Wednesday, Feb 03, 2010
Lowest interest rates in history ...
ThisIsMoney: Halifax kicks home movers off cheap deals
The mortgage market is gradually freezing over because the FSA and Bank of England (i.e. Westminster) are continuing to try to buck the downward market. If the Treasury starts buying mortgages from banks (as is currently proposed by the Treasury), by next quarter I wouildn't be surprised to see a sovereign downgrade and runaway inflation.
Posted by paul @ 08:32 AM (1635 views) Add Comment
26 Comments
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1. tyrellcorporation said...
That proposal was 19th Jan 2009.
2. little professor said...
Thousands of families have mortgages linked to Halifax's standard variable rate (SVR) - the most basic option, which stands at just 3.5%.
But in an extraordinary clampdown, the lender won't let borrowers stay on this rate if they move home.
I always assumed SVR deals weren't portable anyway - didn't think this was anything new
3. Nobody777 said...
tyrell you beat me to it the policy statement is over a year old regarding the government purchase of mortgages and if i recall the amount purchased is less than £2bn and that is mostly corporate bonds. The rest of the QE print was spent buying gilts this fact wasnt the stated intent. Now its all gone buying shares in banks and government deficit spending. In my view if the BOE the only buyer in town for gilts stops printing tomorrow these 2.5% SVRs will go rapid with higher real market interest rates.
4. fallingbuzzard said...
Nothing new. Just that no-one ever considered the consequence of falling house prices or rising mortgage rates. House prices always increase and borrowing rates always get better!
5. alan_540 said...
LP ... SVR's were always the more expensive option so lenders were happy for borrowers to default to that rate.
6. mark wadsworth said...
That's a neat example of what Icarus explained yesterday - the bank's motivation is that (if they do their accounts properly, query, big IF) they show their assets (i.e. loans to mortgage borrowers) at the lower of nominal amount of loan and value of property. The banks are panicking that if more houses are bought and sold they are more likely to revert to a sensible (i.e. much lower) price, ergo, they are effectively bribing people to stay put (or penalising them if they move, same thing).
7. alan_540 said...
Agreed. Higher interest rates & unemployment would force peoples hands.
8. mark wadsworth said...
Alan_540: "Agreed. Higher interest rates & unemployment would force peoples hands."
Yup.It will force the government to create even more public sector jobs and to subsidise mortgage payments to prevent the scourges of unemployment and repossessions like under those evil Tories (continued page 94).
9. Crunchy said...
We don't live in houses anymore just pharaohs pyramids.
You are either enslaved in one or are buried beneath to set an example.
The Curse of the One Eyed Triangle.
10. ontheotherhand said...
I wonder how many chains simply cannot form these days because one or more in the chain cannot afford to give up their SVR? Normally pyramid schemes collapse because the cash demands from those leaving can no longer be paid for by exponential numbers of new suckers at the bottom. However, this housing pyramid scheme is being sustained by something like an exit fee. People can't afford to leave because even their rent will be more than their SVR, and the credit card only just covers that...
11. matt_the_hat said...
MW - if I understand you correctly the banks are have to perform a mark to market when people move so they are trying to dicourage this?
12. icarus said...
MTH @9 - if few people move prices stay up and banks don't have to write down their mortgage loan portfolios.
13. fallingbuzzard said...
@12, if lots of people move and prices fell by say 20%, why will banks have to write down the value of the mortgage debt?
14. icarus said...
All policy is geared towards ensuring that banks don't collapse, i.e., towards supporting asset prices, especially property. Helping people with their mortgage payments = helping the banks to avoid writedowns. (or the govt could just buy toxic assets, or change accounting rules and mark-to-model, or keep IRs artificially low, and achieve the same) The question is: do you think governments are doing this because a collapsed financial system would mean the end of the world as we know it or because governments are in the pockets of the banks?
15. icarus said...
@13 - it depends on accounting rules, which are variable. Eventually there has to be some correspondence between market prices and book values.
16. letthemfall said...
I do think that govts are effectively in banks' pockets; or, more generally, the people with money (and therefore power) have an undue influence. This is not to invoke conspiracy ideas; it's just the way things are. One reason the Tory policy of cutting public spending sharply (assuming that is their policy) is so odious is that this is exactly what the banks would like - or indeed anyone with too much money to care much about public services.
17. mark wadsworth said...
@ MTH 11, Icarus and OTOH have answered your question most admirably.
@ FB 13, there's no actual LAW that says this, but it's just the way it works. If seller paid £120k for house, now worth £100k and an £80k mortgage, then the bank can reasonably maintaince the pretence that the LTV is only 66%, no need to write down (they still have a fair cushion).
But if he sells that house for £100k and new guy takes out loan for £80k, then the bank has to admit that the LTV is 80%, and because the capital requirements for higher LTV mortgages are a lot higher, that means the bank has to restrict lending elsewhere. And if the house is only worth £80k, the bank wants you to stay put because you have an £80k loan - if they allow you to sell, the next guy will only be able to take out a £60k loan and so lending volumes will shrink and they can charge less interest.
Rocks, hard places, cleft sticks etc.
18. matt_the_hat said...
MW - I'm sure there is a little clause in all mortgage contracts that says the borrower has to maintain a LTV ratio and at any point the bank can demand extra capital to suport this. Not sure which brave bank would start this off. Can someone in the know substantiate this.
19. orcusmaximus said...
letthemfall - what's odious about not spending more than you are taking in?
If there's one lesson that this government has taught us, it's that MPs are more careful with their own money than they are with the taxpayers.
20. icarus said...
mark w @ 1.00 pm and MTH @ 1.05pm. Good points. This is getting intweresting.
21. paul said...
Yes, sorry my mistake on the press release.
22. letthemfall said...
orcus
Well, running deficits is not uncommon; the problem is when they get too big, or the country running the deficit is seen as too shakey; we could argue over how close the UK is to this position.
But a sharp cut in spending now would disadvantage the low paid, while benefitting the banks considerably. This is what happened in the early 80s.
Incidentally, the way banks are assuming house values wrt mortgages is not dissimilar to the way CDOs were valued a couple of years ago.
23. icarus said...
How much of banks' property-related assets are alphabet-soup credit derivatives that caused investors to take on exposure to subprime mortgages, packaged in such a way that the exposure to loss was multiplied compared with loss on individual mortgages? A lot of that US junk ended up in Europe.
24. mark wadsworth said...
@ MTH comment 18, that is quite probably true as well (especially with BTL mortgages) but that's not a LAW or accounting rule (which has the effect of law) that's private agreement.
@ Icarus comment 23, it doesn't actually matter. The underlying loss is the amount of default on the mortgage. As to inter-bank alphabet soup, one bank's loss is another bank's gain, and taking all banks as one big cartel, the total loss does not increase significantly. As a thought experiment, imagine that a MEGABANK were set up which takes over all other banks by share-for-share exchange or bond-for-bond exchange. All the liablities and claims as between all its subsidiaries could be netted off and cancelled without costing shareholders or bondholders (taken as a group) a single penny. But the underlying losses still remain!
25. icarus said...
mw 3.11pm - There is of course a net loss of wealth from unused resources in a recession/depression caused by a financial crisis.
That aside, not all the players in the originate and distribute game were banks but even if they were there has been a gain at one end of the line and a loss at the other (e.g. the investors who bought the AAA-rated subprime, packaged junk). Even if this netted out it wouldn't do so symmetrically or neutrally (in this or in any other bubble) for purposes of this discussion. In this case many individuals have milked the situation and become billionaires, or at least very rich, and taken money out of the banking system. My question is about the extent to which European banks (as well as pension funds and other institutions) were the ones holding the bad penny when the music stopped. This would link in to what we are discussing - banks' wanting to protect asset values to avoid losses and writedowns. (Sorry - any reply to your reply will have to wait for a few hours.)
26. fallingbuzzard said...
@17, how you explain it is how i see it working, only valuation events trigger revaluations and changes to capital requirements.
@18, Abbey did it last year on flexible mortgages but that was from people who had overpayed into their mortgage and had a facility to get at that money, which they terminated. Maybe there's a lawyer here but I understand that in the UK lenders can demand repayment of some of the loan capital if the house value falls below the loan. Practically, that ain't going to happen, or at least I think so