Bradford and Bingley Nationalised

As Oscar Wilde may have said to Nationalise one bank is unfortunate, but to nationalise two looks like carelessness.

In Britain the Bradford and Bingley Bank is as I write is in the process of being nationalised. This banks problem is that it specialised in the Buy to Let Market. Unlike a conventional mortgage a lender did not make the loan on the value of a property, but on the expected rental income. However, frequently these rental potentials have been exaggerated.

In media reports it has emerged that there are over twenty percent of rental properties in London that are empty. However away from the places of high demand, places like Manchester forty percent of the new build, predominantly bought by the Buy to Let market, are empty. Then if you include the older properties then the empty rental properties are just over fifty percent.

The problem is that the landlords are so wedded to the rental income they desire that they are not willing to accept the lower rent that the market demands. I do understand the difficulty that the landlords face as the rental income is lower than the cost of the loan(s). But the reality is that this system could never work, and most buy to let investors only made or retained their money with rising house prices.

The market has been manipulated by the Banks, the Financial services industry and the Developers. There is now a glut of rental properties and most of the buy to let investors will loose money. The problem is that far to many people became landlords who just did not understand their responsibilities as a landlord. The greed factor took over and they frequently looked down on the people that did rent.

This all has had an impact upon the public purse too, as low income families get part or all their rent paid. Thus the way the market has been manipulated has increased the public expenditure. The social impact of this does not stop there, as people who work as teachers, nurses and police officers have not been able to live in or close to the places where they work. The climate impact of the increased travel should be obvious, but it is the way that this manipulation of the market has excluded first time buyers from entering the market.

Previously it had been quoted that seventy percent of the bottom end of the market was made up of Buy to let investors. However, it now emerges that it reached nearly ninety percent just before the credit crunch.

The Government in nationalising the Bradford and Bingley are protecting savers, but it looks as though it will be saddled with the debts of the greedy investors. The problem is that here in Britain and in the US, the governments are trying to support and boost the value of property. When in reality the price of property needs to fall. Only when property falls to realistic and affordable levels can we start to resolve some of our social problems.

With housing costs so high, the long term unemployed can not see themselves having a job and a lifestyle away from the dependency on benefits. Jobs that have been filled by overseas workers can then be filled by indigenous workers. One of the absurdities was that the building industry was being filled by people from eastern Europe, yet we were building homes that were not needed.

I am not surprised that the Bradford and Bingley has failed, but for at least five years, people have been predicting this problem. Had the banks just refused to loan mortgages that went beyond the standard model, then prices would not have soared the way they did. But as the mortgage sellers were making a couple of thousand per deal, then the more they pushed the market up. Yet it is we the tax payers who will pick up the bill, now this flimsy edifice has fallen.

One further detail that has just emerged is that in Britain the level of personal debt is now two trillion pounds, about four trillion dollars. That includes mortgage debt. So while that means we have a lot of money to repay, the number of people that could face repossession is much lower than has been previously stated.

Here in Britain at least, the effect of this will be that most people will eventually, actually see their cost of living fall as housing cost will fall. It will not happen soon but it will happen over the next three years.