November 10, 2017

When a loan to buy a house is worth more to a bank regulator than a loan to a job-creator, things cannot end well.

Sir, Chris Giles writes: “The reason why we have more “boomerang families” and grown-up kids applying to “the bank of Mum and Dad” is because forming a new household is so expensive for young people. Much pricier than it was for those of us who bought houses in the 1990s.” “However you analyse it, housing is in a mess” November 10, 2017

With Basel II of 2004, bank regulators, assigning a 35% risk weighting of the basic 8% capital requirement, allowed banks to leverage their equity 35.7 times to 1 when financing residential mortgages. But if financing an unrated 100% risk weighted entrepreneur, those who could help create the jobs our young needs to be able to buy their own houses, then the banks were only allowed to leverage their equity 12.5 times to 1.

So if entrepreneurs might have had a 25% possibility of having their credit applications approved in the old good days of one capital for all and all for one capital, now that could have been reduced to 5%.
So should we really be surprised if our young ones end up living without jobs in their parents’ basements?

So should it surprise us if those young one day say: “We were cheated. Ma-and-pa, you move down to the basement, now it’s our time to live upstairs”