Friday, Mar 21, 2008
If this spreads to larger lenders how will people without cash buy homes?
The Times: Building societies withdraw mortgage offers as credit crunch bites
Building societies began turning borrowers away yesterday. A series of small societies, including Bath Building Society and Earl Shilton Building Society, withdrew all their home loan offers after it became impossible to secure funding for lending
Posted by titaniccaptain @ 05:47 AM (1398 views) Add Comment
21 Comments
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1. Lloyd said...
I think the point is if you are unable to save enough for a decent deposit, you are equally unable to keep up with payments of loan of any kind, secure or unsecured! I would think this is a given. However the so called experts have over the last decade here and accross the pond seemed to be unaware of this. Experts in banking Hmmmmmmmmmmm!!!!!
2. hpwatcher said...
Simple answer. They won't be able to buy.
3. Fed Up said...
I fear that the Times is hyping up a run on a building society.
4. Hyrax said...
Now the credit crunch is hitting the high street, this will get political very quickly..
for a generation that gets upset when flights cost more than a fiver or when their cocktail stick has the wrong colour parasol
this will be a bewildering experience. Problem is sense of community that has seen us through economic harship
has been driven away by "me and now" psychology. Where now?
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6. paul said...
Did anyone see the BBC's lame attempt to paint an optimistic picture of the BTL market this morning?
Criminal. Public investigation required.
7. japanese uncle said...
As I mentioned earlier, some of the banks and BSs will have to ask borrowers to raise 40-50% deposit as prerequisite to any mortgage arrangement. And ultimately buyers won't be able to secure any mortgage deal at all. Then house prices will have to come down to the level at which buyers can afford only in cash. It's now becoming the reality at a frightening pace, providing yet another case to endorse the scenario of 25% HPC in 2008 alone. Things are entirely different, I mean worse than the 1990 housing collapse in Japan, due to the presence of debts and deficits of all kinds that surround the UK, let alone massive financial crisis in nearly all asset markets and that in nearly all advanced economies. Compared to this, 1990 Japan was a case of soft landing, looking back from now.
8. cyril said...
I remember when building societies used to lend out their depositors' money not borrow it off the wholesale markets. In those days, mortgages were hard to come by and this put the brakes on economic growth and house prices. I'm not sure who changed the rules (Thatcher's gov I think) but a borrowing binge, demutualisation and everything else followed it. Looks like we're going back there again for a while.
9. enuii said...
What should we all expect when we have hollow mids running a hollow economy.
10. Mr Plumbase said...
Yes Paul, just caught that report on flats in Birmingham, prices almost doubled since 2002 (positive) , although things have slipped by around 15% in the last six months (negative) but (positive) young and upcoming population, vibrant cafe culture, booming economy, sound fundamentals blah blah blah.......
At no point did anyone even hint that prices might be to high.
11. I Don't Want A Buy-to-lose said...
My landlord bought the house I currently rent for 200,000 in 2005.
I pay 850 a month in rent, at a 7% interest rate that would only cover:
Repayment you could pay a mortgage of 120,000
Interest only you could pay a mortgage of 145,000
It would not surprise me if a 20% deposit was paid as the minimum required. (over leveraged) So I reckon a mortgage of 180,000 is on this place. Interest only as well. This is fine when rates are at 5% but at 7% and the banks are charging ever more for money. Probably on a fixed term/discounted rate for a few years, they will need to remortgage. This is the UK's sub-prime timebomb.
This is how the buy-to-lose will unraval. Renters you may be able to step in if you like your house and don't want to move in the next 10 years then you could step in buy the house at a discount as your landlord will be in poverty paying for you to live in the house. Its going to get so messy. Very messy.
12. Crashwatcher said...
I Don't Want A Buy-to-lose - So your landlord has to make up the shortfall of £400 a month and currently he's loosing 2% per month in value (£2,000). Plus Fees, Tax and maintenance - £500. Each month then this year it will cost him 30,000 to be your landlord. I was going to say to 'own' the property - but they will probably soon have negative equity so will have nothing but a liability.
There's a 3 bedroom house down the road from me for sale for 180K - Nice little property - it will only cost you 30k for the privilage of owning it for the next 12 months (thats if you find tennants otherwise it will cost you 40k). BTL - the easy way to loose your pension.
13. Lloyd said...
Renters ought to start demanding lower rents or else. There are a lot of empty flats about with desperate landlords that want them filled at any price. Better still if more renters keep moving landlords will be come more and more desperate, and hopefully it becomes a dog eat dog situation. Give them enough rope I say. Another tactic would be to get a new place stay a while nad then and do a bunk. Nice!
14. drewster said...
I Don't Want A Buy-to-lose.....
I think your landlord will be paying closer to 5% or 5.5% interest, assuming he took advantage of a two- or three-year fixed rate back in 2005. Assuming a 15% deposit and a 5% interest rate, your landlord is paying just £708 a month in interest payments. At 5.5% (current best BTL mortgage rate) he would be paying £779 a month. With your rent at £850 he's still firmly in the black.
Subtract the running costs: void periods, non-paying tenants, maintenance, damage, insurance, risk of higher interest rates, etc. Also subtract the £30,000 deposit and factor in the risk of losing even more as prices fall. Now the picture looks a lot less rosy. I wouldn't envy his position!
15. A Saver said...
The banks are now only just starting to do what they should have been doing - being prudent and avoiding subprime/alt-A/interest-only etc loans but it's TOO LATE for that now.
Things have moved on and now it's time to be ultra-cautious. If they do this for a while, maybe things would slowly improve and they could go back to the prudence model.
BTW Moneyweek and the Telegraph have useful updates on which are the safest UK banks.
16. Cheekie Charlie said...
JU said "Banks and BSs will have to ask borrowers to raise 40-50% deposit".
No wonder the government is pushing the shared ownership scheme, they'll fix it so a buyer doesn't have to come up with such a sizable deposit all to keep the housing market artificially high. It's a sceme no better than developers inflating the valuation and offering to pay the deposit! Problem is there's no silly money left.
17. quiet guy said...
@japanese uncle
"25% HPC in 2008 alone"
I'm not convinced. If you threw a line like that into a typical pub crowd conversation, people would think you are a nutter. Until the average punter starts to realise that prices have peaked (and many of us called the peak in 2005) then most sellers will just sit it out and wait rather than cut prices substantially. Also, the smarter punters who accept modest discount offers will get a good price from naive buyers who think they are buying a bargain. Even with all the doom in the news, I predict a mostly stagnant market with gradual drops this year. Nobody wants to admit to themselves that they've lost a pile of cash on a property.
Well that's my take on it; I don't see any real fear out there yet.
18. rocket robbie said...
With all the bad news coming out at the moment its easy think HPC is any day now. I cant help thinking (even though its criminal) we will see the BoE cut the IR US style over the coming months. I expect that will keep the market afloat for another 9-12 months but ultimatley only make things worse!.
I think 12 months from now we will start to see serious monthly delicines
19. Fed Up said...
Overall the housing market is still in the 'denial' phase and it is likely to be until later this year. Let's face it, next to nothing is selling at the moment. Vendors have been told there will be a 'spring bounce'. Well it ain't happening. The summer is usually stagnant, so expect the autumn to bring the price falls. By next spring there will be no talk of a bounce. The slump will have gathered momentum, even with BoE base rate cuts. Next year, even the EAs will realise that reduced commission is better than no commission. Two years from now the price falls will be greater even if the base rate is lower still. So put your savings into 12 or 24 month fixed rate bonds and wait.
20. bystander said...
I hope you are not right, rocket robbie, and that they allow for a market correction, or the pound in our pocket really will be worth Shite.
21. sold out said...
@Quite guy
JU's quote "25% HPC in 2008 alone"
I must admit that 3 months ago i would have never believed that it would be possible for such huge falls this year,but who knows.The sheer magnitude of recent events within the financial sector (northern rock/bear stearns etc) and the likely hood of more shocks to come.This crisis is looking worse by the day so falls of 25% this year could be possible.One point that i believe is being overlooked by many are New Builds.The likes of Bovis,Barrets,Redrow etc are struggling big time to sell,they are at the moment offering inducements to buyers like payment of stamp duty and other gimmicks.What happens when these dont work and there are no takers.Theses companies need to maintain turnover to stay in business and surely eventualy they will need to start slashing prices just to survive,in other words the builders become distressed sellers.Once these properties are reduced by say 10 to 15% then surely that will pressurise estate agents/private sellers to re-price accordingly.
The prediction of "25% HPC in 2008" is looking more feasable than "a mostly stagnant market with gradual drops this year."