When Debt’s Called Credit (3)

We continue to examine the folly of the modern mortgage, following our previous discussions on Golcoin.org in When Debt’s called Credit and When Debts called Credit 2.

There are many reasons why members of what we ought to call the pseudo-propertied classes might need to sell the houses on which they are paying a mortgage, even if the primary reason for owning the mortgage was to have a home rather than an investment asset. Those reasons may include the break-up of a marriage, a growing family needing more room, or the need to move to take up employment.

However, if the market has dried up, there are no buyers. This means that the pseudo-owner has negative equity in the property – the house is now worth less than the mortgage that still must be paid off. There are various ways in which this can be calculated but the honestly stated value is now – zero. No buyer, no value, only a liability.

Late last year a particularly galling instance of this problem was reported: that while middle management jobs are to be found in the South-East of England, those who live in mortgaged properties elsewhere in the country cannot avail themselves of these employment opportunities because they cannot sell their houses. If they are at risk of losing, or have lost, their jobs where they live, or simply wish to earn a larger salary as their families grow they are effectively trapped by their mortgage.

It is also reported that in many cities in the U.K. it is now cheaper to buy than to rent; this should really come as no surprise as this simply enlarges on the fact that it has been made cheaper to buy because of the credit available to do so. The more houses are bought up, the less properties are available to rent, and so rents climb. Renting of course answers the need for flexibility in terms of being able to move as jobs become available, or the family grows.

Yet owning your own home has long been trumpeted as a form of security, both for oneself and for one’s locality. Home ownership was widely encouraged through mortgage tax relief in the 1980s. Homes were seen as a bulwark against daft left-wing local authorities, the reasoning being that the greater the number of people who owned their homes, the more they had a direct interest in how their local authorities were run, in part because the rates they paid became visible to them as householders (rather than being an invisible component of the rent which the landlord charged them). This may have been a laudable aim – but mortgage tax relief was not the answer, as it became one of the chief engines of rapidly over-expanded credit, and therefore the heightened insecurity we are all now experiencing.

In the United States it is estimated that 50% of mortgage holders are “underwater”: “When factoring in second mortgage debt, seller closing costs, and sales commission, more than 50% of owners with a mortgage are unable to sell their homes and pay off their debts.” For more on this enormous tally of insecurity go to Irvine Housing Blog:

by Mark Rogers

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WHEN DEBT’S CALLED CREDIT (3) was first posted on February 17, 2012 at 11:32 pm.
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