Monday, Aug 30, 2010
Slow death of HPI? - props gradually being kicked away...
Telegraph: Bank plans to cap risky mortgages
Mortgage lending would be “capped” to stop borrowers taking out risky loans under radical Bank of England plans to prevent a repeat of the credit crisis, a senior official has disclosed.
Posted by tyrellcorporation @ 10:06 AM (3004 views) Add Comment
37 Comments
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1. str 2007 said...
Guys,
You'll love this, I got chatting to someone last night who was testing equipment for a mortgage lender a couple of years ago and had cause to listen into s phone call.
The call was between a mortgage advisor and applicant who'd filled in an application mortgage for £400k. The applicant had filled the form in incorrectly by stating his income was £20k. He was basically being advised to reapply stating he was on £80k so his application could be processed and loan granted.
The guy telling the tale was very bright, but genuinely seemed to be struggling with the concept that this lending practice was responsible for his property rising in value.
It's kind of surprising how the Market is managing to limp along now at it's current price level without these type of loans.
Let's hope for a quick correction rather than a slow painful one.
Frankly all the fundamentals are there for a quick correction.
2. wdbeast said...
str 2007 - Without forced sellers, I am afraid that the slow painful option is the one that we face.
3. tyrellcorporation said...
'Frankly all the fundamentals are there for a quick correction.'
I agree but something odd happens in Exeter. There has been a flurry of sellers in the last 4 months which has palpably softened prices. However, what seems to happen then is that any price softening is quickly followed by sellers refusing to drop prices and taking their properties off the market. This acts as a brake on price drops as supply is curtailed. With IRs at historic lows there are still very few people forced to sell.
Has anyone else noticed this phenomenon?
4. sj032 said...
When it happens, the forced sellers will herd sell like wilderbeast; It's classic human behaviour. My own views on timing are when the bond market runs itself into a corner. When this should happen is anybody's guess, next year or 2015, but when the bond market gets the gitters interest rates will go up like a rocket. We'll just have to wait for it, but as a quick look on usdebtclock.org vividly illustrates, it's coming, slowly.
5. paul said...
An FSA analysis of the mortgage market published last month concluded that simply banning high loan-to-value mortgages was not appropriate
Good old FSA - financed by its members, serving its members exclusive interests ...
6. Jpjh said...
I love how they keep trotting out that first time buyers cannot afford these huge deposits. Their answer of course being that we should have these lax lending rules.
The truth is if the property returned to normal values then we wouldnt need stupid mortgage deals, or stupidly large deposits.
Roll on the crash..
7. enuii said...
Tyrell, driving round the leafy bits of cheshire it's full of former agricultural workers cottages for sale that have been spammed up to death over the last 10-15 years or so. Years ago nobody wanted these properties and many were severely neglected miles from the nearest schools or shops they were not the sort of place to grow old in!
All blinged up like mini palaces with BMW's/Lexii/Mercs outside a huge number of them are now up for sale at stupid prices.
Perhaps they all have the sort of mortgages str2007 eluded at.
8. hpwatcher said...
Let's hope for a quick correction rather than a slow painful one.
So, a correction long enough for you to buy a place and then for houses to magically go back up in value?
I can't see that happening.
9. str 2007 said...
I saw an agricultural property for sale in Cornwall & it clearly stated that you needed to be employed in agriculture to purchase it & that was always the case hence why they are cheap. Maybe they've relaxed the rules in Cheshire.
I think more people than imagine or expect have been spending way above their means for along time now and the recent drop in interest rates has reinforced that behaviour.
Really can't believe there won't be significant problems soon.
10. str 2007 said...
Hpwatcher
You couldn't be further from the truth.
I'd like to see housesfall 20-30 percent and stay there never rising above inflation.
I have 3 sons and want them to be able to buy family homes in 20 odd years when they're old enough.
Further I want to expand my business but won't until I see a sustainable correction on which I feel the economy can stabilise itself.
When I expand my business I want my employees to be able to afford homes on sensible wages, so I can be confident in their long term commitment to the business.
11. str 2007 said...
Hpwatcher
It's my opinion this precarious situation we find ourselvesin is very damaging to the health of the economy.
12. Crunchy said...
8. str 2007 said...Really can't believe there won't be significant problems soon.
The QuEstion is, for wh0%m.
13. Leavingforus said...
@str
Indeed, but you only 'hope' all these things after you've made your tidy profit from selling (to rent: hence your name, no?). In this, you're no different to BTL et al., which is kind of what hpwatcher was getting at...
14. taffee said...
str 2007...don't want to be too gushing but comment 9 is a bout the best thing written here in the years I've been posting
HIGH HOUSE PRICES DESTROY PEOPLE'S LIVES
talk of being 52 in london before you can buy a property is tulips from amsterdam or dotcom boom stuff
15. enuii said...
Here, here, str2007 what we need is a sustainable economy not one built on borrowed money, insane house prices and the false hopes and dreams of our vote chasing political class.
16. tenyearstogetmymoneyback said...
The article states "In the years before the credit crunch, some borrowers were lent 125 per cent of their property’s value and became stuck in negative equity when prices crashed". Surely they were in negative equity the day they signed the contract.
str 2007 all completely believable. I posted the link to this 2003 program a couple of weeks ago.
http://www.youtube.com/watch?v=vT1UnGS91BY
Here it is again. I still wonder if anyone in Goverment or the FSA saw it.
Webmaster. I wonder if it is worth having a permanent link to this program.
17. greenshootsandleaves said...
tyrellcorp@3
Has anyone else noticed this phenomenon [taking properties off the market to offset downward pressure on prices]?
Yes, and not just in the Exeter area. Having monitored a handful of properties up and down the country (but mainly in the South East) I have come to the conclusion that the banks are behind at least some of this market manipulation since, although they'll be keen (but not desperate) to offload the odd repo, they'll also be anxious not to allow the by now shaky valuations of their portfolio as a whole to be challenged. Barring a major disaster (viz. the herd selling referred to by sjo32 @4) they could keep this up for ages (unless we're talking about the properties once owned by the Wilsons in the Ashford area, which are a different kettle of fish altogether).
18. smugdog said...
They're all out to get us aren't they boys.
19. tenyearstogetmymoneyback said...
re the phenomenon of people taking properties off the market there are a couple of simple explanations
i) If people find they are in Nequity but can afford the mortgage why would they want to sell.
ii) Even if they aren't people are loath to sell for much less than what they bought for. I made that mistake
back in 1995 when for the sake of a(nother) £4K drop I missed out on buying a lovely house for £92K.
20. Crunchy said...
15. smugdog said...They're all out to get us aren't they boys
Yes smuggy, as you will find out.
I have seen it all before.
21. phdinbubbles said...
@ tenyearstogetmymoneyback
or
iii) They chose not to sell (if they can't, or don't think they can, get their price) as they perceive the market is depressed and they think they can outwit everyone by holding on to the houses by selling for a higher price later on. Dozens (well it seems like dozens) of people have told me that this is the thing to do at the moment.
The vast majority of homeowners in the UK have little or no mortgage so there's no reason why they shouldn't sell a spare house (second home/investment property/inherited house) for several tens of percent less than the 2007 peak. What will happen to their thought processes if the indexes show some unhelpful numbers over a few months?
22. estrader said...
@phdinbubbles
"market is depressed and they think they can outwit everyone by holding on to the houses by selling for a higher price later on"
Yes, and problems arise when everybody thinks they are smarter than everybody else. Basically, those people are waiting for things to get "back to normal" before they sell...Hilarious *LOL*
23. happy mondays said...
Yes the good old back to normal syndrome! I'm sure there is a psychological term used for these people...Oh yes "Delusional"
24. uncle tom said...
The language in this piece is rather tougher than I would have expected, but welcome nevertheless..
..I don't think we need forced sales to see prices go south, although that certainly would help.
~~~
Being a champion of rising house prices has been fashionable for a long time now; but all fashions come to an end..
..the dinner party talk might well start to focus on the plight of the diner's kids; who can't find either a job OR a place to live..
..I sense it's moving that way already - when it's too late to make money out of property, high house prices become the problem, and not the advantage..
25. str 2007 said...
Thanks all,
10 years, couldn't load programme on my phone, but will have a look tomorrow when the laptops on.
Basically sellersmsjould become aware that 2007 prices were achieved falsely with the use of liar loans, interest only etc.
For some reason I can't fathom people still seem to be attemptong to buy at current prices.
I don't think they are realistically sustainable though and once people see them starting to slide with interest rates on the floor then the realisation will start to dawn on them.
Last time I think people were caught in the headlights, this time I think there could be more of a rush for the exit.
26. mr g said...
@STR2007 "once people see them starting to slide with interest rates on the floor then the realisation will start to dawn on them."
Whilst I personally agree with that logic, most people don't look any further ahead than the next day and have little financial "savvy".
Expecting them to connect falling house prices and low interest rates, let alone think what will happen with higher rates is beyond most people's comprehension.
27. crash bandicoot said...
"For some reason I can't fathom people still seem to be attemptong to buy at current prices."
Only some people, remember the depressesed volumes being sold at the moment. This is not the typical housing market, it is the final throes of the house-as-an-investment paradigm. This is the final rush to find the greatest fools. The irony is that they think that they are being smart.
One that real hustle show on BBC 3 they say that you can't scam an honest person. The whole trick only works because it offers something for nothing. Sound familiar?
28. Just Waiting said...
Sooner we get back to sensible lending the better.
29. magnaman said...
UT
I suspect you are right. I locate and buy property for clients. Have had a rough time over the last 2 years but just last week, two of my former overseas based clients contacted me and gave me their criteria - 8.5% minimum yield and 25% below open market value. Minimum lot size £250K - £5M!. One is a former RBS exec who has pooled together some wealthy individuals and the other, a senior decision maker in a middle eastern sovereign wealth fund. These guys are very clued up and bailed out in 2007......resi and commercial
30. magnaman said...
tyrellcorporation
We are in Exeter too...I would agree however, there are a few desperate sellers! Just made an offer 25K below asking price and agent has said because we are in rented and ready to go, the vendors are "anxious" to move quickly and are keen to discuss a completion date! Not the best negotiator in the world but have arranged a structural survey this coming Thursday - just know we will get another £7-10K off the asking price!
31. str 2007 said...
Magnaman
Are you paid a percent of purchase price or do they actually pay you an hourly rate to search and then some kind of commission?
Just running those numbers they've outlined.
It would be the equivalent of buying a £330k house for £250k and then renting it out for £1770 per month ( I assume the 8.5 percent was gross yield).
I don't know what area you're covering in your search but sounds extremely optimistic to me.
32. Justabouthadenuf said...
People have been brainwashed for so long that property is the way to go ,think its going to be a long drawn out process for significant falls austerity mesures really need to bite. Had so many near arguments with homeowners on this crash waiting to happen its unreal. Its just not sunk in yet!
33. techieman said...
magnaman @24 that sounds familiar - http://www.thisismoney.co.uk/mortgages-and-homes/house-prices/article.html?in_article_id=510580&in_page_id=57 in particular the video.... reading between the lines he says ..?????????
remember jesse livermore was very clued up....he shorted the market before the 29 crash and made $100m. but he basically got back in too early and lost the lot. you are only as good as yr last trade!
34. str 2007 said...
Techieman
Are you saying the price is too high (is 25 percent off not enough) or the 8.5 percent yield too low ?
My query with the criteria was why would someone sell a 330k house for 250 k if they could rent it for £1770 per month ?
35. techieman said...
hi str07 - was just saying that AP is basically saying that the money has been made in residential, and that he is playing a new game. he basically says IF you can get a 30% discount (frm peak) and 7% yield you should make 10% over the next 10 years... per the video. that clearly doesnt excite ap! [nor should it really excite anyone else!].
if and until those criteria are met then he is basically saying dont touch it.
36. Arthur Kinnell said...
Who'd a thought it?
"Until the early 1980s, banks were only allowed to lend money that had been deposited by savers, therefore mortgages were effectively rationed. However, these rules were scrapped by Margaret Thatcher’s administration, which allowed banks to raise money for lending from the money markets."
When the Conservative house newspaper the Daily Telegraph blames Margaret Thatcher for the credit crunch the time is seriously out of joint. Are we seeing the beginning of revisionism and the official debunking of the Thatcher mythology? It's what new management does, after all.
37. str 2007 said...
Hi techiman
Yes I've watched the video now (was on my I phone yesterday and it wouldn't hook up).
I'm just comparing standard smallish family homes in my example and 7 or 8% yield seems so far away as not to be achievable.
To get yields like that anywhere I can't help thinking a degree of development is going to be involved.
What is interesting looking at that in reverse though is anyone with current 3-4% yields is going to be in very serious trouble.
I could be way of but I see rent levels as virtually unaffordable (for a long term let) at present, so without significant wage inflation (of which I suspect there's little chance) the only way to get 7-8% yields is to buy at lower prices.
Excluding developing a property from the equation, doubling the yield from 3-4% (on current sales/rent prices) to a 7-8% yield means a good 30% off prices from here.
I suppose he (in the video) is correct. However using getting a real 30% off todays sales prices for a rental property is going to be a tough call.
Having said that if this becomes the new BTL Bible for criteria and FTBers can't buy without 15% deposit then it certainly points towards slides in prices.
I mentioned the other day about clicking an ING ad at the bottom of the page. They were still offering 4 x joint income. Now whether or not this gets reduced as interest rates go up or not remains to be seen.
Even if the BTL FTBer market softens I can't thinking the banks will be coming up with a new product for a new customer to keep the market inflated.
How about a 'down sizer' Portfolio Loan.
Whereby down sizers get to take out all the equity from their large house and split it amongst smaller properties to gain them a modest income in old age.
The old fashioned way being to sell a house and buy 2 flats outright, but the banks managing a way of extracting a big mortgage off the back of such a move under the guise of spreading risk.
IE why buy 1 flat when you could buy 6 flats and still gain the same income.
Above just a quickly thought up example of new products we might see now the blood has been drained from the FTB BTL victims.
I'm starting to sound bitter - not meant to but banks can be quite inventive as we've seen in the past. And politicians quite slow to curtail activitiers especially when their noses are so far in trough their eyes can't see out.