April 3, 2008
Has Vince Cable slipped up?
It’s a question worth asking of the Treasury spokesman for the Liberal Democrats after his claim yesterday that 3m families could end up in negative equity within a year. (It’s the front page of the Daily Mail today).
The prediction came within an otherwise timely debate yesterday, prompted by the Lib Dems (see yesterday’s blog) about the state of the economy.
Cable’s analysis was based on the very feasible theory that house prices could fall by 10 per cent over the year. But then his logic went haywire.
“There are currently three million families - three million - who have loan-to-value ratios of properties in excess of 90 per cent, the Council for Mortgage Lenders confirms that.
“If the numbers I have been describing, a 10 per cent fall over a year, are to materialise, all of those families, by definition, will find themselves in negative equity within a year, and many are now doing so.”
The problem with Vince’s logis is that many of those 3m households bought years ago and have an equity cushion which could run into the tens or hundreds of thousands of pounds. His logic only applies to those who bought right at the top of the cycle.
Incidentally, the Council of Mortgage Lenders tells me this morning that it disagrees with the 3m figure. It thinks the real figure would be rather lower. The CML also points out that Cable is presuming that home owners have not paid off any of their debt since taking out a mortgage.
After months in which Cable has proven himself as a sharp Parliamentary operator - he excelled over Northern Rock - this seems a big mistake.
How is this a mistake? If they have 90%+ LTV than it doesn’t matter when they bought their properties - a 10% fall still puts them in negative equity. If they did buy their properties several years ago and still have 90% LTV, then they have either borrowed against their equity since - or they bought spectacularly badly!
Posted by: Derek Bedlow | April 4th, 2008 at 2:40 pm | Report this comment