Sunday, May 24, 2009
More balls from David Smith
Times: Lenders need more bottle on deposits
The insistence by lenders on reserving the best mortgage deals for those with large deposits is holding back the recovery in activity in the housing market. Everybody knows the plight of first-time buyers.
The latest figures from the CML shows mortgages to FTBs averaged 75% loan-to-value ratio in March, down from 89% last year. Without a deposit equivalent to a quarter of a property’s value — a year’s salary or more — they are locked out.
There are modest signs of a thaw in the mortgage market, and some lenders are beginning to offer better deals to borrowers with slightly smaller deposits. That makes sense. Many of them think the house-price falls they were protecting themselves against have nearly run their course, removing the argument for excessive caution.
12 Comments
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1. paul said...
A desperate last fling of the dice to counter the empirical evidence coming through that there's still a lot further for prices to fall.
Noshbag Smith must be deep in nequity.
2. This comment has been removed as it was found to be in breach of our Blog Policies.
3. novice pete said...
flogging the dead horse springs to mind from the film of the book catch 22, me is a little drunk by the way!
David Smith blah blah bluddy blah!
4. fubar said...
That's either a stunningly thick headed piece or desperatly cynical. I can't work out which. FTB's are being kept out of the market by nasty cautious lenders. Has Smith been consistently a champion of FTB's? Remind me. Was he complaining that cloud cuckoo land asking prices were shafting those same buyers?
5. timmy t said...
"How much is the insistence by lenders on reserving the best mortgage deals for those with large deposits holding back the recovery in activity in the housing market? Quite a lot."
Actually, I think you'll find the requirement for large deposits is driven by the exact same principles as have always been around - i.e. if you are high risk then the cost goes up. How can making cheap credit available to make the housing market "recover" possibly be an answer to a problem created because cheap credit made houses unaffordable? I wish one of these people would actually define "recovery" too. If you ask me, a drop in prices to 3 times average salary would be a great recovery. I don't think they would agree.
6. japanese uncle said...
Charlatans need more bottle on confessions of truth.
What this economy, as well as all advanced economies on earth does need is the system for shifting enormous wealth switched hands during the bubble era, by punitively progressive income and asset tax or land value tax or whatever measures. Bonus and dividends paid in the financial sectors in the past decade that should never have been paid from the beginning, should be withdrawn retroactively by some effective siphoning measure. Derivative deals between financial institutions must all be mutually cancelled out (whose only raison d'etre seems to be the pretext for the financial conmen to siphon money in the name of commissions), to rid the world of additional volatility and burden. Trillions of money seized can be redistributed to the common workers\consumers, whose spending will put an end to the 21st century Great Depression.
7. sybil13 said...
Its a crying shame isn't it that FTB's are LOCKED OUT of the property market because lenders do not want to lend more than 75% of an overvalued property that EVERYONE knows is going to fall 40 - 50%. You just can't imagine why they would be doing this given that the Moodys has downgraded 16 lenders on the basis that "the assumption now is 40% falls" but stress tested for 60%. You can't imagine why lenders are so reluctant to lend when there are already 1 million in negative equity and rising , when there will be more repossesions this year than properties built, when the FSA are stress testing building socieities and calling for government help as they confirm they ae not in a position to absorb future losses. The recent stress tests on RSB and Lloyds stress tested too for 50% falls and a recession lasting another 2 years. MESSAGE TO FTB'S REJOICE LENDERS ARE LOCKING YOU OUT RATHER THAN INVESTORS / BTL'S PRICES WILL FALL AND YOU HAVE NOTHING TO LOSE BY WAITING.
8. confused76 said...
David should do the decent thing and transfer to the Lifestyle section
9. britishblue said...
When you visit a second hand car dealer, he doesn't tell you that he is unsure of the history of the car he is selling you: thats It is a bit of a gamble: that he picked it up two weeks ago for 2/3rds of the price he is selling to you and to make his money he just needs to get through the three month warranty he is giving you as part of the deal. IUf he told you the truth he wouldnt be in business.
Likewise the banks cannot tell the real truth that they expect house prices to crash a further 25% otherwhise they are unlikley to be in business longer term and would make that prediction come true an awful lot quicker. They would also be slated for pulling the market down.
However, If on average a bank is are demanding 25% deposits from people with good credit ratings, then this probably indicates that they expect the property market to fall around 25% give or take a further 5%. If they we sure that property wasn't going to fall below this level, they would snap up customers on good credit ratings and even give them 100% mortgages as 25 years of mortgage interest is good business.
10. icarus said...
Reading Smith confirms everything you ever thought about working for Murdoch - his media function on behalf of politicians; his employees work in an atmosphere of bullying and conformity; editors are curious only about what the boss might think and good, ambitious journalists won't stay because working for too long for Murdoch looks bad on a CV.
11. Poacher said...
Another thing to bear in mind, is that even if a bank doesn't anticipate the worst case scenario in terms of house price falls, they only expect to recover their collateral via an asset sale that, between fees, costs and the likelihood of being sold at auction for a slight discount to open market value, will result of a hit about 5% of the property value, so they want a minimum 5% cushion at the end of the houseprice falls. Then bear the following in mind: if you anticipate a peak to trough fall in house prices of 35% (the middle-case scenario for the general housing stock), given that we are now 20% down, then the further 15% of the peak value actually represents a 20% fall in the current value. 25% margin is therefore a very sensible approach, given that most of these outfits have earmarked their (taxpayer-provided) capital to absorb the hits they are going to take on the loans they wrote pre-Northern Rock. What David Smith doesn't pay much attention to is that these banks are no longer lending wholesale funds, they're lending punters' savings, cause that's all they've got to play with (I'm ignoring fractional reserve issues, for the sake of simplicity). I don't personally want my savings lent out on the basis of trying to reinflate the housing bubble, I want them lent out on the basis of minimal risk, moderate return.
12. crunchy said...
5. japanese uncle, Spot on, as usual.
7. confused76, Smiley Smithy needs to buy a red nose and put some slap on. It is pecisely what is he is being payed to do.