Thursday, Aug 23, 2007
Northern Rock initiates moves to retreat from UK sub-prime mortgages by escalating interest rates on fixed-rate loans
The Times: Northern Rock prices itself out of sub-prime
"It (Northern Rock) has now hiked interest rates on its fixed-rate loans for future borrowers by up to 1.25 per cent and scrapped its tracker range". Phew, that's an extra 2500/yr on a £200k mortgage, or 48-quid a week. I know that I'd be a bit pi*£ed, if my rent went up by that much, and I spend nothing close to what a homeowner (flat in Ldn) pays. If this is just the beginning then it must be the beginning of the end. There's no way that house prices can sustain this kind of carnage.
What I couldn't find out is, what is their rate now, their website keeps that a bit quiet, can't find rates on it, what a surprise!
Posted by planning4acrash @ 11:27 PM (529 views) Add Comment
8 Comments
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1. stillthinking said...
Imagine this situation, a car dealer and a car auction buyer. The auction buyer turns up once a week with a load of cars and the dealer sells them on. Cars by chance happen to be very popular so the price for them always goes up and there is no difficulty selling them. The auction buyer starts to get a bit sloppy and buys cars that aren't so good, also the auction buyer can't be bothered putting his own money in so he buys on tick.
Maybe the car dealer might think when a consignment of not so nice cars turns up that he has the auction buyer over a barrel, knowing the whole setup. The auction buyer needs the cash, and maybe the car dealer has enough cars or doesn't like the quality so much.
The car dealer might think he could just squeeze the auction buyer by refusing to buy. He is the only buyer after all. So after huffing and puffing the auction buyer holds onto them, brave little lad, and refuses to take a derisory offer, after all he needs the money.
My point is that, maybe the financiers have just decided to squeeze the mortgage brokers. Unfortunately this backfires on them because the whole price of cars in general suddenly becomes suspect, including the ones they already have. Their little gamble backfires. Suddenly everyone stops and the mechanics are pulled in for a good look at the cars the dealer has, and also the cars the buyer has. In this case Northern Rock is the auction dealer, CDOs and whatever else are the cars, rich financial types are the car dealers, and pension funds are the end buyers. Northern Rock needs to shift the cars but can't, but fortunately there is a rich uncle who knows them both and wants them to play nice, so he lends money to both while the mechanics look everything over.
In the meantime Northern Rock a.k.a car buyer doesn't want to buy anything else because a) busy and b) no tick available.
I don't see how this situation would lead to financial failure. Pension funds go down, which they always do, and one group in the city seems to be in a hair pulling profit fight with another to their mutual detriment.
Eventually the CDOs etc will have an accurate price on them. When that happens this trouble is no more because you can check how often a particular mortgage is paid, and you can check if people are behind on payments, you can check the area they live in, and you can guess with growing accuracy the rest. After that anyone with a loss, has a loss. So I think the reason why there has been no massive tanking of shares (it is like watching grass grow, hardly the Great Depression) is because there isn't going to be that much trouble once everything has settled. Northern Rock has called up work, sniffled and coughed, and taken a sick week.
Maybe the car dealer actually succeeded with the knife, in which case they have a lot of maybe not perfect cars but at dirt dirt cheap prices, not so bad.
?????????
2. stillthinking said...
A house price crash in the UK seems to to me to be about affordability and general sentiment. So this 'crisis' did affordability in, but we still need to wait for sentiment to go and the tide has barely started moving on that. House prices up 40% was on the front page of the London free paper only 3 weeks ago!
3. wiltshire said...
Stillthinking - I think this issue is far more complicated than "I don't see how this situation would lead to financial failure. Pension funds go down, which they always do, and one group in the city seems to be in a hair pulling profit fight with another to their mutual detriment".
If it was as simple as that the markets wouldn't be affected at all.
Just to put it in a nutshell - mortgage lending in the US loses touch with fundamentals, mortgagees in the US begin to default in huge numbers, mortgage lenders begin going out of business (thus affecting more than just the sub-prime lenders), the Dow Jones starts to dip, this affects stock markets around the world. AND STILL no-one really knows how deeply exposed any financial institution is. Plus the whole process will probably be repeated in other 'housing-bubble' / 'debt-bubble' economies in the coming months.
I cannot believe that the unwinding process that we are now seeing beginning will not be historic in it's magnitude. The global financial market is a unique entity. Men think they can control it and they do have it tamed most of the time but every once in a while it asserts itself (.com boom and bust for example) and reminds men of their (financial) mortality.
4. planning4acrash said...
White Knight, you are right, a crash aint so bad, so long as you can seperate your own dealings from the bubble and make yourself recession proof. If you do that then a recession will be great, because your standard of living will improve once assets are suitably priced and you can get your slice of the pie. Its just like surfing a wave, the inexperienced get washed away and looks a fool whilst the person who judges it properly takes the wave in, does a 360 and tube ride, looks impressive and gets laid!
5. planning4acrash said...
Oh, and I reckon sentiment is irrelevant. There are always enough sheeple to take whatever credit is offered. Its the money markets that make the decisions in this market. Therefore the sentiment in money markets needs to change and the sentiment of buyers is irrelevant, because they just lap up what's given.
6. Orwell said...
Go to Guardian / Observer money and look at the best deals for mortgages about 6 - 12 months ago. They were always the lowest!!
7. Realist said...
What is interesting is the number of subprime/self certified lenders either pulling out or raising rates significantly. A lot of borrowers from this sector will be active churners of their mortgages looking for new deals as and when they can. Not only will they have to contend with higher interest rates when their current deals expire but also significantly higher lenders' margins.
The era of cheap money for borrowers without clean credit or reliable earnings is well and truly over.
8. su said...
p4acrash. I got this through Google.
Sponsored Links
"Northern Rock Loan Quote 100% Acceptance. Rock Bottom 4% Deals...Homeowners Only."
NorthernRockLowInterestLoansUK.com (If you try for a free quote the maximum they'll quote you for is £75K.)
Other Northern Rock sponsored links suggest 4.5% for homeowners, but on these sites you can apply for larger loans. Funny these rates aren't mentioned on the actual site!