Since everyone has an opinion about the economy and debt, I thought I’d just add my own thoughts for what they’re worth.
Banks have been too quick lending money they don’t really have to people who can’t really afford to pay the debt. The mortgage crisis in America seems to be based on this basic reality. We have an aspirational society, and that’s mostly good, but it does seem that we need to set parameters. I hate rules as a rule, except grammar rules because they’re cool and funky, but sometimes they’re necessary to protect us from our own stupidity. I look at it this way, we have speed limits because people need to be told that it’s dangerous to drive too quickly, both for themselves and for others. The same principle applies to money.
Limit the debt
Here are my limit the debt rules, then:
- Limit personal credit cards to a maximum of two per person over 25, and one to under 25s
With the prospects of massive student debt young people should really be limited to the amount of debt they can deal with until they start to get to grips with their student loans and have grown up at least a little bit. - Limit mortgages on non-commercial properties to a maximum of one per person
Buy-to-let and holiday properties are making it near impossible for young people to get onto the property market without loading themselves up with an incredible amount of debt. In the area where I live, the past 5-8 years has seen a near frenzy of buy-to-let purchases – much of it on interest only mortgages. Buy-to-letters tell themselves that since there is demand for rental properties that it’s a safe route to go. Of course, the rental market is so big because they’re buying all the properties at terms that the first time buyer can’t compete with.Property prices need to come down, and it seems to me that restricting demand from buy-to-let and holiday properties will go a long way to pushing prices down. Besides pushing prices down this will also restrict the ridiculous amount of debt that amateur buy-to-let buyers are letting themselves in for. I have nothing against people owning more than one property, but they need to be able to buy their second/third properties outright.
- Limit loans based on property equity to those who have 40% equity or more in their property. It seems that people have been taking out loans on property valuation rather than actual equity. As we have seen, prices can go down as well as up.
So there you go, if Mark ruled the world he would do this.
