UK - London - The City: Bank of England and First World War Memorial , originally uploaded by wallyg . The Bank of England's £50 billion bail out has been made to sound as if the tax payers will be protected from loss since the value of the mortgage debts will be discounted in the exchange for government bonds - the so-called haircut. But the aim remains that of pumping more money into the banking system so that mortgage lending can get going again. But it is an excessive supply of money which has pumped up housing [housing land] prices in the first place. These prices need to be allowed to come down to realistic figures. But what is a realistic figure? Something like the market rental value divided by the market rate of interest, expressed as a fraction. Since market interest rates are around 6%, capital values should be about 17 times annual rentals. On that basis, a house let for say, £1500 a month should be worth about £310,000, but at the top of the market such a house w...
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