Government Guarantees and Mortgages
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Government Guarantees and Mortgages

Government Guarantees and Mortgages


Trading Features / Strategies from Simon Denham of Capital Spreads.

The headlines in the newspapers today will almost certainly focus on the 1.7% monthly drop in house prices which will be adding further pain onto an already hurting building sector. The net fall on the year is now over 8% and if you add in inflation to this mix the actual asset value is some 12% lower than last summer. Before people start screaming too loudly it must be pointed out that this is rather better than the performance of the FTSE 350 and Aim markets over the same period. If you consider housing as an asset, like any other, it is still doing quite well!! Not that it feels like it of course.

The government is being called upon to ‘do something’ along the lines of the Fed over in the States but the idea of putting some form of guarantee on new mortgages (thus creating a sort of quasi Fannie Mae/Freddie Mac) could add huge amounts of risk to Public sector debt level and possibly without giving any added benefit to the housing market. The indigestion over the massive Money growth over the last ten years is now beginning to hurt. Printing more money in the hopes of keeping the party going for another few years (until the next election for instance) risks destroying everything as it would increase the risks of an inflationary spiral getting way out of control. This route has Zimbabwe firmly printed on the signpost. Better to get the pain out of the way in as short a period as possible, encourage the banks to build up balance sheets in preparation for the turn around in the world economy, and try to get a grip on the public debt wastage whilst, conversely, spending more on infrastructure improvements.


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It is not the Governments job to ensure that house prices go up year after year after year. This is firmly in the private sector. Of course Labour have to some extent rather taken the plaudits for ten years of house price gains so it is fair to blame them to a certain extent for the falls. However in the current global environment there is really very little they can do to stop the rot now.

Across the globe we have seen the financial sector cost of the credit crunch but I am fearful that the next 18 months will show the fall out effects across the rest of the economic sectors.



The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.


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Article provided / approved by Capital Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.

'Government Guarantees and Mortgages' edited by SD, updated 31-Jul-08



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