DrBob

Intriguing offer. Particularly the 5-year tie-in period. You still get your money back if the house price index falls (but no rise to keep up with inflation). Do you think this is a way of shoring up the Building Society's books with some deposits? I'd love to know how they work their calculations to create these products.

Ah! The proverbial muffin top!

http://www.ft.com/cms/s/a0cfd802-28c7-11dc...0b5df10621.html http://www.ft.com/cms/s/a0cfd802-28c7-11dc-af78-000b5df10621.html' rel="external nofollow">Viability of CLOs set for big loan issue challenge Published: July 2 2007 19:45 | Last updated: July 2 2007 19:45 ...with US and European companies including Alliance Boots, Alltel, First Data Corp, TXU and Tata-Corus all bringing or expected to bring huge junk-rated bond or loan deals in coming weeks and months, investor sentiment and appetite is likely to be well tested. ...the big problem facing sponsors of leveraged buy-outs in particular is that in modern credit markets, sentiment in CLOs and thus in underlying loan markets has become far more closely inter-linked with that in a far broader range of other markets – including, importantly, US subprime mortgages. Testament to this is the impact that the recent scare over US subprime mortgage related problems at two Bear Stearns hedge funds is already having on US and even European CLO markets. The inter-connections between debt markets were neatly summed up by Paul Tucker, a member of the Bank of England’s Monetary Policy Committee earlier this year. He likened the system of slicing and dicing risk to a set of Russian dolls. Leveraged loans or mortgages are repackaged and sold as CLOs or mortgage backed bonds. Parts of these are then sold on into other kinds of collateralised debt obligations, parts of which in turn can also be sold to other CDOs or different complex investment vehicles. If one element of this system hits difficulties it can soon have an impact on the demand for and pricing of all the other elements. Ganesh Rajendra, head of securitisation research at Deutsche Bank, says: “Any further pricing contagion will of course have prolonged consequences for CLO deal flow viability going forward.” There has been some push back among CLOs and other buyers of loans against some of the more aggressively structured deals recently. “That’s a pretty healthy sign,” says one London banker. “It means the bubble can deflate itself and the market can reprice without there being massive credit losses.” But for this to happen, there has to be a few failed syndications of loans. This will be painful for the underwriting banks. Alliance Boots’ £9bn of covenant lite loans will provide the biggest test. Here's another article on the corporate credit crunch, RB. This will be interesting take on the historical precedent of house price crashes causing stock market falls. Sub-prime lending in the US has weakened the market for CDOs, and will probably cause some major private equity deals to fail. This will draw the private equity takeover premium out of the stock markets this Autumn. If the massive Boots private equity deal fails, it will really hit the headlines as a household name is affected.

At a guess, the duplicate listings and the 'sold' properties might have been removed. This would reduce the property numbers by about a third, and would make the site much more representative.

Come on, Goldfinger, let's see the Private Equity Deal Implode - O - Meter!

Great endeavor - thanks for putting this list together. Hope you can keep it updated! How long before we see the Private Equity Deal Implode - O - Meter?

An opportunity loss is exactly what I meant. Buying a property in 1999 (when I first vaguely considered it) would, in retrospect, have been very profitable indeed. Other markets do not have the appeal to small (unsophisticated) personal investors like me; other markets do not routinely offer the gearing that property does and finally, buying property in another market (e.g. abroad or in another city) entails additional risks and costs which a conservative investor (like me) might not want to face. I'm not going to seriously try to estimate it, but the value of this theoretical 'opportunity loss' is doubtless more than my current savings, so I have probably forfeited more through missing an opportunity than I shall ever lose through a poor investment. Of course, this is my personal situation. For many current buyers of new-build flats, the opposite will apply (they will lose more than their deposits and will go into negative equity). Personal/family circumstances will probably drive me to buy in about 4-5 years, so I'll be in the uncertain situation of buying into a falling market. Englan' is a b*tch! (LKJ).

200 x 365: I make that 73,000 homes per year. You're right though, the rate of home building is ridiculously low in the UK. The problem is that house prices are so far beyond the affordability of most migrants that buying doesn't come into question. This leaves two possibilities: 1. Private renting in massively multi-occupancy houses (which is being clamped-down on by councils and which, if anything, lowers the value of the surrounding private residences) 2. Overcrowding of existing council accommodation (miserable for the tenants concerned, and promotes a ghetto image/mentality, lowering the value of the surrounding private residences)

I agree completely - this is the "main discussion forum on house prices", and let's face it, it'd be a pretty sh*tty discussion if everyone was saying the same thing. Papillon's garnered a lot of replies because he/she's stirred up opinion. I disagree with Papillon, but appreciate that the original post included some decent arguments. If we're unable to effectively dispel these, how can we expect the sheeple to change their minds?

Thanks for the spread-betting tips, Jimothy! The problem is that I don't do this for a living. I've got a (more than) full time job, and whilst I don't believe that trading professionals are necessarily more intelligent than me (although some of them doubtless are), they have a lot more time & resources than I do. I was about to go long on oil a few weeks ago, but then wondered what I could possibly know about oil that professional traders wouldn't. To my (untrained) eye, the risks all seemed on the upside: cyclones in Middle East, hurricaines in the Gulf of Mexico, strikes in Nigeria. But then I thought: it would only take a world depression or a nasty attack of bird 'flu to decimate oil prices completely. When I get a good hunch, I'll go with it. Until then I'm in cash and a few commodities, and am looking for a buying opportunity for some blue-chips. My biggest problem is how to diversify out of GBP (as a small-time personal investor) whilst still earning some interest and without excessive tax. I've posted a question about this on the "Financial markets" forum.

Thanks, I think! WRT my final 'soft' paragraph: I still think it is reasonable to buy if you have a secure job, are buying a pleasant house (NOT a flat) in a good area, which you are prepared to stay put in for 10 years and if you can still afford the mortgage if interest rates rise by 2% or if your partner stops working. We will all die one day and sooner or later, we have to live the life we want. One day I want to own a house, and these are (some of) my personal criteria. My personal belief is that meeting these criteria at this time in the UK is very, very difficult. Once prices have fallen by 30-40% (real terms) they may be more realistic.

Papillon has documented a few sensible arguments against a house price fall, so deserves a sensible response. Here are a few reasons why I think there will have to be a house price fall (in my view, 30-40% in real terms, 10-20% in nominal terms, over 5 years): - Interest rates are rising, making mortgage repayments less affordable - Once house prices begin to fall, the economy will suffer and the pound will fall in value as markets price in the expectation of lower interest rates. Because we import most of our goods, a weaker pound means higher inflation. This limits the ability of the BoE to lower interest rates in a recession - they will be unable to 'save' house prices - The factors which have lowered inflation (and therefore allowed lower interest rates) over the last 10 years will disappear: China will be forced to gradually revalue their currency, driving costs of imported goods higher, oil and other commodity price rises will feed through into goods, energy costs will rise when carbon trading/limits take off) - Non-discretionary costs (e.g. gas bills, petrol costs, council tax) are rising disproportionately to income, leaving less money for mortgage repayments - Credit costs are rising (e.g. rising treasury yields, markedly lower prices for CDOs), making it more expensive for mortgage lenders to lend (even for a specific interest rate) - Rents on newly-purchased buy to let properties are inadequate to cover mortgage interest payments, let alone the costs of repairs, voids etc. - Inflation is historically low, meaning that mortgage repayments no longer fall rapidly in relation to income - Although interest rates are historically low, house prices are so inflated that mortgage costs are nearly as high as they were (as a proportion of income) when interest rates were 14% - Buy to let'ers are investors, and once their investment is no longer making money, they will be more inclined to sell than those who live in their properties - There is plenty of empty land in the UK, and once the government makes the political decision to allow more building, residential land prices will fall substantially - Households have become smaller. As housing becomes more unaffordable, more people will take the lifestyle decision to flatshare / move back in with family to save costs, driving down both rental income and house prices - Media sentiment has turned, and will drive more and more to sell (and more and more to postpone/cancel buying) Again, these are just a few from the top of my head. I still think it is reasonable to buy if you have a secure job, are buying a pleasant house (NOT a flat) in a good area, which you are prepared to stay put in for 10 years and if you can still afford the mortgage if interest rates rise by 2% or if your partner stops working. Buying property as an investment at this stage in the cycle is asking for trouble.

I have just witnessed the first house price boom of my adult life, and expect to witness my first house price crash soon. Over the past few years I've read a lot about property and economics in books, the mainstream press and on websites such as this. This is what I have learnt. Feel free to correct me if I'm wrong: 1. The housing market has a lot of momentum and changes direction very, very slowly. 2. All markets are driven by sentiment, especially the housing market. 3. Bull markets always go on longer than the bears think (and I suspect the converse is true). 4. Claims of a 'new paradigm' are always wrong ('house prices only go up', 'efficiency savings mean tech stocks warrant higher valuations', 'interest rates will remain low in the new global economy'). 4. You can lose as much by over-estimating risk as by under-estimating it. 5. You can't predict every eventuality (and political risks/interference are one of the most common 'jokers in the pack'). 6. Compound interest is critical to understanding investment and debt (why wasn't I taught this in school?). 7. Some people's whole careers and lives are based on trading stocks, bonds, commodities and shares. It is difficult to beat them at it. 8. Going with the herd can be profitable (if you get your timing right). Thanks, HPC! Now I'm trying to work out how to apply these lessons...

I'm fairly certain rates will go up by 0.25%, but won't be betting on it because the odds are so poor. BTW: I put £50 on a rise last month with odds of 6:1 and lost. I don't know whether I should be chuffed or disappointed that the vote turned out to be so close...

If you read the four Telegraph articles, they really are a full-house of pessimistic commentaries on house prices and credit prospects. A lot of people are going to read these, and not all Telegraph readers are Londoners. For instance, all of my farming relatives (even those that 'haven't a bean') read the Telegraph and always have done - they consider it the only paper that sticks up for the countryside. Bear in mind, too, that the press have as much of a herd instinct as the rest of the sheeple. Research for the daily BBC News stories begins with a read through the day's papers. The only thing that can delay (note: not prevent) the house price crash now is political interference. If Gordon's planning an election next year expect him to surreptitiously lean on the MPC or pull out a cheap stunt (e.g. MIRAS for first-time buyers or big shift in stamp duty thresholds). :angry:

I presume they have declared their offshore savings and are paying tax on them, otherwise they could be facing a hefty fine! http://news.bbc.co.uk/2/hi/business/6227812.stm http://news.bbc.co.uk/2/hi/business/6227812.stm' rel="external nofollow">Offshore tax deadline is looming Thursday, 21 June 2007, 23:00 GMT People have until midnight to declare if they owe tax on money in offshore accounts - or they could face big fines and even court action. HM Revenue & Customs (HMRC) has details on about 400,000 accounts held with the offshore branches of major banks. However, it is expected that only a minority of the 400,000 people whose accounts are known to HMRC will own up. Accountancy firms warn people who do not come forward that they are playing a high-risk game. "Tens, possibly hundreds of thousands of taxpayers are hoping to be winners in a highly dangerous game of 'Russian roulette' with the taxman," said Reg Day, director of tax investigations at accountancy firm KPMG. "They are gambling on the hope that HMRC will have so many cases to investigate that they won't get around to them. "HMRC is a very patient beast and, although it may take some time, it will steadily work through the list," he added.

Good timing for the property show - get some sales in the bag before the hurricaine season takes off!

http://www.globalsecuritisation.com/06_intro/023_027.htm On 19 January 2006, ABX.HE, a new group of credit default swap (“CDS”) indices linked to subprime RMBS securities, began trading. Collectively, the ABX.HE indices form a subgroup of the ABX index family, which is expected to eventually extend to other asset classes in the ABS market. The index has transparent rules and relies on dealers for pricing. ABX.HE is owned and administered by CDS IndexCo and Markit, the same entities that manage the well-established CDX family of indices for corporates. In the first week of its launch, trading on the indices was extremely active, with some sources estimating traded volume as high as $10 billion. This report discusses the relevant features of the ABX.HE index, as well as the implications of indexing on the ABS and CDO markets. Composition of the ABX.HE indices ABX.HE indices represent the home equity market subset of the ABX index family. The first series, ABX.HE 06-1, was launched on 19 January 2006. A new index will be created every six months on the roll date. Each new index represents the “on-the-run” until the next series is created, at which point the old series becomes “off-the-run.” We expect that the trading for on-the-run indices will be considerably more active than for the off-the-run. The ABX.HE series will have five sub-indices representing references to securities issued within five rating categories. These are triple-A, double-A, single-A, triple-B and triple-B-. I've had a look at the individual graphs. Can anyone explain the dramatic fall in values that happened in mid-February 2007? http://www.markit.com/information/affiliations/abx

This sort of commentary will gradually ingrain a crash mentality in the minds of the masses and destroy confidence in the housing market. It's subtle, but note the way that he says "since the last crash", implying that we are already at the beginning of another!

It's no surprise that the valuation of a flood-prone property would be lower. -30% sounds like a realistic adjustment. You'd have to declare the flood to an insurer. I'm not sure if there's any comeback if you fail to declare it to a potential buyer. I imagine you'd still be able to get a mortgage provided you want to borrow less than the lender's valuation (which should take the flood risk into account) and provided you can get home insurance. Here is a good summary of the home insurance issue: http://www.fastquotes.co.uk/flood-insurance.html For the time being at least, all insurance companies under the umbrella of the ABI have committed themselves to offering home insurance to the thousands of owners with property in flood risk areas. How long this will last rests almost exclusively upon the completion of current projects and the ones penciled in for the future, because if any were to stall or be cancelled it could make for an entirely different story. This commitment, however, has made it possible for owners to still receive reasonably competitive insurance quotes from many of the most popular home insurance companies in the UK. The premiums for these vulnerable homes, however, will reflect the varying degree of risk attached to each property, therefore quotes are likely to differ depending on how each insurer interprets those risks. When calculating their premiums, home insurance companies have to factor in all the risks attached to a particular house, and if it is located in an area susceptible to flooding then this extra element of risk must also be included. This is the main reason why insurance costs for these properties are more expensive, as insurers have to counter balance the increased likelihood the policyholder will make a claim. To get a better understanding of the flood risk attached to a particular home, insurance companies refer to a flood map that was originally devised by the Environment Agency. This map puts homes into one of the following three categories: Low – 1 in 200 chance or less of flooding each year. Moderate – 1 in 75 chance or less of flooding each year. Significant - Greater than 1 in 75 chance of flooding each year. Any homeowner with a property classed as low or medium risk should find no problem in receiving a home insurance quote. Personally, I wouldn't touch a flood-prone property with a bargepole.

Many will be automatically transferred to a variable rate mortgage, which could add more than £200 to their monthly bill. I wonder what proportion of mortgage holders allow their fixed rate to lapse and end up on the SVR? 30%? 50%? I suspect there's a great deal of financial apathy about!

So is it SPECTRE or Goldfinger?

I met someone last week who lost his job a few months ago, and is struggling to find work. He said "luckily we had some equity in our house, so we've got enough money to keep going". So the equity in the house is a cushion for when times get hard. The problem is that times are about to get harder. I wonder how many others are doing the same?

So you're saying we should 'buy high, sell low'?

Let's face it: this is a rather amateur flag-burning attempt. They drew the flag with a felt-tip pen! I suspect the only reasons they chose to burn the St George's flag are that the Union Jack is difficult to draw, and that their blue felt-tip ran out of ink.