Monday, Jun 16, 2008
After the comedy from David Smith, reality really stinks for homeowners and BTLs!
Times: Woolwich pulls out of two-year fixed-rate mortgages
Tough luck for those who have to remortgage in 2008. "The Woolwich, the lending arm of Barclays, will tomorrow withdraw all of its two-year fixed rates from the market, citing the need to control customer volumes. The lender has also increased fees from £595 to £995 on tracker rate deals." The Woolwich announcement comes on the same day that the Nationwide Building Society, the UK's second largest mortgage lender, ramped up rates by up to half a percentage point for the second time in two weeks" Got the new meaning of "supply & demand"?? There is alot demand for mortgages and nada money supply! Bet mortgage rates will hit 10% by year end
Posted by confused76 @ 05:06 PM (886 views) Add Comment
12 Comments
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1. Rental John said...
If the mortgage demand cannot be met, that demand will dry up as people give up trying to knab the ever decreasing availability = no buyers = Cuuuuuuuurash!
Surely the lenders are eventually cutting their own throats?
Also - just watch if the BoE have to raise rates to 'stem inflation'.....the lenders will follow suit in a nano-second!
2. drewster said...
Wow those are two big changes, and from two of the biggest lenders! Affordability has now gone; if sellers want to sell, they have to lower their prices. All we need now are some desperate sellers (which we haven't really seen yet)....
3. housebear said...
There's some big numbers in terms of percentages and fees all going up there.
If the other banks follow, that should make the masses think not twice but threes times before jumping in.
All info in the press screems don't buy now if you are a FTB.
I always like to read the coments at the end of these articals, the sentiment has started to sound like a lot of the comments on this site in the last month or so.
4. housebear said...
drewster, do you by any chance know how big their market share is in % terms.
What ever it is, it looks like they don't want that much market share anymore. Coments.....
5. Imminent_plunge said...
It's FTBs who bought last year on 125% low-start mortgages that I feel sorry for. Younger couples have never experienced house prices going down and genuinely believed that if they didn't do it soon, they would never get on the property ladder. A 25-year old couple I know were 'advised' to get a 125% mortgage on a one-bedroom shoebox, so they are paying interest on £225,000 and the flat will be worth less than £100k within a couple of years. They saw renting as 'dead' money and were under pressure from older relatives who should have known better to 'BUY NOW!!!!'
Reality hasn't hit them yet. They can afford the mortgage so don't see a problem. However, their two year fixed rate deal ends next year and as they want children and the flat has a one bedroom flat, will be stuck in a negative equity nightmare.
I can only imagine that their corrupt adviser was making hay whilst the sun still ostensibly shone, knowing that the bottom was going to drop out of the mortgage market. I foresee significant compensation demands for mis-selling in years to come, which will make current compensation paid for mis-selling of endowments and bank charge refunds look like a teddy bear's picnic.
6. it_is_going_with_a_bang said...
Gone are the days of lending recklessly ( for the time being ! ) just to get the numbers - now its a case of getting quality lending and putting enough margin on the core product to support the bank's business model.
If you have a third or half the amount of business there is only one way to go - raise your borrowing rates to compensate - or make alot less money. it's a bank so there's only one way that is going.
Back to the lending criteria of the mid 90's....
7. voiceofreason said...
drewster, I was talking with my neighbour who works for one of the Big 4 accountancy firms. Business is down because customers are pearing back audits to the bare minimum legally required. Quite a lack of jobs out there for accountants apparently.
My guess is that the economy has only really been in downturn since Xmas. There have only been primary job losses so far. Those in the front line like mortgage brokers, EAs, some builders. However, as we go forward, it will turn into a more general slowdown. That will trigger the forced sellers who have lost their jobs. A lot of people can struggle on with "managed" repayments for a while too.
No, the long n short of it is that the party hasn't started yet. We are just in the door, and handing over our coats to the host. Canopes and Vol au Vents by Autumn, main course early 2009. The last dance isn't scheduled until late 09 with an almighty hangover in early 2010. But hair of the dog maybe by spring 2010. We shall see. Anyone want to take this metaphor any further ?
8. inbreda said...
VoR - there have been a lot of forecasts for house prices where the prediction has been for 2010 (being a nice round number). We should have a prize for the person that can find the most preposterous positive claim.
"The london olympics will mean that house prices are 28 times salary by lunchtime" etc
9. drewster said...
housebear, it depends on whether you look at outstanding mortgage debt (i.e. the cumulative loans of the past twenty years combined) or current month-to-month new-mortgage share. For the latter, Woolwich has risen from 8% last year to 20% in the first quarter of this year (source: Telegraph). Bear in mind though that the market as a whole is down 50% from last year, so it could be that Woolwich has stayed more-or-less static while everyone else has cut drastically.
voiceofreason, interesting insight, thanks for that. Unemployment is a lagging indicator - companies don't start shedding staff until things get pretty bad. According to Mish's Global Economic Trend Analysis, in the last two recessions unemployment lagged by 18 months; and in the four recessions before that, unemployment was in lock-step with recession. Everytime the David Smith's of this world bleat about "sound fundamentals" and "strong employment", just remember that they're looking in the rear-view mirror.
10. Spectator said...
4. it_is_going_with_a_bang said...
Back to the lending criteria of the mid 90's.... Back to the prices of the late 90's - early 00's
11. voiceofreason said...
drewster, thanks for the link.
Interesting point on there :
"recession has occurred every time unemployment drops below 5.5%"
Is this some sort of natural feedback loop inherent in the capitalist system ? Some kind of mechanism that means that capital becomes devalued because too many people have access to it, causing recession until it's value (and hence utility) improve again through scarcity etc ?
12. drewster said...
Voiceofreason, your idea is interesting, but I'm not sure if it's correct. Unemployment is a lagging indicator so it is unable to cause a recession, it is an effect of a recession.
Your theory is an example of classical economics. As employment rises, marginal wage costs rise (i.e. the cost of each new employee rises even if the cost of existing employees stays the same). There comes a point where labour becomes too expensive to grow the business any further and existing workers start demanding wage rises. The wage rises cause companies to raise prices (the classic wage/price inflation spiral). At this point banks should raise interest rates to cool off the economy, pushing companies to cut staff. Thus the cycle begins anew. At least that's the classic economic theory.
The problem with classical economic theory is that it doesn't really work in practice. There are always major new elements to each cycle: in the 1970s we had the oil shock; in the 1990s we had the ERM. In the present boom we've seen globalisation and growth in financial services. Chinese goods kept prices down, Polish & Mexican workers kept wages down, and low interest rates after the dot-com bubble and 9/11 meant people didn't need to demand wage increases - they could simply borrow from the banks instead. The BoE and Fed saw no sign of classic inflationary pressures and hence no need to increase rates, even though inflation was rampant in property and commodities. As the bubble pops it will cause unemployment; but unemployment isn't the pin that pricked this bubble.