reeves, having failed to stimulate the economy by other means, is returning to an old – and very risky – favourite tactic of modern Chancellors.
The Guardian
14-06-2025
- Business
- The Guardian
Letting banks loose is back on the agenda as UK politicians chase growth at any cost
As the old ways of turning a profit become more difficult – from assembling cars to selling soap powder – politicians of all stripes want the City to inject some dynamism into the economy. From Labour to Reform, the siren call of London's financial district is strong. If only, they ask, the wheels of the banking industry could be cranked to spin faster, surely much more money could be generated and we would all be rich. While Rachel Reeves boasted of the huge benefit to economic growth from public investments in rail and renewable energy as central pillars of the government's spending review, in truth it is not enough to propel the economy forward. To generate the kind of income that will pay for the next 30 years of an ageing society, plans to link Manchester and Liverpool by a marginally faster and more reliable train, though good in itself, is not the answer. The Treasury knows it is just an upgrade to existing services and will deliver only incremental returns. To turbocharge growth, the chancellor wants private money to take the lead, partnering government to share the burden of building bridges and tunnels and spurring investments in whizzy new ventures. And as a start, the Treasury wants the shackles taken off the bankers so they can become more inventive in the way they make money, taking risks that were previously frowned upon, if not banned, and rewarding themselves accordingly. It is 18 years since Northern Rock's high-risk mortgage lending began to unravel and 17 years since Lehman Brothers went bust. Long enough, it seems, for memories to fade, and with them concerns about the damaging consequences of light-touch regulation. That said, it's easy to see why the temptation to let the banks loose is back on the agenda. UK banks are among the most profitable in Europe and London plays host to the largest number of foreign banks. The UK's unicorn businesses – those privately held startup companies worth more than £1bn – rank in number behind only the US, India and China. Some startups are considered to be at the forefront of the financial technology boom, including Revolut and Monzo. What could be better for Britain than to leverage a fintech industry that already has a worldwide reputation? Revolut has championed handling funds invested in cryptocurrencies, and for this service, and its banking and wealth management, it has emerged as the most successful European fintech of the past decade. It was valued at $45bn last year. And there is no stopping the chief executive, co-founder and 25% owner, Nikolay Storonsky. He plans to expand into mortgages and consumer lending to challenge the major lenders, as well as growing in the US. Monzo is the digital bank best known for its coral pink debit cards. After 10 years, the company announced its first profit last year, of £15.4m, after more than doubling revenues to almost £900m. Reeves also wants pension funds to take more risks, which is a boon for an asset management industry that has fallen out of favour with the public in recent years due to its high charges and failure to deliver returns that better passive investments. Last week, the House of Lords financial services regulation committee gave Labour's mission a boost. It attacked the main City watchdogs – the Financial Conduct Authority and the Prudential Regulation Authority – for having 'a deeply entrenched culture of risk aversion'. In a report that the Treasury will have privately welcomed, the committee said the regulators were partly to blame for holding back economic growth. If the FCA and PRA, which have already pledged to reduce the paperwork and oversight of the City, become more trusting of its ability to manage risk, there is likely to be a sugar rush of activity, much as there was during the noughties. Labour has helped get the ball rolling by lifting the bankers' bonus cap, to allow publicly listed banks to join the bonanza of rewards enjoyed by executives in Revolut and Monzo. Monzo may have made only £15.4m profit but this modest sum was not to be re-invested. It was enough to warrant big payouts, including a £12m bag of cash and shares that Reuters said most likely went to the chief executive, TS Anil. Underscoring how light-touch regulation is matched by executive pay bonanzas, a report last month by the jobs website eFinancialCareers found that bonuses in the UK's investment banks had risen by 26% year on year, beating their equivalents in Asia, Europe and the US. The average bonus payout for a City executive was about £110,000. And the trickle-down effect works in finance. At junior levels, bonuses increased by as much as 133%, the survey found. Labour's backbench MPs know how this play ends. After all the partying and profit-making, there will be a severe hangover. And when that happens, the taxpayer is asked to save the day. Somehow, the profits of the financial sector belong to the bosses and the losses belong to the people.
The Guardian
05-04-2025
- Business
- The Guardian
Gary Hoffman, former Premier League chair: ‘What happened in football will play out in cricket'
As the man parachuted in to save Northern Rock during the 2008 financial crisis and the chair of the Premier League at the height of the European Super League threat 13 years later, Gary Hoffman can be forgiven for enjoying the relative tranquillity of his latest role, in county cricket. The 65-year-old became the chair of Northamptonshire in October, and after enjoying some sunshine in Cape Town while taking in a warm-up game against Gloucestershire last month, is ready to enjoy the County Championship season. What Hoffman describes as the 'small but perfectly formed' County Ground at Wantage Road has been re-energised by the surprise appointment of Darren Lehmann as the head coach shortly after Hoffman started his role. 'If you ask Darren he'll tell you that the timing was right,' Hoffman says with a smile. The timing was definitely not right during Hoffman's ill-fated spell at the Premier League, which ended with him effectively being booted out of office after 18 months after a vote of no confidence by the clubs. The catalyst for his removal was unhappiness at the league's decision to approve Newcastle's sale to Saudi Arabia's Public Investment Fund, although it is unclear how much influence Hoffman had. As revealed by the Guardian the following year Boris Johnson's government had spent months encouraging the league to sign off the deal with one of their key trading partners, with lobbying efforts led by Gerry Grimstone, then the minister for investment. Hoffman is speaking publicly on the matter for the first time since leaving the Premier League, and while reluctant to settle scores it is clear the job took its toll. The Newcastle takeover was the tip of an iceberg that at times threatened to sink the Premier League. Hoffman was also tasked with steering the league through the pandemic and the civil war caused by the Big Six clubs' Project Big Picture proposals, which led to the breakaway Super League threat. He reflects about being a senior figure at Barclays 'when the banking industry was collapsing … and then [I] went to run Northern Rock, and the weekend the Super League story broke was comparable with that. My time was arguably the most intense period, the most difficult period in Premier League history for lots of reasons. 'When you're a sports addict it should be the dream job. I chaired the [grassroots funding charity] Football Foundation for nine years, I knew everyone really well, I'd been involved in the sponsorship of the Premier League through Barclays. So in many ways being appointed chairman of the Premier League was the dream job and should have been the most enjoyable job in the world. 'But it wasn't. Partly that was because of the time I joined. It was incredibly intense through Covid, through Project Big Picture, through the European Super League, through the Newcastle takeover. It was really tough, but I emerged from it with my values intact.' Partly through Hoffman's work with the government, which led to Johnson's infamous threat to drop a 'legislative bomb' to stop English clubs from joining the Super League, the breakaway was crushed almost before it began, but the Premier League's difficulties have not abated. A 12-month legal battle with Manchester City over associated party transaction rules, introduced on Hoffman's watch after the Newcastle takeover, remains unresolved. The verdict in the Premier League's financial fair play case against City will present huge challenges whatever the outcome. The only assistance Hoffman feels able to offer to his successor, Alison Brittain, and the chief executive, Richard Masters, is his discretion. 'For anyone involved in the Premier League, it's one of the toughest jobs in football,' he says. 'I've always said I would never come out and criticise others. I think everyone who has been there should keep their mouth shut. They know it is a tough job. The Premier League executive should be left alone to get on with it.' Hoffman's current concerns, such as ensuring there is some county cricket to watch in Northamptonshire during the summer holidays, must seem rather parochial compared with negotiating with the UK government and conducting legal battles with Gulf states, but he takes them seriously, nevertheless. Hoffman, the chair of the app-based challenger bank Monzo, is not a cricket newbie. He has been involved at Northamptonshire since 2016, when he bought shares in the newly demutualised club, which was facing bankruptcy over unpaid tax. After leaving the Premier League he was asked to apply to become the England and Wales Cricket Board's chair in 2022, and made the final shortlist before the process was paused, which led to the appointment of the incumbent, Richard Thompson. 'People tend to be in cricket for the right reasons,' Hoffman says. 'Mostly because they're volunteers. All the county chairs and board members are volunteers, and they're not in it for themselves. They usually love the sport, they've usually played the sport. People will have different objectives for different counties, and of course running county cricket is very different to running England cricket. But you start from a position where everyone is sort of on the same page. Sign up to Football Daily Kick off your evenings with the Guardian's take on the world of football after newsletter promotion 'That's not true of football in my experience. In football everyone has different objectives. When there's lots of money around people will always argue about sharing the money out. And people argue even more when the money goes down, which is what happened during Covid. I think the Premier League did a great job keeping the lights on in that period.' For the first time in decades cricket is not facing that problem, with every county set to receive a windfall of at least £20m from the ECB after the Hundred sale, although Hoffman is only half-joking when he says Northamptonshire 'still count the lightbulbs to see if we can afford to turn them on'. With Indian billionaires and Silicon Valley CEO's among the Hundred buyers, Hoffman expects English cricket to spend the next few years battling similar issues to those the Premier League has grappled with for the past decade, with the biggest clubs pushing for a greater share of central revenues, particularly from television. 'If I was investing a large amount of money in a Hundred team I would expect to have a significant voice, and I'd expect more of the broadcast rights would come to me, rather than be shared with everyone else,' he says. 'That tension has been there in football for a very long time. And you can see how what has happened in football, will play out in cricket. 'Currently the non-host counties get a share of Hundred revenue on an annual basis, which comes from broadcast effectively. We have to make sure that if and when that dynamic changes, we have managed Northamptonshire to protect it in the long term.' Hoffman's immediate preoccupations are pushing for more county cricket when the Hundred is taking place – Northamptonshire have only eight days' cricket this August in the One-Day Cup, which has been downgraded to a development competition – and he is also interested in overhauling the County Championship to produce greater jeopardy through a playoff system. 'I think it's ridiculous that in the height of the summer we have so little cricket in Northamptonshire,' he says. 'And the Championship should be reorganised to make it more of a spectacle, whether that be bums on seats, or more likely for streaming or television. 'Everyone got very interested in the Championship on the final day last year, but only for a few hours. Promotion and relegation was at stake so it mattered. It's why the playoffs work in football. 'We in cricket need to learn from that jeopardy to create more interest. You can't have a competition in which people only tune in for the last three hours. Cricket will never be football, but there must be ways of creating more interest.'
