Sunday, Nov 16, 2008
Deleveraging is the big news, not interest rates
thinkmoney: Low-deposit mortgages: ‘only 60 left’
A bit of an older article, but really it illustrates the point quite well. Also there are probably no low deposit mortgages left. Chose this link because the BBC one has already been posted. See http://news.bbc.co.uk/1/hi/business/7729291.stm. Leverage is what props up house prices, not interest rates. And the banks are being forced to pull the 95% (20:1 leverage), 90% (10:1 leverage), 85% (7:1), and now we are looking at 75% (4:1 leverage). This is the biggest determinant of house prices, not the interest rates. The BOE can't force anyone to lend at higher ratios, so all the interest rate stuff won't help house prices. I am sure Mark Wadsworth has pointed this out. The important thing to understand is that the *main* lever is still with the banks and they are using it.
34 Comments
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1. mark wadsworth said...
... 'pushing a piece of string', is what the BoE is doing. It gets even more chilling when Jack C gives us real life examples of the problems that people have with remortgaging.
2. last_days_of_disco said...
I know its bad for to comment on my own article but its such a simple calculation to figure out where house prices are going.
10K deposit at 20:1 -> 200K house
10K deposit at 4:1 -> 40K house
200K - 40K = 160K -> 80% drop in house prices. Runs screaming from room! If you have a mortgage/house, you just descended to the bottom of the ocean and started digging (underwater as the Amercians say).
I think the big thing is to determine how much of a deposit people can afford, I just guessed 10K as a round number. Also it costs a certain amount to actually construct a house which I imagine will put a floor on the price.
3. planning4acrash said...
When its at this level, they will only be available for existing re-mortgaging customers.
4. planning4acrash said...
What's wrong with commenting on your own article? Sometimes you post, then think of something else, or the window above doesn't have enough space.
5. stillthinking said...
I agree. The only hope for the economy is for the bottom to arrive quickly but it won't. We can't get the deposits together anyway, the more deposits we save, the more likely we are to lose our jobs.
6. last_days_of_disco said...
This has been a big fat con and the party of the "people" i.e. Labour have engineered it. To me it beggars belief that a party who was founded to get a fair deal for the working man could so singularly blight the prospects of the working class of this country for decades to come. The only words I can think of are treachery, treason and betrayal. Literally millions of British families are going to grow up in dire poverty because of this. Children will be undernourished, etc, etc. These things are unthinkable in this country.
The problem is that I can't honestly give people any good news. There is so little hope. Labour has taken a country's trust and completely betrayed it. Once the enormity of the situation becomes clear I trust the electorate will punish the Labour party to the point of extinction, they deserve it.
7. jonb said...
25% seems to be in the "low deposit" category at most banks now, and you need a 30% or 40% deposit to get a decent rate.
8. Markj69 Str05 said...
Abbey 2yr fixed - FIXED – this product is available specifically for remortgages, and offers a competitive rate with an arrangement fee of £995. A 40% deposit will be required, and there is a maximum loan amount of £250,000.
You won't get much with a £10K deposit (£15K loan + £10K deposit = £25K). Good luck house hunting - Maybe find a public lav in Devon. Keep saving, and wait for the change. Give it about 4 yrs though!
9. paul said...
Only bad form to comment on your own article when you wrote it.
Mark Wadsworth does this - what a ne'erdogood rapscallion!
10. gardeniadotnet said...
ldod...> Once the enormity of the situation becomes clear I trust the electorate will punish the Labour party to the point of extinction
Just how exactly do you suggest they do that? Vote Monster Raving Loony Party? Yeah, right.
11. markj69 str05 said...
Abbey 2yr fixed: FIXED – this product is available specifically for remortgages, and offers a competitive rate with an arrangement fee of £995. A 40% deposit will be required, and there is a maximum loan amount of £250,000.
Won't get much for you £10K deposit. May be a lav' in Devon for £25K, but not much else. Not yet anyway. Keep saving and wait for the change, 4yrs I reckon. Then prices will have stabilized, and maybe the finance markets.
12. markj69 str05 said...
@ l'dod (6): Extinction will not change things. Make those responsible accountable for the situation. GB is still going to receive his bigfat PM pension when retired. Can we call this justice? Will the next PM do anything different than fill his/her own coffers? No I don't think do. What deterent is there? None. Like the big fat cats - 'Oh well I did a cr@p job, but never mind i'll still get a golden hand shake and my pension'. 'I'll be all right'
But what is the answer? Someone with a conscience? Everyone has there price - so they say. So I won't hold my breathe.
13. gardeniadotnet said...
markj69 str05 said...>Keep saving and wait for the change, 4yrs I reckon. Then prices will have stabilized, and maybe the finance markets.
No, , no, no and no.
The limbo we are in at present can't be sustained for too much longer. The resolution will be sudden and drastic.
14. Bennej said...
ldod...> Once the enormity of the situation becomes clear I trust the electorate will punish the Labour party to the point of extinction
Just how exactly do you suggest they do that? Vote Monster Raving Loony Party? Yeah, right.
Yes this is a bit over the top but he has a good point, labour have forced the working man to borrow more than he could ever afford just to keep them in power. Animal Farm springs to mind.
15. last_days_of_disco said...
You know I don't buy all this, they are all the same lot stuff (completely).
I still believe in UK democracy and I think that new parties will form. Maybe Mark Wadsworth will be first UKIP prime minister ;-). Who knows? I think a modified Tory party might actually do this country a lot of good. I don't expect perfection here, just not utter betrayal if that is asking too much.
16. markj69 str05 said...
@12 - 'The resolution' as I see it will be a continued decline in house prices. It may be sudden and drastic, but i still do not see any bottom for another 4 rys. OK, anyone trying to call a bottom is an idiot. But if you look at the last cycle, 6 yrs from peak to trough! 10-11 yrs of unprecidented growth, and people think 1 to 2 yrs in decline and it will be over. OK interest rates are not as high as in the early 90's, but where is the money coming from? People are in debt up to there eye-balls, and banks will not lend more that 3x salary unless you have a whacking great deposit.
It'll take a while to find out what happens. So as I say, I'm not holding my breath!
17. amjidk said...
does anyone think it is a good time to buy a first house, at the end of 2009??
18. gardeniadotnet said...
How about Barack Obama as a benign world dictator?
No really, I mean it. I wondered about replacing 'dictator' with 'leader', but that doesn't carry enough weight in the present circumstances.
19. gardeniadotnet said...
15. amjidk said...does anyone think it is a good time to buy a first house, at the end of 2009??
Probably, depending on the currency you are using.
20. stillthinking said...
last_days_disco,
Did you mean 'only 60 left', or 'only 60 quid left'.
ha ha!
21. Davecrash said...
The government should limited mortgages a maximum of 75% loan to value. This would encourage people to save again and would have prevented the all the silly buggers of the last year.
When stupid banks are offering 100%+ mortgages and buy to let mortgages and people are stupid enough to borrow it and default on their payment it’s the good payers who bail them out as per usual in this barmy country. For instance Bradford and Bingley and it’s reckless lending model has caused the financial services compensation scheme to kick in. This is effectively a levy on all the other banks and borrowers who followed a prudent business model. How will the prudent banks pay the levy, they will have to charge the prudent customers more in fees. Whether its council tax, water rates, gas bills, electric bills and now mortgages, it’s always the prudent, bailing out the stupid can't pay/won't pay, I'm sick of it.
22. gardeniadotnet said...
Last week I broached the subject of a 'jubilee'; basically a pressing of the financial 'reset' button.
Tonight, I'll go a step further....
Let's have a Jubilee!!!
We'll soon find out if the old adage 'cream will rise to the top' is true.
23. phdinbubbles said...
15. amjidk said...does anyone think it is a good time to buy a first house, at the end of 2009??
If you are renting at the moment then maybe so - i.e. the old house-buyers argument of dead rental money comes into effect before the absolute bottom of the trough. Prices may still be declining or stagnating and losing value against inflation - but potential reductions in value need to be weighed against rental losses, especially if the crash is like the last one and takes several years to slowly reach bottom.
However, the simple answer would be: buy a house you like, can afford and will be able to pay back over 25 years!
24. gardeniadotnet said...
20. phdinbubbles said... >However, the simple answer would be: buy a house you like, can afford and will be able to pay back over 25 years!
I feel like I'm in a parallel universe.
The (Western?) world as I see it is fupped, yet life goes on in Little Britain as it did yesterday and the day before that day.
Perhaps it's just me.... and yet.... I feel so sane.
25. phdinbubbles said...
Life does go on though, doesn't it? If you've got a reliable income and houses are a lot cheaper, then yes they will be affordable and a sensible thing to buy in the future. Is the western world more fupped than it was in the 1940s? Perhaps it is. Perhaps I am better off in my cheery delusion that houses will be more affordable than knowing how fupped we really are.
26. gardeniadotnet said...
22. phdinbubbles said.. Life does go on though, doesn't it?
With apologies to any Trekkies on board....It's life Jim, but not as we know it.
Even George Bush II recognises a new depression is underway.
If I was planning4acrash I'd shout WAKE UP PEOPLE!!!!
But, I'm not, I'm gardenidiot, so I'll quietly suggest that it's time to wake up people.
27. phdinbubbles said...
I'd certainly agree there's an almighty recession coming. When does a recession become a depression? There are people alive in Little Britain who have lived through one before though, and lived through worse.
Anyway, it's a bit past my bedtime for waking up.
28. gardeniadotnet said...
>When does a recession become a depression? There are people alive in Little Britain who have lived through one before though, and lived through worse.
I remember the recessions of the 70's and 80's and 90's vividly.
This is different. Very different.
It's very different from the Depression ( I know this even though I wasn't there)
29. markj69 str05 said...
Recession, depression, bust, crash, negative growth - Call it what you will, it's pretty much the same, but with varying degrees of damage.
Could a few generations be likened to a turn around the fish bowl? By the time the economy has gone full cycle, there's no-one around to remember the warning signs. Maybe we should set up an organization to protect against such scenario's? Any suggestions?
30. mytimeisnigh said...
There will have to be a slow and painful return to manufacturing if we are to survive this down turn.
31. gardeniadotnet said...
26. markj69 str05 said... By the time the economy has gone full cycle...
The economy shouldn't be seen as cycle, but as a spiral... a downward spiral.
Any suggestions?
This isn't a suggestion, or solution, just a hunch...
(Very) local government
I realise this at odds with my earlier post - I'm just expressing ideas at this stage.
32. markj69 str05 said...
Manufacturing! Ha ha. very funny. And where will we get the raw materials from I wonder? Oh, we could import them, then process them with higher labour costs than those manufacturing in the far east. Do we have the skills still to manufacture? Do we have the human pool ready to work for aliving? I suppose we could employ johnny foriegner to keep the economy going! oops sorry, fellow european.
33. markj69 str05 said...
@ Gardenia (28) - It was meant to be a rhetorical question. Having a dig at the FSA, BOE, govm't, et al. But, I appreciate any suggestions/ideas on the subject.
Anyway, time for bed. Good night all.
34. gardeniadotnet said...
29. markj69 str05
The following responses presuppose there is a global economic collapse...
>And where will we get the raw materials from I wonder?
In the UK we should be able to meet most of our short-term needs through recycling
>Do we have the skills still to manufacture?
Yes - for the basic necessities of life, at least.
>Do we have the human pool ready to work for a living?
Yes, we are a resourceful bunch.