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Posts posted by Wad

  1. If Roger Bootle is right and certainly would not disagree with him, can you imagine what the balance sheet of the UK banking system will look like.

    If we get a 45% fall in all property prices (i.e residential and commercial) then pretty much the entire banking system will be insolvent as the recovery rate on defaulting mortgeges will be so low that the bank balance sheets will not be able sustain the right offs.

  2. I have been watching this house for about 18 months as a marker for what is really happening at the very top end of the market in the West Midlands. If £1.2 miilion really is the price it is being sold at this is a real market price as it is being sold by creditors I believe.

    A sale at £1.2 million down from £1.95 million is 38.5% off. I really do think this is actually spot on where the real market is right now for country property. I do not think this is dirt cheap but just a fair price in current conditions.

    Interestingly, it is still appears to be being marketed at £1.65 miilion on Andrew Grant website today.

    We shall see what it really goes for in due course.

    EDIT: Just been on the Andrew Grant website and I notice this at the bottom of the particulars:

    We hereby give notice that an offer of £1,200,000 subject to contract, has been received for the above property. In the event of there being no better offer received at this office within seven days of the date of publication of this notice, the property will be sold at the price of £1,200,000

  3. Look carefully at the graph.

    Now just imagine what will happen if average wages start falling in nominal terms - in other words wage deflation - at say 5% per annum for 5 years.

    Oh yes - do the maths - house prices have to fall 10% per annum for the next five years just to get back to 3 x salary.

    Now imagine what happens if the house prices overshoot to the downside after a 50% fall from where we are now. No it is not too horrible to think about - just think logically would you choose repossession or a life time of debt?

    Everyone has a choice - red pill or blue pill??

  4. As a tenant of 25 years and counting and always in private LL property I am constantly amazed by the arguements that tenants get into with their LL.

    Bottom line is this. The LL wishes to inspect the property but the OP quite rightly does not want to have to live with smell of paint and the disruption. Both parties have some rights here and both parties should be reasonable to the other.

    Solution is that the tenant should let the LL inspect with his painter to do estimates etc. at a time convenenient to the tenant but explain to the LL that he must not start the work until he has vacated the property at the end of the tenancy.

    The LL meanwhile should respect the tenant's right to 'quiet enjoyment' and not expect to start painting the flat while the tenant is still living there.

    There you are. Two parties being reasonable with each other and no one got hurt.

  5. Buying (with market leading mortgage rate) is significantly cheaper than renting now.

    For example. My flat in london (I'm an accidental landlord since 2005/6) rents for a 1450 a month but the interest payment on the full amount it sold for in 2004 based on my current mortgage would be 635 pounds a month (pay much less than this due to equity).

    Wish I'd sold whe I came back from New Zealand but at the time I would have had to pay 3% to get out of my mortgage. No idea what the property is worth but I've changed my mindset to see it as a BTL investment and it doesn't seem half bad.

    Anyway my question is how much cheaper does buying have to get than renting before people want to buy again?

    I guess you are comparing gross monthly rental income with your current mortgage deal?

    EDIT: Are you also basing your calculation on the orignal purchase price rather than the current achievable market price?

    What does your calculation look like if you do the calculation based on a 3% mortgage at 100% LTV and compare that with a rent that is 20% lower than you got last year because rents are falling fast. Also you need to assume you only get a 9 months of net rent after voids, repairs, insurance and agent fees.

    When I do that calculation on my rented house. I am finding that a mortgage is now slightly more expensive than rent for the first time in years but that assumes I can buy the house for 10% less than what the LL paid in 2004. I also take no account of the risk premium I need for for taking a risk of capital loss.

    I still think a further 15% price fall in the average house price is required before we get to fair value. I have held that view for the last 3 years and the relative cost of rent versus buy still reflects that thinking because rents are now falling at the same rate as prices.

  6. We are now truely in unchartered waters.

    No one has ever experienced what a global policy of near zero interest rates does.

    There is a real risk that 'savers' will simply withdraw all of their money from the banking system and put it under a bed whole stopping all non essential spending in order to preserve capital.

    In the UK the bulk of retail deposits are from older savers. They need their money to live on and if they are suddenly not getting any interest on those savings so they have effectively seen a massive cut in their income. What do people do if they have a fall in income? They tend to stop spending of course!

    In a bizarre way, zero interest rates could create a situation where older 'savers' simply stop spending to preserve their dwindling capital which will more than offset any tenedency by younger borrowers to start spending. Indeed the fact that older savers stop spending might cause even more of the younger borrowers (who are still working to pay off their mortgage and credit card debt) to actually lose their jobs.

    You can see the vicious spiral that might kick off here as older savers slash spending and younger borrowers lose their jobs and see wage cuts and hence default on their debts whch in turn causes bansk to be even more cautious in lending.

    Bringing it back to house prices. Older savers might be forced to sell their house if they run out of savings but of course younger borrowers wil not be able to borrow any more money to buy them if they lose their job or if their wages fall or just because they cannot save enough to get a deposit together.

    To get people borrowing again to buy houses the key factors are unemployment, wage multiples, wage inflation and LTV ratios. Zero interest rates do not help borrowers in this environment - it just punishes savers who will in turn stop spending.

  7. As I said on another thread yesterday - unemplyment and LTV ratios are key here.

    I bet the 16,000 postal workers dont't feel like green shoots as they lose their jobs and I bet there are not too many FTB feeling too happy as they contemplate another ten years in rented accomodation while they save for a 25% deposit while paying of their student loan and 45% marginal tax rates.

  8. :lol:

    I knew the post didn't look right but I was juggling the baby, a cup of tea and a piece of toast and couldn't put my finger on what was wrong with it.

    Now I reckon a variety act like that it might well be the sort of income generator that is recession proof.

    Throw in a bit of comedy banter, slinky dress and ice skates and you could be a TV star.

    Do you do Barmitzphas?

  9. Know a hill farmer in Wales, was wondering just what are the cost V profit if he stuck a windmill where his sheep are?


    Most farmers who get into this just sell a lease on the land and let the windpower developer take the risk and do the management. It is a very complex planning process and the Govt grants, Renewable Obligation and CO2 certificate regime is far far too involved for it to be worthwhle for a farmer to be bothering with.

    Take good advice from a good land agent on the current values. It depends on the availability of wind and you need good surveys taken over a long period to really maximise value.

    Bottom line is that it just is not worth a farmer doing it him/herself.

  10. Given some of the houses I have been to see both to rent and buy the BIG value improver in many of them would be to:

    1. Tidy up and declutter inside and out

    2. Thoroughly clean everything to a state of spotlessness

    3. Get rid of the stink of animals

    4. Paint everything

    5. Mend anything that is broken or worn

    Total cost £10k plus a week of your life for a 5 bed house - but adds £50k .

    We do not see much of Ann Maurice from House Doctor. Wonderful lady in my view. Awful lot of good sense. She would agree with the above.


  11. I have this method to tackle the mortgage war.........i have gone gureilla

    pay an interest only mortgage of e.g. 3% and then put the possible repayment portion into an ISA e.g. 3.5%........in the long run ,rather than pay off the principle of the mortgage I could put the money away and make a profit of 0.5% and not only that if we run into a bad reccession then you have a money store which can be used to pay your mortgage payments and hold onto your house or you can say bugger this and make off with the money you saved and leave the keys with the bank???

    everyone insists i am wrong and only a repayment mortage is smarter......what do you guys think? <_<

    The only way you can achieve this 'yield pickup' as an money market or bond trader will tell you is to either:

    i) lending to risky borrowers so taking credit risk; or

    ii) lending further out along the yield curve so taking maturity risk.

    This is the business that banks are routinely involved in when they borrow at short term Libor rates and lending long to risky borrowers.

    Look where it got the banks. There is no risk free arbitrage here.

  12. Like all of you guys and gals, today was a big shock. I have been looking at houses over the last 8 weeks and not much is selling, however I got the feeling from EAs and asking pointed questions about vendors that pyschologically people were starting to get slightly panicky and a gradual realisation they are selling into a falling market. The figures from Halifax etc obviously backed this up. It also made putting cheeky offers in much more logical, if not immediately accepted by vendors. I fear two things will change after today. The vendors sentiment will be given a boost, albeit it may be temporary and we all don't know who is right, however it will delay any sales at meaningful HPC discounts! Unfortunately, it is a great time for this news to come through in Spring, which is a big bummer.

    The second key point is that the cost of servicing a mortgage (if you can get one or have one) and don't forget not everyone is in deep financial shit, is amazingly low on an interest only basis and now with a decent deposit, much less than renting. We all know I/O mortgage is madness, however I believe people will just be happy to service the interest in the current environment. Unfortunately, the drop in interest rates now means it is very viable to buy a property for cash and the rental income will be significantly higher than the 2-3% you may get on deposit. Money will be coming off deposit and going into property again.

    On the plus side, I think there is genuine reluctance by lenders to lend to poor quality applicants. Therefore, there is a genuine lack of mortgage supply out there, as we all know.

    I think the HPC argument gets weaker, if we see a couple more months of positives or small negatives and/or if we see a major push on lending through the state controlled banks. I believe the non state owned banks are happy with cherry picking the best mortgage applicants, so will not play gordies games.

    In summary I feel over the next couple of months it will be difficult to secure any meaningful discount on a property sale. We need to see some other major financial disaster to get the downward pressure rolling again and sentiment turned.

    Today has been a doubly big kick in the nuts for HPCers, although the ball is still rolling downhill, it has certainly slowed considerably. I want the crash as bad as everyone else but today has certainly muddied the waters.

    You make a set of very valid points here onlybone1. All of whch I agree with but....

    My feeling is that the two key factors now are availability of mortgages and unemployment.

    On mortgage availability there are very few 90 -100% LTV mortgages and to be honest it does not matter whether interest rates are 0%, 1% or 2% the key thing is LTV and multiple of salary on offer.

    At the moment, banks are in a world of fear and retreat and therefore sliding back to 'sensible lending' at 75% LTV and 3 x salary multiples. That kills the ability of most young people to get a mortgaage and we know FTBs coming in at the bottom are fuel to the housing market.

    On unemployment. This is still rising sharply and it makes people cautious - even if they have a job they fear that they might lose it or know someone who has. The last thing they will do is go out and make a big commitment by buying a house on a big mortgage if they are worried about the possibility of unemployment. Employment is essentially the driver of consumer confidence and that is a shaky proposition right now.

    In summary, until we get back to 90% LTV and plenty of banks willing to stretch the multiples and lots of people willing to take on a big new commtment becaiuse they feel secure in their job we are going to see slow house price growth. Existing homeowners with equity will get a very attractive mortgage deal of course but they are not the fuel that drives the market. It is new FTB entrants and people trading up to a bigger property that drive the prices up. Existing homeowners who are not moving or old retired buyers downsizing and taking equity out of the market to live on have either no effect or exert a slight downward pressure on prices.

  13. I have just been digging into the data on the Excel spreadsheet published by Halifax. Download here:


    Looking at the broken down (Non Seasonally Adjusted) data I can see the following:

    The rise in prices overall was up 0.87% on a Non Seasonally Adjusted basis. So the headline data that is being quoted on the news is the Seasonally Adjusted Data which is up 1.93%.

    Now breaking that raw Non Seasonally Adjusted number down we see that former owner occupier purchase prices - (FOO MON) on sheet 17 were up 2.26% but FTB (MON) prices were down - 2.46%.

    New house prices fell a huge amount in January New (MON) Sheet 14 down - 7.61% however old houses were selling at higher prices as Existing (MON) on Sheet 15 prices appear to be up 1.35%.

    Putting these pieces of data together - and remembering we are looking at Non Seasonally Adjusted numbers it seems that owner occupiers bid up the price of old existing houses slightly in December. However, new build prices fell a lot and FTBs who are the main customers for new build flats bid lower prices as well or just exited the market.

    I suspect there will be no follow through on this as there was probably a very significant special year end effect of people who really just had to move by year end that had been holding off for a while.

  14. My wife is from Newcastle and she was saying this back in 2003 as well.

    If you know the Newcastle economy and then think about what a 125% mortgage means (i.e instant negative equity) and then think about lending on 6 - 8 x multiples it is pretty clear those three facts should never have been allowed to come anywhere near each other in the form of a mortgage contract.

  15. Can anyone explain to me what a property finder does?

    In the old days, before the internet, perhaps there might have been a need for someone who could scan a local market and provide a list of properties to look at. For example, if say a foreigh buyer was coming over the London and did not know the areas and were only here two days then havng someone organise the viewings would save a lot of time but surely that service is worth only about £1000.

    However, since the advent of the internet - even very high end property is just as available on the interent sites as low end stuff. Check out Rightmove, Primelocaton, Globrix - its all on there.

    OK maybe if I wanted to buy in the top 0.1% of al London property then maybe there is a case but that is about 3 people per year even in a boom time.

    Do property finders do any more than I am suggesting?

  16. I do not normally join in 'banker bashing' threads but I will this time.

    The key issue I thnk we have to remember here is that without Govt support these banks would not survive. Contractual bonus payments would almost certainly not be honoured if a bank were put in liquidation as the bankers would just be unsecured creditors at the back of the very long queue.

    In my view the Govt failed utterly in its rescue by not causing the banks to momentarily to go into a 'pre pack' administration and then straight out again into a special purpose vehicle owned by the BoE. That way all creditors would have to take their turn and do as the BoE/Govt sees fit. At the moment all creditors are behaving as if nothing happened.

    These banks could be run down with only 20% of their front office trading staff. The back office staff are the ones you really need to keep but they are paidvery little relative to the front office 'stars'.

    The Govt needs to get a grip here. Nationalisation, rationalisation and refloating of the good bank elements needs to be done and quick. I am a shareholder in a number of banks and I do think all shareholders in many banks need to be wiped out, employee bonus contracts ripped up and the subordinated debt holders forced to convert it to equity.

  17. I think Mr Obama is making the mistake of believing that limiting executive pay to $500k will limit pay overall on Wall Street.

    Well you may all be surprised to know that there are many many people on Wall Street who work for investment banks, brokerages, hedge funds, investment managers who get paid huge multiple of $500k but thare are NOT executives.

    The executive board at most banks earns a lot less than a lot of the top traders, brokers and hedgies.

    Wall Street pay and huge bonuses are still going to be paid out when the markets turn up again. The executives will comply but get large amounts of deferred stock and the other 'rain maker' big guns will still quite legally get huge unregulated bonus pay as long as they stay off the executive board.

  18. There are historical precedents for seizure of personal assets from the 'money lenders' and other providers of capital.

    This usually happens at the point of the total breakdown of society and the imminent implementation of dictatorial Govt.

    The Russian Revolution in the early part of the 20th Century, Hitler's Germany in the mid 1930s with Jewish bankers, Argentina with landowners and bankers during the Peronist era in the second half of the 20th Century.

    It happens every so often when the people demand retribution. We are getting some quite strident calls for seizure of bankers assets and reclamation of bonuses. It is populist - but I would not be at all surprised to see it in some form in the UK and US and across Europe.

    In some sense bankers have been very poor at understanding the real feeling of revulsion at what they get paid considering the mess they created.

  19. But the current primary driver in globalization is wage arbitrage. How is it more productive and a better use of limited global resources to ship 1000 people a couple thousand miles to do a job then ship them back again after??


    Its a waste of resources in a global context to ship workers around when there are equally skilled workers located close by. Hostility is generated in both countries involved.

    You are right in that wage arbitrage is the big driver of globalisation but it is multi decade long process that the young UK workers of today feel very keenly and that their parents never felt. Unfortunately the Developed World came to believe over the 20th Century that its workers had the right to earn far more and consume far more than the rest of the world.

    The truth was that communism cut off a very large pool of labour from competing in world markets. Once those communist workers re-entered the global market then wage rates and the price of certain low skill mass produced goods collapsed. Japan and Korea got hit first as they are close to China, now it is the turn of the US and Europe.

    I do not agree that it is a waste of resources to ship workers around the world. Wage arbitrage is as inevitable as commodity arbitrage in coper, steel, oil, gas, whatever. There is a single price for a unit of manual or semi skilled labour in the world and that unit price is low. Very much lower than the UK minimum wage. Only very very location specific skills will command very high prices such as footballers, pop stars who have to be at a particular physical location to deliver their very unique skill.

    Even the wages of investment bankers and City workers of all kinds and at all levels will eventually be arbitraged away. I sit here at my PC all day trading stocks, bonds and commodities from home - why have we got City dealing rooms if anyone can do that? Why employ those workers in London? Why not employ a bright guy trading over the internet in Mumbai who will work for £50k per year rather than £500k?

    That said, wage arbitrage is still a very slow process but in the end it is why UK land and property prices make no sense in the context of a global labour market. If we get a quick burst of severe wage deflation then UK house prices will fall a LOT more than 50% from peak in this cycle but in the very long run house prices in the UK should be no higher than in any other reasonably pleasant place on the planet with a strong rule of law and good human rights.

  20. Yes Stephanie Flanders is right.

    The gold standard created most of the 1930s global depresson and it was not until it was suspended that things started to recover.

    The problem is that the gold standard of the 1930s was like a single currency for the entire planet. In the same way as we are siieng parts of the Eurozone in severe recesison already, the adjustments that need to take place to bring economies back to tequilibrium are much easier if relative currency rates can change. If they cannot - as is the case under a fixed exchange rate regime the money market, labour market, markets for goods and services and and asset markets have to make the adjustment.

    Unfortunately, labour markets are sticky in that wages fall only slowly so that creates unemployment as the price of labour remains too high for too long. Likewise the money market can only be relied upon to part of the adjustment because interest rates cannot go below zero. Prices of goods and services can fall - which is deflation - and that eventually helps but again it is slow process because firms cnnot cut costs quickly enough and even if they do their profits wil fall so fast that they cnnot meet their liabilities. That leaves only asset markets that can adjust very quickly and the collapse in asset prices destroys bank collateral against loans so mass defaults and foreclosure occurs with the result that new lending collapses.

    If currency rates had adjusted instantly in the 1930s then much of the Great Depression might have been avoided.

    This time round the Euro is a major problem because the countries of Europe are locked together in one exchange rate. The US Dollar is another big problem as not only the US but most of S. America and the rest of the world is 'dollarised' to some extent. Add to that the quasi fixed exchange rate policy that China is pursuing and in reality the world currency markets are far more sticky than they shudl be to quickly adjust to the levels required to create equilibrium. In a bizarre way the Uk may actually have the best exchange rate regime in the world with its floating rate laissez faire policy at the moment.

    Protectionism does to some extent make the situation worse by preventing international markets for goods and service clearing promptly. That causes unemployment in countries that wouddl like to sell goods and services more cheaply than other countries will allow them to sell. Witness the recent oil refinery strike - that is a symptom of that phenomenon with UK workers demanding protection to prevent Italian firms offering their goods and services in the UK even though the foreign form is willing to offer the service for less than a UK firm. The net result is that Italian workers do not get the job they hoped for and the UK oil refinery firm that might want to buy the service the Italian fIrm offered to provide might JUST decide not to buy the service at all so even UK workers may not benefit either.

  21. Iceland (the country) is due to be fast tracked into the European Union and Euro.

    I presume that all the liabilities in the Icelandic banking system will have to be revealed and written off before that can happen.

    Does anyone know if Bauger going into administration is linked to that process?

  22. Link

    I know this was posted yesterday, but I think this is very important WHY are the BSA calling for a halt to rate cuts?

    Building Societies need savings to fund their lending, so IMO the BSA are very afraid that lower IR may lead to a general run on savings, leaving BSA members severely underfunded.

    You are making a very very important point.

    Nobody alive today has ever seen interest rates this low. Frankly we do not know what will happen if rates drop to zero.

    In recent years economics has become dominated by mathematicians. We have forgotten that above all economics is a social science that fundamentally tries to desribe how complex economic systems made up of multiple rational and irrational agents with imperfect information come to make joint decisions.

    In my view, it is very likely that many people will remove their savings from banks and building society deposit accounts. It is not a surprise to me that so many people are buying safes and using bank safety deposit boxes. It is rational to remove your money from all financial institutions when interest rates are zero even if there is remote possibility of default.

    The only reason one would keep money in such a system at all is for the pure convenience yield of being able to make electronic payments from current accounts rather than pay cash. Other than that all savings accounts will rationally be emptied and I do think BS managers are very worried about it as they can already see the phenomenon beginning to happen.

    With interest rates at zero wil everyone revert to cash and barter - I think there is a strong possibility and I am not being a survivalist nutter when I say that. I just think it will be a rational response. Someone like Niall Ferguson as a historian would be better at thinking this problem through than a mathematical economist.

    where you fear that there is any possibility of default

  23. Bump for this - I'd appreciate it if anyone with recent knowledge of this (perhaps a current landlord or an lettings agent) would advise what the percentage that goes to agents tends to be. It's a property in London, a big multi-office chain of agents, if that's significant.

    Many thanks

    The figure I have heared most often quoted is 15% goes to the letting agent when the property is first let and then 1 month rent if the contract is renewed with the same tenant.

    I do not know for sure though as I am a tenant not a LL.

  24. I remember drooling over something similar a long time ago, and a wise man said to me "the purchase price is simply a down payment on the running costs".

    It would cost a staggering amount to raise the interior to a tolerable temperature (15 - 20K a year), and the running repairs would be the same again. Lose a bit of guttering and you're looking at a 5 grand scaffold bill.

    At the end of the day you'd have a big old draughty house in the middle of nowhere that doesn't have enough land. If I was going to move to the region, I'd be looking for a more manageable house with 100 acres.

    You are absolutley right.

    There has been a phenomenon of people running off to France and buying Chateaux over there for £250k and then spending £1 million doing them up but thne not being able to sell them for anything like the amount they put in.

    I have mentioned before my friend who owns a large country estate left to him by his father. He is quite open that it is millstone round his neck and would sell it tomorrow if he could. Indeed, about 50 years ago the estate was quite literally derelict as his father ran out of money and the cost of maintaining it was far higher than the house and land was worth. It is only the fact that my friend is an absolute genius with property development and property management and he has been able to sell some spare land in the bubble market conditions that he has been able to drag it back from the brink over the last 10 years. It is a labour of love though as he will never get any value out of it.

    I once offered to rent a large country house from someone - more of a stately home really with carp ponds, woodland, stables, fields, river fishing rights. I rang him up and he told me that if I kept the roof on and let him visit once a year I could have it for nothing for as long as I wanted it on a full repairing lease. I ducked his offer as the running costs were 3 x the cost of a normal rent.

    Presently, I am looking at renting a listed building for a five yaer term on a net yield of 0.5%. Believe it or not that would be a generous offer which I fully expect few others will be prepared to match. Its just a question whether the LL can bring himspef to accept the offer.

    Bottom line is that everyone needs to be very careful when buying old listed buildings. No matter how beautiful, they can be an extremely expensive proposition that the rising property market of the last decade has masked. There are going to be a lot of City buyers who will find this out to their cost. Those who bought massive country houses in the last few years will now not have enough cash to look after them. I fully expect large country houses in remote houses to crash just as badly as the rest of the market if not more. Some will be worth zero if they need a lot of repairs.

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