Several months after banks and building societies realised that lending people all the money they needed to buy a home – and then some – was not a terribly good idea, the Prime Minister has called for an end to 100% mortgages. He clearly hasn’t logged on to a mortgage comparison site recently – why would he living rent free in Westminster? If he had he would have discovered that 100% mortgages have been dead for some time. Even a 90% mortgage – which means on average you need to have saved up a deposit of £16,000 – is expensive, as rare things tend to be. If you want the best deals then you must have a deposit of at least 25% of the price of the house and preferably 40%.
Even if you do have the cash any tiny blemish on your credit record will cause the lenders to turn you down. A payment missed on your credit card – even a few years ago – or a problem remembering to pay your monthly mobile phone bill on time can be enough to stop the now ultra cautious banks and building societies from lending you a penny.
Because that is what a credit crunch is. It is a time when there is what economists call ‘non-price rationing’ of credit. In other words borrowing is not just expensive – there is very little of it about at any price.
Recently journalist colleagues have tended to shun this precise phrase, preferring looser terms like ‘downturn’ or ‘recession’ or even ‘depression’. But a credit crunch is what we are in. No-one knows how we get out of it. Perhaps we can’t. And in some ways it is simply a return to those old-fashioned values Gordon Brown likes.
He wants to see ‘the reinvention of the traditional savings and mortgage bank’. One City analyst I heard recently called it a return to Quaker banking. None of his audience quite knew what that was. But they all knew exactly what he meant. In fact Quakers were big in banking in the eighteenth century. Sampson Lloyd – whose name now survives in Britain’s biggest banking group – was a Quaker as was Jacob Barclay. No collateralised debt obligations there.
Now that Brown has joined the campaign we might call it Presbyterian banking. Though in some ways it is better described as atheist banking – don’t do anything that will require divine intervention to put right.
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