Debt is a bad thing – but what about mortgages

If I have understood the situation correctly, one of the root causes of the global financial crisis was to do with house lending (which is what I will call mortgages in this post).  I have added a separate post explaining how.

If we are to get rid of commercial debt, this will include mortgage lending.

So the question is what effect will this have.

I do not support the government’s Help to buy scheme because in my view it perpetuates the problem of inflating house prices by making borrowing too easy.  However, I do recognise that people do want to buy houses.

By taking away the ability to borrow to buy houses, house prices will go down.

Lower prices will mean that people will (at least to start with) feel poorer, because they no longer have the same equity in their houses.  And initially there may be problems over negative equity (owing more on the mortgage than the value of the property).

But my plan of phasing out commercial lending over an extended period (probably set at the length of the longest commercial debt plus a little) should mean that, when the day comes, mortgages will already be a thing of the past.   Over that period the mortgage should have been repaid anyway.

House-building companies with large land banks may find it more difficult to make a profit.  But again the time taken to phase out commercial lending should provide a period to come to terms with a new way of operating.  As with private landowners, the biggest problem might be negative equity – if the land bank is financed by significant borrowing.  This is going to be more difficult than private borrowing as the finance is short-term rather than long-term which means that the drop in value will need to be dealt with sooner.  This could lead to company failures so is there a need for some form of government support?

Might landlords have a similar problem?  They should not as borrowings should be covered by rental income, but a fall in the underlying property value might create problems with some lenders.

Looking at the situation positively, lower house prices will mean that they are more affordable for everyone.

And in the long term, the absolute price of a house is meaningless.  What is more important is the ability to buy and sell – and pay a higher price if you are moving “up” the market or withdrawing money to spend on something else if you are moving “down” market.


Is there something we would need to do to replace mortgages?  This is a really difficult question and I have not come up with a workable answer.  I have tried to imagine a system of “instalment payments” being available to house-buyers but the mechanism seems to be far too complicated.

If someone has an idea please post it here so I can incorporate it in my white paper.  I will check all posts before they appear on the site so I can keep it anonymous if you tell me to.

Debt is a bad thing – personal debt

My grandfather was a milkman.  My mother (the milkman’s daughter) was very cautious about money and my father still is.  I remember when the bank sent us a credit card through the post and my father cut it up.  He had not asked for it and he did not want it.

I was taught that buying goods on hire purchase was buying on the “never never” and was something we should never do.

I now have 2 credit cards which I use regularly and have had for years.  When I bought my second car I took out a bank loan (please dont tell my father).  My first car was so cheap you couldnt borrow that little!

When I went to university I got a grant and came out debt free.  My children had to take out student loans.  Most students these days also end up with large overdrafts.

When I finished at university I chose what job I wanted.  I was chatting to a barman the other evening and he said that he had just finished his degree and that jobs were hard to come by.

Why am I saying all this?  Because it shows how the world has changed over a relatively short period of time – within my memory.

In particular attitudes to debt appear to have changed radically.  My mother’s background was to be careful with money.  Today’s attitudes seem to be “borrow now pay later” and TV adverts are now offering “payday” loans with interest rates measured in thousands of percent compared to a bank base rate of only ½%.

This must be a bad thing because politicians are talking about what they should do about it – should they introduce a limit on interest rates which can be charged.

If my idea of introducing a ban on commercial lending is brought in, then all payday loans, credit cards and other forms of debt will be outlawed.  This will remove the problem of high interest debt, but will it create other problems?

I can see that there are reasons why people may want to borrow – a crisis when the car breaks down perhaps.  So the big question is – can we come up with alternatives?  Or are there circumstances when only a commercial loan will do?

So please comment on the sorts of circumstances when money is needed (and might now be borrowed) and what alternatives you can think of to commercial lending.


As the first post on this new blog, I thought I would try and set out what I am trying to do.

I have been worrying about debt (personal debt problems and the global debt crisis) for a number of years and wanted to see if there was something that could be done about it.  I even tried reading a few economics texts.

As a result I started to think that debt was a bad idea.  Whilst I am not opposed to the idea of debt in principle, we just dont seem to be able to handle it.  And then it becomes a problem and the problem becomes a crisis.

So can we live without debt?

I have started writing  a paper which tries to address the issues that a debt-free society would face.  I am not clever enough to have all the answers and some of my answers may not be practical.

So that is why I am starting this blog – can you help by helping me look at the issue and whether we can change the world!