Former Monetary Policy Committee member Professor Charles Goodhart was responding to the consultancy Fathom’s description of ‘zombie households’ only able to remain in their properties as long as interest rates remained low.
He argued against its call for banks to ‘slay them’ by writing off residential mortgages, saying repossession drove down housing prices and consumption, which in turn created social and human disasters with political implications: “You only have to have a few people who are going to be foreclosed jumping out of their houses and committing suicide as happened in Spain and what you get then is enormous political pressure to stop all foreclosures.
“Under those circumstances what happens is the potential threat of foreclosure disappears and a very large proportion of those with mortgages stop paying. When they stop paying altogether, the banks get into worse and worse trouble.
“The so-called zombification has actually meant that the housing crisis hasn’t been so bad, the consumption and unemployment situation hasn’t been so bad, the banks have steered a really rather good course under difficult circumstances. My thought is three cheers for zombification.”
More complex home financing products where banks held equity in the property might be an answer to the housing market’s problems, if not for banks’ fears of accusations of mis-selling, he suggested.
“I think this will have an unfortunate effect on these products over the next few decades,” he said.