Thursday, December 04, 2008

The Great Mortgage Insurance Swindle - Brown 'lies' to Parliament

As Politcal betting notes with the picture to the right, Gordon brown won the headline war today with his surprise mortgage announcement. "Mortage help" and "middle class" in the same sentece on the Daily Mail and Telegraph will have made him pleased as punch.

Nevermind of course that bankers are briefing that they've been bounced into something they didn't agree with, with one blaming Mandelson saying,
"You can tell Peter Mandelson’s back in town... The press are being briefed before we’ve even been properly consulted."
What surprises me is that the reporting of this has missed the minor flaw which makes it brilliance just another great big sleight of hand con job.

The big fanfare is that eight banks - HBOS, Abbey, Nationwide, Lloyds TSB, Northern Rock, Barclays, Royal Bank of Scotland and HSBC - have signed up to this, although as already mentioned, there are muttering that they've signed bugger all agreements as yet, so it may still fall apart.

What though I am finding astounding is how easily the words of Brown are taken on face value and no one spots the blatent elephant in the room, or alternatively the 'lie'. For example, according to Philip webster of the Times,

Eight big lenders, accounting for 70 per cent of the market, have signed up to the £1 billion plan.
Meanwhile, the Daily Mail says,

It covers more than 90 per cent of all home loans
The Scotsman says,

Eight major lenders, responsible for 70 per cent of the UK's mortgage market
And the Guardian

eight lenders had so far signed up to the scheme, including HBOS, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays and HSBC. Between them they represent around 70% of the mortgage market.
So we have 70% to 90% of the market share of mortgages. Where did that figure come from? Well that would be the Prime Minister himself who said in the Commons,

The lenders include HBOS, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays and HSBC — already 70 per cent. of the mortgages that are held in this country.
The figure of 70% is a "lie". The banks, and by that I mean all banks, not just these eight, had, as of July 2008, £635,130 million of the £1,214,148 million worth of mortgages held in the UK.

That's 52.2% of mortgages that are from all the banks in the UK. The other 47.8% belong to Building Societies and specialist mortgage lenders such as building society subsidiaries and securitisations. The last time the banks (and again I mean all bank not just the eight mentioned) held close to that market share was 2002 when they held 69.3% of the market.

Since then the specialist mortgages lenders, which include building society subsidiaries and securitisations, has increased its share to 30.6% whilst the banks have dropped to the already mentioned 52.2%. Even if one is generous and accepts that all 52.2% of mortgages will be covered by Brown's latest plan, that still means just short of half the mortgage holders in the country are not included. Thus the Great Mortgage Insurance Swindle is complete.

Stand up in Parliament, propose a special package for the "middle classes" and throw out a figure that is simply not true. The result is a policy which is not really motivated by the need to protect people, it's about getting the "Brown helps out middle classes" narrative out there and pushing the Damien Green story off the top billing.

I'm not sure which is worse. The fact that Brown stood up and basically threw out a bogus figure about the market share in mortgages of eight banks, or the fact that the papers all seem to have reported it as gospel without checking the figure first. "Rescue deal for a million homeowners" my arse! At best it's probably half that and even then you have to be on interest only with one of eight banks.

UPDATE: Slight correction made. The number of mortgages has been changed to the outstanding value of mortgages in million pounds. Apologies, misread legend on table. Market shares remain correct.

UPDATE II: Noted in the comments that Nationwide is not a bank. Correct, missed it. However their market share was reported by them in Novemebr as falling to 5.6% from 6.2%. That means the overall share of the eight remains at highest 58.8% but more likely lower when other banks come into play. That still remains significantly less than the 70% that Brown claimed in Parliament.

Source: Building Societies Association and Bank of England - September 2008

47 comments:

Letters From A Tory said...

Excellent find, another case of Brown 'misspeaking'.

BOF2BS said...

From Financialadvice.co.uk

"Thursday 4th December 2008

As soon as Gordon Brown's new rescue package for homeowners had been announced there were questions being asked about the details of the scheme and who exactly would be able to apply for help. Gordon Brown announced that 8 of the 12 major banks in the UK had already signed up to the scheme, although after being questioned later in the day it appears that many of the banks were slightly surprised by confirmation they had "signed up".

The sector and homeowners are now awaiting the detail of the plan and whether this is in addition to the current mortgage interest relief scheme or set to replace the older scheme. There are questions as to whether the vast majority of home owners will be able to apply as Margaret Beckett seemed to suggest that only 9,000 families would benefit out of a total of 75,000 homes expected to be repossessed next year. If these figures are correct this is not the impression which Gordon Brown gave in his speech to parliament.

Unless the government is able to deliver on promises made to date, there is a serious risk of a backlash from UK voters who have been waiting for more recent promises to be delivered by the government."

QUITE SO

Howard said...

All accurate stuff. But it proves that Labour is winning on spin and perception, which gives the Tories rather a problem

cassander said...

Are there really only 1.2 million mortgages in the UK? For something like 30 million households, the majority of which live in owner-occupied dwellings? I am surprised.

dizzy said...

UPDATE: Slight correction, number of mortgages was actually outstanding value of mortgages in million pounds. Apologies. Market shares remain correct.

Struggling to pay council tax and mortgage said...

Unfortunately, I'm one of those middle-aged people without revenue-raisers, (sorry, children). I get no state aid, (can) never claim benefits and can only find temporary work, so have no income that I can rely on, week after week. Such work that I do get now and again does not earn me enough in a week to receive any "tax credit" or other type of payment. This means that I have to scrimp and use my savings to pay my mortgage, and have done for several years now, missing out on even the smaller luxuries in life, sweating as I choose between paying mortgage or council tax. Even gifts of money for my birthday have to be used to pay council tax. So why is the government now proposing to guarantee defaulters' mortgage interests for 2 years? Sure, defer the payments and add the sum to the mortgage, but paying peoples' mortgages for them if they can't repay those deferments after two years! Are they mad! What message does this send out to people? How does this persuade them to get off their buttocks and look for another job or create a business? And if it is only 9000 out of the total, then we all know what that means - time for struggling people like me to give the chavs money to buy more beer, ciggies and a nice new 4x4, (I mean, to raise the little children out of poverty). All I can say is "Welcome to paradise, Chavs". Gordon wants your vote so badly, he's going to buy you a house.

OK said...

When the money keeps rolling out you don't keep books
You can tell you've done well by the happy grateful looks

Accountants only slow things down, figures get in
the way
Never been a lady loved as much as ...

Obnoxio The Clown said...

And the consequences of all this will be?

Nothing.

Mike Wood said...

Brown was taking punt. He's got the headlines that were the first priority.

He also knows that if the plan works out as he suggested then the Government will be hailed as economic saviours stopping people from being kicked out onto the streets.

If it fails for whatever reason, the Government will find it easy to shift the whole of the blame onto selfish bankers welching on a deal, even though no deal had actually been agreed.

Anonymous said...

Nationwide is not a bank, you nincompoop

Greg

Rexel No 56 said...

Dizzy

An interesting angle on this story - the fact that the Mortgage scheme didn't leak in advance.

Is that because:

a) the Treasury and banks are now watertight and even well thought out proposals, that have been fully consulted on, will not leak; or

b) it has been rushed out without any proper consideration or consultation in order to manage the news for the day?

Hard not to be a cynic.

Also, interesting to note that the tax payer will carry the risk of default on any interest rolled over under the scheme. Are they not effectively doing that anyway for any mortgage held with Northern Rock, RSB, Nat West and Bradford and Bingley and soon Llloys TSB and HBOS too?

Finally, can't wait to see the rate that will be charged on rolled-over interest.

And surely, won't a charge be kept on any property where any interest is paid off by the taxpayer so that ultimately the debt will be collected? You're not telling me that I can default on the roll-over interest, have the taxpayer pick up the bill and years later sell the property and pocket any gain?

Too many questions, my head hurts.

R56

dizzy said...

Yep Greg. Missed that, and update added. Nationwide have a market share of 5.6%. That means the the figure of 70% remains bogus and the point stands.

Anonymous said...

OK. But be careful in asserting that Brown was lying (he will have just chosen the statistic most favourable to him, as he always does). Brown referred to the number of mortgages, not their value. That is a big difference, because relatively low value mortgages are concentrated in the main retail banks and (as you rightly note) the building societies, but then other institutions often finance the really high value ones.

Lord Snooty said...

Apart from quibbling about the market share figures, do you agree, Dizzy, that this is in principle a good idea? Surely better than 'doing nothing', to coin a phrase.

Lord Snooty said...

anon @ 11.46.

I agree that claiming 'Brown lies to Parliament' is crass and misleading. 'Dizzy lies to blog readers' is probably more accurate.

dizzy said...

"Brown referred to the number of mortgages, not their value. "

Actually he referred to their market share which is exactly what I have done in theis post and linked to the figures from the BoE. His figure of 70%, which has been repeated by the press, is wrong.

Lord Snooty said...

Dizzy,

You've already had to make some corrections to your original post. Your credibility as an authority on this is hardly high, so why should we believe you over anyone else? You demonstrably don't know what you're talking about - hence the multiple blunders. Why don't you do another post about iphones or something like that?

dizzy said...

Lord Snooty, in answer to your first question, no I don't think it's a good idea actually. For a number of reasons. Firstly the details actually suggests that very few people would actually beneift from it anyway, and second, when I took out my rather meagre 150K mortgage for a two bedroom terrace house in south-east London I did so with agreement that I would pay it back at the rate the lender said and with agreement that if I didn't and defaulted I could lose the property.

That was a private agreeement between private parties and the Government has no place propping me, or anyone else up with taxpayer guarantees. In fact, i object to my taxes being used in such a way.

I also don't buy the line on "better than doin nothing" because on the flip side what we actually have here is what Humphrey Appleby called "Politicians Logic". i.e. "Something must be done. This is something. Therefore we must do it".

As for the claim of a "lie to Parliament" being crass, Brown clearly said something that was not true. The eight banks do _not_ account for 70% of the mortgages in the UK. Banks in total do not even account for that amount of the mortgages. The Bank of England figures make that clear.

dizzy said...

"You've already had to make some corrections to your original post. Your credibility as an authority on this is hardly high"

Well apart from the fact that of the two updates the first involved the value not number and had no impact ont he point being made. Whilst the second also had no impact on the point being made because the information is sourced from the BoE own figures.

Do try harder.

Lord Snooty said...

I was only asking the question to try and find out your view on the substantive policy issue.

I actually agree with you that this is not such a great idea and I think there are better things that could be done. Where we probably part company is that I think finding means of keeping people in their homes during recessions ought to be a priority. I'm just not convinced this is the right tool for doing that.

On the second point, we are splitting hairs to not much effect, but as you are all too aware, saying something that is not factually correct is not the same thing as lying. Your headline elides this distinction for effect in a way that I think verges on the crass.

Lord Snooty said...

I didn't say that any of your blunders directly affected the 'point' you were making. I simply said that they show you have a shaky grasp on the details and therefore limited credibility to sound off about it.

dizzy said...

Hah, talk about wanting to have it both ways! Even if I think 2 and 2 equals 5, it bears not relevance to the credibility of the agrument being made.

In respect of the headline, I have put the word "lie" in quotes to keep you happy.

Lord Snooty said...

"I have put the word "lie" in quotes to keep you happy."

Thanks!

Prodicus said...

Yes. He lied to the House. And not one 'gentleman' of the press noticed?
It's in Hansard. The banks said that what he said was untrue: they had not 'signed up' to it. Some of them had not even seen the proposal.
Stick to plain langauge. He lied.

DavidM said...

@Lord Snooty

Dizzy is a lone individual posting on a blog.

Brown is the Prime Minister, has the full resources of the civil service to draw on and was announcing a significant policy in the primary legislative chamber of our democracy.

Dizzy is allowed some leeway on the odd detail (especially as he then issues corrections).

Brown isn't and doesn't.

Lord Snooty said...

DavidM

I am more than happy to give Dizzy leeway to make mistakes and I appreciate his corrections. In fact, I admire and enjoy his blog in general. But the making of mistakes, however explicable, does tend to undermine one's authority and credibility. That was my point. As a result, I am sceptical about whether Dizzy's analysis of Brown's alleged mistakes is accurate or not.

dizzy said...

You could just click the source link

Lord Snooty said...

As you suggested, I've had a look at the source. And in my opinion, you have completely misread it. Your post refers at one point to numbers of mortgage holders whereas the source on which you draw appears to refer to outstanding balances. I think you are very unclear on this and the point you were trying to make is completely undermined... which is what I was saying before!

dizzy said...

errr....

"The banks, and by that I mean all banks, not just these eight, had, as of July 2008, £635,130 million of the £1,214,148 million worth of mortgages held in the UK."

That is the outstanding balances part of the source.

"
That's 52.2% of mortgages that are from all the banks in the UK. The other 47.8% belong to Building Societies and specialist mortgage lenders such as building society subsidiaries and securitisations. The last time the banks (and again I mean all bank not just the eight mentioned) held close to that market share was 2002 when they held 69.3% of the market."

This refers to the markest share section fo the source.

I would say that far from me misreading the source it is you that has misread this post.

Lord Snooty said...

Well, by your standards this post was not particularly well written, so maybe I have misunderstood what you are saying.

What is not clear to me is whether the 'market share' section for each year refers to a) percentage share of outstanding balances b) percentage share of advances c) percentage share of total number of mortgage holders. I think that you are not clear on this in your post either. And so your 'point' is lost for me because of this lack of clarity.

I suspect this is becoming boring for others, so perhaps we should agree to disagree.

dizzy said...

Fine.

Anonymous said...

Speaking as proffessional user of these figures...

Many of the 'specialist lender' loans are actually banks. E.g. Northern Rocks securitisation vehicle Granite is included in there. Most of B&B's lending is through 'Mortgage Express', a 'specialist lender', Abbey's vehicle 'Holmes' is in there too as are 'Gracechurch' from barclays. At least three quarters of the specilaist lender section is bank controlled.

dizzy said...

I shan't attempt to dispute that but am curious to know what the BoE figures consider "Banks" in that case? Any idea why they would title the section "Other Specialist Morgage Lenders (incl building society subsidiaries, securitsations etc)" and not include the word bank in there too?

Like, I say, not duisputing what you say just wondering why the figures would make the defintion in one case but not the other.

Anonymous said...

Anon @ 16:22

So you mean that Brown may be right and Dizzy wrong? Deeply annoying but interesting! Thanks for your clarification.

Anonymous said...

Good point Dizzy. The way these figures are presented is a long way from transparent. It seems that no-one apart from 'professional users' can actually understand what the hell they mean which is hardly a good state of affairs.

dizzy said...

"So you mean that Brown may be right and Dizzy wrong?"

Actually I just did the maths and Brown's figure would still be wrong. I would also be inetrested to know if the securitisations, as metnoned, are considered to be mortgages from the Bank that controlled them or not in this case.

For example, you can have a Barclays Bank Mortgage or a Gracechurc Mortgage. Would that mean that the Gracechrcuh mortgage would be considered a Barclays mortgage or not? I'm not sure so it's a genuine question.

Desperate Dan said...

"Actually I just did the maths"

Yeah, wrongly.

dizzy said...

I did?

Anonymous said...

6.30 news ITV 3/12/08
Daisy McAndrew reported banks had not been consulted on detail and were in the dark about mortgage scheme.

Middle Class Anon said...

Another angle - Though GB may have been pleased with 'Middle Class Mortgage Safety Net' headlines, it may not play well with everyone. I for one felt annoyed that he sees the need to try to draw us into his client state. To quote Joyce: 'what is the proudest word you will ever hear from an Englishman's mouth?..."I paid my way. I never borrowed a shilling in my life".'

Update the currency, restrict it (for current purposes) to the middle class and accept that mortgage is seen as different from an ordinary debt and the sentiment still applies for many.

Worse than a pair of socks for Christmas you don't want, this is a 'gift' which is actually offensive. As Dizzy says, it's a private transaction - there's no call for paternalistic interference.

Anonymous said...

Professional user - now home from work:

The figures are collected monthly by the BOE. The various definitions, etc can be found on their website here:
http://www.bankofengland.co.uk/statistics/reporters/index.htm

The data used above is compiled using form IC

http://www.bankofengland.co.uk/statistics/reporters/defs/defs.htm#IC

Being technical here, and probably boring. Banks and Bsocs are collectively known as Monetary Financial Institutions (MFIs) in monetary statistics. MFIs are, historically speaking, the only institutions that can create money by taking deposits and making loans. Now the growth of off balance sheet vehicles has screwed this neat definition up.

Other specialist lenders (e.g. granite from Northern Rock) are not, in economist terms, MFIs. They cannot 'create money' (which MFIs can, they take £10 of deposits and lend out £10, total 'money' now £20, £10 created), as they don't take deposits.

They are also legally separate, bankrupt remote entities. Therefore, even though usually entirely controlled by a bank - they are not included as banks in the data. This really mucks lots of things up for example this recent release:

http://www.bankofengland.co.uk/statistics/fm4/current/index.htm

Which shows money supply exploding but actually just represents moves within banking groups.

To answer one query - if I get a mortgage from NR, it shows up in the 'bank' section, the moment that loan is moved to 'granite', my loan moves to ;the other specialist' section.

Sorry to be a bore.

Anonymous said...

Brown is sunk!

Anonymous said...

I think the deficiency in your posting is that you say that "the figure of 70% is a 'lie'".
I don't understand what the difference is between a 'lie' and a lie. If you want to accuse Brown of lying - and God knows people should because he does it all the time - then just say he is lying. To place the word in speech marks indicates that you are using the word without any real conviction and sugests that your true meaning is something other than that he is lying without saying what that meaning is. In fact, I'd be grateful if you'd clarify: is he lying or isn't he? In thiscontext you might want to look at Jeff Randal's piece this morning on the need for plain speaking on matters of public importance.

Otherwise, keep up the good work.

dizzy said...

If you read the comments you will see that it is in quotes to shut someone up.

Cinnamon said...

So, where is the money going to come from to service those loans for 2 years? The banks will need to find the money in some way, because they don't own the debt but borrowed it themselves.

So, the government needs to do more than guarantee, they would need to actually pay out from day 1, as a benefit that is secured on the house, and then of course it raises all sorts of questions about sharing the spoils of the repossession that will happen in many cases in the end anyway -- and what houses will be worth in 2 years time is also another question... probably 30-50% of the current prices.

As a side note, we keep hissing and cussing about stupid government ideas -- can anyone remember a sensible policy we actually all liked, or at least respected because it was born of common sense?

Brokers Online said...

I have a slightly different take on this.

The bottom line is that right now the UK economy is at breaking point. Traditionally the UK's economy is powered by the housing market, which as you all know, has been decimated by the credit crunch. This underwriting of the mortgage marketet could be just the thing the UK needs to get moving once again.

HOWEVER, I think its worth making the point that if the government has messed up its figures (and you rightly have pointed out in your article above this has happened already in this very issue) it could effectively starve the mortgage lenders. Don't forget that these lenders have all ( bar HSBC ) had to borrow money to restore their liquidity.

Any way for more detailed info on my take click on the title of my post "Good Ol’ Gordon - the white knight again?

tim said...

This deal now seems to pale into inconsideration in my view, it was just a another straw clutched at for another headline. Ironically, I think Brown is best served by bad news if he wants to serve another term.

The market share was certainly misleading but whats 20% between friends!

Few people will benefit from this scheme - Just look at the numbers in the recovery plan in the states - Astonishing!

Tim
Superquote