Share Miles madness?
Speaking in Dallas Texas last month MPC member David Miles came up with what many may see as a bizarre take on how to avoid future housing booms and busts. Citing high loan to value borrowing as the reason for market gyrations Miles advocated starting a market in equity loans. Finance for your typical house purchase would have three elements: First, the borrowers Deposit as their equity stake, second a mortgage loan and third additional equity in the form of an investment from a Third Party institution that wants to take a punt on house prices. If the value of the house goes up then the Equity Loan Company gets a return if it goes down then the hit is shared by the Borrower and the Company. It all sounds spookily like a privatised version of the Government’s Help to Buy scheme. Rather strangely, Miles doesn’t mention unsustainably high UK house prices as still being the problem. There’s just a footnote which states that in the US a typical house costs 3 times income, in Germany Ireland and Canada around 5 and in the UK around a whopping 7. It seems that in other countries prices have been allowed to fall to affordable levels. Why not the UK? Perhaps the tax payer funded Banks couldn’t take the inevitable hit to their balance sheets.
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