Flat Bear
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Posts posted by Flat Bear
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The talk from Banks is interest rate cuts, and it appears Number 10 support that view.
With the market now accelerating we should see some negligable gains this year followed by an excellent and very rememberable crash following as the credit freeze comes into force and the Labour Party throw their hands up in despair and all look to Gordon to explain the miracle economy that was nothing more than a chirade of economic activity funded by public and Government borrowing.
How anyone could possibly declare an economy and miracle and a success when trade deficits are at all time highs,public spending is at all time highs, and borrowing is the only catalyst to drive it forward beggers belief.
Only a corrupt bunch of ex Pot Smoking Socialists could have invented this one.
Would have agreed 100% some 3 months ago but I now think the possibility of a short term cut is less likely.
When we look back in a few years the peak may have been back in spring 2004 and we are now in a "sucker rally" or "dead cat bounce" senario whichever you prefer. Remember a suckers rally must be quite convincing for people to fall for it but I think this one isnt very convincing at all; unemployment rises, global interest rates rising, debt at all time highs, zero or loss profits from BTL, economy sliding with confidence falling, retail sector grumbling, taxes increasing, real cost of living starting to rise rapidly......
Where's the plus side for this rally? Cheap mortgage (not for much longer) low official inflation figures
undersupply (new build everwhere, property standing empty?) Economic outlook good....
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Can someone explain why Japanese IR rising is such a big deal when most other countries are also raising rates?
Surely if they all raise rates it doesn't matter - the carry "window" is still there. I.e. US rate - Jap rate leaves a profit even if Jap IR rises, as US IR is rising also.
Because a vast quantity of "cheap" money stems from Japan.
Irrespective of a country's exchange rate, if a "preferential" money supplier such as a large UK mortgage provider can borrow money from Japan at very low rate they can make massive margins selling at or near current UK rates. If this cheap money becomes dearer then the same mortgage provider will put up rates to keep the same margin and if rates become high enough they will have to push up rates and Gordon Brown, the BoE or anyone else could not do anything about it. The BoE would be forced to put up rates to be in sync with global markets and if they dragged their heals UK PLC would have major economic problems with currency rebalancing and ultimatley a sudden massive rise in inflation that had not been seen since Japan had last seen real growth 13 years ago?
So in essence BoJ would be in control and the BoE would have none.
The "reassuring" statements from BoJ that they will only put rates up slowly so dont worry it, has the same ring to it as a dentist saying you wont feel a thing.
Remember when Japan decide to spend they will dwaf our spending, and when UK housing suddenly becomes unsafe (defaulters and falling equity values) they will pull out quickly.
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It will be interesting to watch interest rates(pun intended) rise globally and in what order.
As Japan wakes and raises who will be first? and will it be haphazard or what?
Just for fun
mid 2006
JAPAN OFFICIAL 1%BEST CARRY TRADE 2.75%
UK 4.5%EURO 2.75%
US 5.0%Jan 2007JAPAN OFFICIAL 1.5%BEST CARRY TRADE 3.75%UK 4.75%EURO 3.0%US 5.25%2007 midJAPAN OFFICIAL 2%BEST CARRY TRADE 4.25%UK 6.5%EURO 5.0%US 5.5%IF(big if) this were to happen a uk and ********** would be well under way. -
About 4% as we would then join the Euro!!
I was going to add how Euroland interest rates would be effected even more as they are starting from a lower point.
Although I think it possible, but not likely, that Gordon could keep rates at 4.5% for the rest of the year, at least 2 x 1/4% raises are a must for the Euro. I would expect a hike as soon as June irrespective of economic outlook.
I think there is some confusion with official base rate and what you can get a mortgage rate at. Are you telling me that currently you get a uk mortgage for say 4.65% and you can get a Euro mortgage for 2.60%?
The bigger financial institutions use the base rate as a guide only. Did you not notice some of the uk Mortgages on offer over the last 3 years? There have been offers as low as 1.99% and there were still a few late last year at under 3%! People were saying there must be some catch and yes they were only open to 1st time buyers say with a 30% deposit for a limited period, but the banks were still making profit (they do not need to trade money at a loss)
So if the banks pay more for their money they WILL sell at a higher price. Thats what they do and they have been making an absolute fortune out of lending money, secured against property as this is their lenders criteria, over the past 6 years. You must have noticed the deluge of advertisments in papers, TV, though the post, infact every avenue has been relentlessly and aggresively used. So why do you think they would spend an absolute fortune in advertising, staff etc? Do you think the banks are doing it out of kindness?
Here is a clue, I found it difficult to get just 3x my salary in 1985 and rate was 2% above BOE base and the Banks profits were not anywhere near last years levels. Extra clue Japan was actually looking for inward investment.
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Since 2003 I had recognised a "bubble" in house prices in the UK and, to be honest, thought a correction would have taken place well before now.
I have read numerous threads on what will be the "trigger" and have pondered what would be the most likely cause or event to indicate the start of the economic downturn/ house price "crash".
I really think the Japanese banks monatary tightening could be it. It will stiffle cash flow to the west for governments, businesses, speculators and ofcourse for individual property purchase/speculation.
Although it seems quite an unimportant sequence of small rises it will have massive global implications. Once the Giant of all cash rich countries slowly wakes up from its very long sleep (over a decade) it will be very hungry and I dont think it will worry if there isnt anything left for us. We have simply been playing with some of the Giants money whilst hes been asleep.
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http://freeserve.advfn.com/news_Japan-s-Mi...t_14965640.html
Mizuho Financial Gro Japan's Mizuho Corporate Bank to lift long-term prime lending rate to 2.45 pctTOKYO (AFX) -Mizuho Corporate Bank Ltd said it will raise its long-termprime lending rate to 2.45 pct from 2.10 pct tomorrow, its third increase inthree months.The long-term prime rate is the interest rate charged on loans of one yearor more to a bank's most creditworthy customers. The rate is a benchmark forpersonal, housing and corporate loans.Mizuho Corporate Bank is the wholesale banking unit of Mizuho FinancialGroup Inc.nozomi.toyama@xfn.comnt/jmThe Yen carry trade is tightening. The cheap credit that has made Gordon's "Miracle Economy" based on HPI/MEW is going away.
TTRTRates B o E
This is a much more important event than first appears.
Effectively, the big UK longer term money suppliers have just had a 16.66% increase in the cost of their product (money) This probably is the cheapest global source for money?. So, although not high enough to stop relatively cheap mortgages being profitable, it has cut margins.
If this was to happen only a couple more times you would see the cheaper mortgage deals disappear, and if these rates were to go higher still you would see aggresive advertising to get your money at higher interest.
It is possible that within the next year or two that saving rates could see 7% even 8%
So what will mortgage rates be!!!
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Lotes of houses unsold since Nov have started to sell (200 to 240k range) and asking prices have shot up over the last few weeks. Many of the recently build flats are now sold/let
There is obviously a demand but where from? There doesnt seem to be any employment hotspots for incoming buyers/tenants. Although there is a fast growing immigrant population, mostly eastern european, they would not generally be able to afford the prices/rents on these particular properties.
Only around 8% (questimate) are "no onward chain", BTL selling up? or otherwise empty properties, and I am aware that there are alot of houses/flates unoccupied for various reasons, but this would not account for the total activity.
I can only conclude the local population is expanding quickly, but how much of this is self fueling or sustainable? I do not see the growth in employment infrastructure to keep this trend going, and as everybody in Reading knows there are new developments especially flates everywhere. RBC are even looking at the possibility of congestion charges! (Reading evening post last night)
I believe this will turn around quickly as soon as an economic downturn gets under way. Infact exactly the same situation as 1989, but this time it has dragged on much longer than many predicted. I am not looking forward to, what I believe, an inevitable economic slump.
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LOL
Sounds like one of those really proffesional BTLers with his finger on the pulse. Maybe just needs to clarify a few legal points, and maybe a bit of advice on running a business and maybe a bit on simple economics, but he'll make £1,000s £100,000s £millions
Hang on, what if the tennant doesnt want to pay more and moves out?
I import goods from the far east and yes I have minimum margins, but this does not dictate my prices. My prices are dictated by market forces (what people are willing to pay) If my costs go up I can and have tried to put up prices, but if my opposition drops theirs i am in trouble. In my business if your too hot you get out of the kitchen, it is no different for the property rental sector, if there is a higher supply and prices are dropping no matter what your costs are doing you have no choice. Because your costs are high your opposition (and there is plenty in the BTL market) may be not ie no mortgage, and you will go under, eventually.
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What makes me fume is that Gordon Brown has, on one side, thousands of civil servants working out how much tax everyone should pay, and then thousands more on the other side working out how much to give back to people, instead of just taking less off the low-earners in the first place.
Now that's just so sensible.
Exactly, its just a game of smoke and mirrors
Why does anyone pay tax on the first £10,000 of earnings? you could not live on any less and the cost of taking this money away and then handing it back in different guises is just silly. Surely people who have children should look after them, does anyone really like the thought of Gordon paying for them? Whose children are they his or the parents?
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QUOTE(frugalista @ Apr 5 2006, 08:26 PM)
Tax credits are income which you do not pay tax on. It is not a benefit in any sense of the word. If you do not earn the income then you cannot benefit from the tax credit.
frugalista
One of the guys operating our machines was telling me he could not survive without Gordons handouts and how thoughtful Gordon was of the lower paid.
We calculated how much tax he paid and how much he was given back. The balance was still a sizeable amount in taxes. Gordon Brown is taxing people to the hilt and then handing back some of their own money and people believe he is Robin Hood. You couldn't make it up. If you did people wouldn't believe anyone could be so stupid to believe it (but they are)
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I agree with you.
I have a problem with housewives from Indio-Asian countries who have lived in Britain for 40 odd years and still can't speak English - the result, the local GP surgery where I used to live (Ladywood, Birmingham) having to provide interpreters using taxpayers' money to fund it (which the housewives in question haven't actually contributed to because they've never worked or paid income tax/national insurance).
However this is not a race issue (two of my best friends at school were indian & pakistani) it is a culture issue.
I similarly have a problem with young white girls who, given the opportunities and education available in this country, instead choose to breed children from as many sundry chav males as they can, in order to get free housing and copious benefits, despite being under the legal age of consent.
I think it's human nature to be uncomfortable with people who dont seem to share our own norms and values.
exactly right
forget about their rights, think about your right of not to have to pay for them
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Yes there's still plenty of "cheap" money around, but ultimately where is it from? It is from the international money markets.
It looks like, but not for definate yet, Japan will be seeing higher domestic demand/inflation this would mean a higher domestic requirement for debt and they will need/want to feed this first, I could see a new asset bubble possibly property starting in Japan which would be "pounced upon" by international money as a fresh relatively undebted population awaiting indebtedness.
This same pool of money will be needed by many contries/governments including our own, and as Japan grows more long term Japanese investment will soak up investment capital. The USA will need more and will increase rates if neccessary.
The uk domestic property market, a relatively unimportant economic backwater, will be abandoned as more lucrative investment opportunites emerge. This wont take too long, 5 years is a very short period for the global economy
Soon criteria will change. At present this unused money is lent out at very minimal margins 1%? and by the time the end user (mortgagee) gets it say 4.5%? The lenders are looking for a very safe haven so they want all monies secured against assets, the UK housing market is ideal, so they stipulate say 85% asset cover and anything above this some form of insurance cover must be in place but it has been such a long protracted propery rise lenders have stuck their necks out giving 120% plus working on the principle "its gone up for seven years so whats the likelyhood of it stopping in the next year"
But what happens when house prices stop going up at 25% a year, bad debt rears its head (remember they are gambling on just a 1% return) and there are safer and higher returns to be made elsewhere?
I dont think this change will be noticed as a few grey suited Japanese bankers will make the decision the UK property market has run its course one ordinary wednesday afternoon. (maybe today) They have nothing to lose.
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Increasing mortgage amounts without purchasing property (mew) does seem to be increasing over several years and I think the original poster was right as it is now being seen (being advised by mortgage sellers) as the most responsible way of "decreasing overall debt repayments" These people are and will increasingly be "economic slaves" unless the burden becomes too much and they give up (become bancrupt, suicide etc)
Many of the more unscrupelous MEW sellers have tried to increase these amounts, giving such advise as go on a long holiday as after all this, you know you deserve it. As really it wont make any real difference to your monthly payments.
Unlock some of that capital in your home sitting doing nothing. Then holidays, consumer items, (most such home improvements are consumer items as any new purchaser would rip them out) debt "consolidation",
or whatever you desire.
I know many people who have done this including one of my more responsible employees, and yes, at times it is difficult to tell them they are doing the wrong thing as when times are good "easy money" (debt) seems ok "Every one else does it why not me? and i'm ok 'cause I only owe a mere £70k and my house is valued at £160k, or OK at worse £140k and I know others earning less and owing £160k, which I think is OTT, so they would be in trouble first" are some stock answers. May be they could reason that they may not go bust, but it could be worse, they may not! and struggle for years and years keeping their heads above water.
What happens when all this glut of foreign money becomes more sought after ie other countries people offering higher interest and safer havens. Will the domestic lenders work on lower or zero margins? or will they be forced to raise their margin or forclose the mortgage? or if they are not legally able will these front lenders go bust? How safe is Northern Rock?
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quote Padders today 11.05
The thing is he istn't remotley right. The definition of MEW can be found here:
http://www.bankofengland.co.uk/mfsd/iadb/n...b/mew_notes.htm
It's quite clear what it is. It is debt, secured on a house that is not used to increase the asset value of that house.
Thus, increasing your mortgage to build an extension is not MEWing, but increasing your mortgage to pay of credit card debt or buy ipods is.
Selling your house to someone is not MEWing. You have to INCREASE the secured debt on a house for it to be MEWing. How the person finances the purchase of your house is irrelevant, that is just a new mortgage. The whole point about the concept of MEW is that it is taking the house as collatoral (security) to borrow money to spend on something else. You can't do that with a new purchase unless you can somehow get a 110% mortgage.
I really can't believe there is an argument over such a simple concept.
You are obviously absolutely right. It is very frustrating when people can not understand simple things. The answer is to ignore their posts completely as if they can not understand this how could they have any understanding of all the complexities of the global economy that would influence property prices in the UK
konw is the sort of person you would find going on one of those pyramid selling seminars and insisting they sell him a pyramid
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The governments new round of red tape concerning the property/building industry will hit property owners hard especially the already hard hit BTL industry.
I feel some sympathy for the more proffesional ones as things can only get much harder, but if they are not too over leveraged (higher leveraged individuals ie less than 70% equity have no chance) and willing to work hard over the next decade, accepting, where neccessary, the lower real rents and higher costs (lower profitability) together with the higher tennant expectations they will be ok IMHO
There are many other industries which will go through tough times so BTLers are not alone
There will be a seperating of the wheat from the chaff in the BTL world over the next 5 painful years
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QUOTE(kingofnowhere @ Apr 4 2006, 11:54 AM)
The method of finance?
IE sell you house £250K (which you have no mortgage) to a cash buyer, then go to spain, you have withdrawn £250K of equity
sell you house £250K (which you have no mortgage) to a 100% mortgage buyer, then go to spain, you have withdrawn £250K of MEW
Sorry no banana
Equity withdrawal is where you sell an asset (the value is the equity) Capital gains tax may be involved if not your main domecide
Mortgage equity withdrawal is where you withdraw extra money or enter into a new loan agreement against the perceived value of an asset you already own (ie property)
Where you equity withdraw all the money from your house (SELL IT) and someone else buys it using a mortgage, this mortgage would be simply a mortgage and classed as such. Similarly when new houses are built and there are no mortgaged vendors selling any mortgages would still be simply mortgages because it was not their asset to begin with.
You are mixing up EWING and MEWING
So in essence all money borrowed against existing assets owned (ie property) is Mortgage equity withdrawal and all money used to buy assets (not already owned) is simply a mortgage.
This is really a very simple concept you must try and understand this otherwise you will get confused when you do come to buy property as "financial advisors" will not explain things so thoroughly.
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Here's a tough question
Whats the difference between Equity Withdrawal and MORTGAGE Equity withdrawal?
"no More Boom And Bust"
in House prices and the economy
Posted
"No More Boom or Bust" (it is different this time)
Why did Gordon Brown think/say this?
The 1st World war was said to be the War to end all wars. Just 21 years later the 2nd World war had started. Just saying it does not make it true.
Arguments just 2 years ago "it is different this time" such as employment is at an all time high, interest rates are at a all time low (3.5%), and there is plenty of cheap credit available, were in fact the main reasons there would be a bust, because you couldnt have a Boom and Bust without a Boom.
The facts as things stand now:
+ Prices have risen compared with wages. This is the only real neccessary fact to know.
+ Unemployment rising
+ Slump in consumer spending
+ Global interest rates rising
+ Global money supply shrinking
+ Personal debt at record levels and growing
+ Bancruptcies increasing
+ Government borrowing requirement increasing (higher taxation requirement)
+ Disposable incomes falling rapidly
+ More empty properties than 1995 and % growing
+ *Real inflation growing rapidly
(*Real inflation- The amount all goods & services are actually rising at including, housing, taxation, energy, and utility bills. This used to be called "cost of living")
Can anyone see any likely improvements in any of the above "facts" over the next 12 months? or just a slight possibility of any not getting not too much worse?
So why is anyone still even contemplating a "no more boom and bust" soft landing? ie price falls of less than 10% over a several year period.
It is not a logical or at all likely outcome
(I was going to say possible, but nothing is impossible exept for some people)