Why do we need Mortgages?
I think for most people this question will seem entirely pointless, because for most people this is the only way they can afford to buy. But for me I looked at the mortgages being the problem with the crazy house prices and debt and hopefully this article will explain my logic.
History Of Mortgages
Mortgages originally started as basic loans and can be seen to go back all the way to the 12th century in the UK, these loans were a piece of land (or sometimes property) which was offered in security for this debt. It was common for the title to the property to be transferred to the lender until the loan was repaid. So effectively it is reversed and most likely more risky as you could lose your house which you already worked for.
A housing boom after ww1 was caused by legislation such as ‘Homes for Heroes’ which made it easier to war veterans to own property, plus further acts which encouraged the buildings of houses at a cheaper rate. The greater number of houses caused banks to lower interest rates on Mortgages and a lot more middle class got on the housing market. This continued up until outbreak of ww2 where the building of new houses stopped.
Standard of living continued to raise after ww2 and by the 1970s and 80s government put in schemes encouraging to buy our own houses.
So overall mortgages were a really good thing, they allowed the working class to buy there own property in times where they wouldn't be able without one. But are they still necessary? I don't believe so, the gap between the poor and the rich has decreased, the poor also have a much higher standard of living than 20 or 100 years ago. This is why I believe the poor will be able to buy their own home through the removal of mortgages.
Why Mortgages Need To Be Removed
Currently if you are selling your home for £200,000 the majority of those people will unlikely to be able to afford more than minimum deposit. The minimum is 5% so in this case 10,000 is needed. But my point is if you remove the ability to bridge the gap through a loan and the only buyers are ones who can afford minimum deposit then basic economics tells me the value of the house becomes 10,000. Seems simple you might argue the rich will buy all these up but this will have a knock on effect to their property as well.
Plus you have the fact that you are giving all this extra money to the banks through interest which takes away from the UK economy and the general wealth of the public. And look at this! "According to the FCA (Financial Conduct Agency), in 2014 there were 10 million outstanding mortgages accounting for £1 trillion which had been borrowed in total". This would clear almost half the UK's debt which currently stands at £2,043,128,900,000 and is growing at £5,170 a second. So with half this debt cleared then the value of the pound would go up exponentially and would have a huge increase of the general wealth of public.
But there are negatives to this, obviously home owners will suffer and this would likely be unpopular as people have been ingrained with the idea of mortgages since birth so they will be scared of the change. But as shown by this article the effect it would have would be incredible.
How it would be implemented
This will be implemented through a slow increase of the minimum deposit until it becomes a 100%. 5 percent per year or 2 would be manageable and would need at least 2 terms of government office to succeed.
Sources Used
https://www.familymoney.co.uk/uk-mortgages/uk-mortgage-guide/history-mortgages-uk/
https://www.moneysupermarket.com/mortgages/first-time-buyers/how-to-raise-a-deposit/
http://www.nationaldebtclock.co.uk/
Please resteem if you also see my logic and upvote to give me support. Also feel free to argue against this and i'll give you some counter arguments.
I can see the logic but I think it would be impossible to implement. It would have to be a worldwide policy or people would still get mortgages from foreign banks. I think the problem in the UK is that we're obsessed with owning our own homes, however hard it is to pay off the mortgage. More cheaper rental properties might improve things.
Property is a great investment and many people that have zero savings still have something when they own their home. I think declining property prices would probably have a lot of negative economic repercussions.
It would be relatively easy to remove mortgages, you can pass legislation that applies to any home within the UK. And I agree that we need cheaper rental accommodation but that will be cheaper to do after the value of the pound goes up. I actually think the opposite will happen, if it happens gradually then people will have a lot more money to spend monthly and also be better of due to value of pound increasing.
If the pound goes up, exports become more expensive, people stop buying our goods. The economy suffers, then people find it even harder to buy a house. If people have more money to spend, wage growth slows down. Part of the reason why wages are high is because people have big mortgages to pay off. The banks would all collapse, might not seem like a bad thing but many people rely on them for their pensions. I think there would be a mad rush to sell houses and move to a country that doesn't do this :)
We don't export much anyways except services. Wages wouldn't need to grow if the price of living is lower. Banks wouldn't collapse they would just change and they would have to, this would be a gradual process obviously if you did it all at once then your scenario would happen.
£50,000 million a month in exports is a significant amount. Also, aren't mortgages in personal debt and not the national debt? I'm not sure why it would make the pound increase in value?
Well i'm assuming the debt is still in the pound and it states it is national debt and the national debt is higher if you include pensions ect. Why would the exporting cost go up for other countries, surely the UK economy would adjust and lower the amount of pounds payed so the value becomes the same as before.
To lower the value of the pound, more have to be printed and put into circulation (quantitative easing) but that triggers lots more economic problems, like stagflation. That's happened in the past decade, it hasn't worked well.
no i'm not talking about lowing the pound in general that goes against the idea. The payer for our services would just pay less in pounds for the same value
An interesting idea that needs continual discussion. This type of change to current infrastructures would take the time when the new generation takes over.
Yes obviously home owners will unlikely take kindly to the idea at first but when educated on the benefits then I believe it could become popular.
Voters don't even want to pay more tax for a decent health service. I wish it was true that people would understand that some pain in the short term pays dividends but history has shown that they don't. That's why successive governments haven't taken tough decisions because they don't want to risk losing voters.
The problem is no matter how much taxation the current health care system will continue to get worse, but I agree its incredibly difficult for governments to take difficult decisions.
I think healthcare could be much more efficient if they concentrated more on prevention than cure but that doesn't get instant results.
Yeah plus people are weak and will likely give up if the results don't come.