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R K

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Everything posted by R K

  1. Quick question: If the Central Bank/Banks aren't able to carry on increasing the money supply via the mortgage market how will they do it?
  2. Dstars, I agree with the overall thrust of your article, but it may be helpful to include the fact that someone taking out either a repayment mtge or an IO naked option mtge gets the use of the asset for the lifetime of both. The price of the asset at the end being the same. Somehow you need to account for the rent saved. In the early stages of a repayment mtge, I still think the differences are small aren't they?
  3. Excuse me "Property Guru"? Did I flame you? I understand there are leverage risks and interest rate risks inherent in an IO mortgage. Some of the same arguments can also be applied to repayment mortgages. I would suggest there are some obvious differences in writing naked put options on other asset classes. One of them being the assumption that you need to live somewhere. So you can discount the rent you would otherwise be paying. You also need to take into account instrument being used to eventually repay the loan itself. So in answer to your question, no I don't believe I am a professional d*ckwit, and I'm not sure how calling me such adds much to anyone's understanding of anything.
  4. Have you ever had a mortgage? Who's money was it? Because it certainly wasn't yours. Please explain to me how "savers" bail out a bankrupt. You seem to be under the misapprehension that a bank lends out savers deposits. If that is the case then you have no more idea about the finance system than the people you are so disdainful of.
  5. It is clear from some of the posts on this thread that some people have never been in a situation where they are unable to service their debts, for whatever reason, and have no concept at all of the effect that can have on an individual, his family, his relationships etc. I am surmising, but could be wrong, that some of these people have either never had children, lost their job, had a business go bust or got on the wrong side of a debt collection agency. If they had they may be a little more circumspect in their comments, and a little less aggressive in their attitude to people who find themselves in that situation. Bankruptcy is not an easy option and can have ongoing consequences. I think it is not helpful either to suggest that banks whose customers have ended up in bankruptcy are the one's who suffer, or their more prudent customers. The banks make money hand over fist through borrowers and nothing at all from customers in credit. It is quite likely that a bad debt has already been effectively repaid, especially if it is unsecured, long before it goes "bad". The banks know exactly what they are doing, how much bad debt they can handle and build that into their profiling and lending models. In many cases, the customers bombarded with credit card offers, increased credit limits, credit card cheques, unsecured loan offers, consolidation loans, etc etc are much less well informed about the products they are buying and do not have a real understanding of the consequences of compound interest rates of say 17.9% over time. Often these marketing offers will drop through the door at a time when people are already in financial difficulties. Sometimes this is through profligacy, often times it is not. The solution to this problem has already been covered above: * Regulated lending restrictions * An end to uncovered IO mortgages * An end to off-balance sheet instruments such as CDO's etc * Stricter requirements for increasing CC limits only at customer request * Proof of income and other borrowing on all loan apps etc This problem did not exist at all 20 years ago. You have to ask yourself why. The answer in most cases doesn't lie with the punters, it lies with the Banks, the Government and the regulators.
  6. There is nothing at all wrong with IO. It depends on your circumstances, the property/economic cycle, your attitude to risk, and the lending environment. If you bought 10 years ago using IO and sold this year, you will have made a fortune for virtually no effort and low risk. If you buy now using IO and sell in say 5 years time you will probably lose a fortune and have taken a huge risk. However, that is also the case, as mentioned if you do the same thing using a repayment mortgage. The main difference is your level of leverage over time. With a repayment mortgage it starts to go down as you eat into the capital (which admittedly may be 10 years into the term). But at the end of it you will have no debt, owne 100% of the asset, and hopefully this will coincide with retirement and a much reduced income. With IO you are basically saying in advance that you will HAVE to downsise no matter what your circumstances at some future time, and be forever paying interest to the lender in the meantime. So, horses for courses. In pure financial terms repayment is safest and cheapest. Like all leverage it depends upon attitude to risk and future growth. Personally I have used and would use again IO, leverage etc to buy a house (as an asset) shares etc. Depending upon the asset, the market timing and my circumstances. What I wouldn't do however is buy at the peak or near the peak or with anyone who didn't share my appetite for risk, or with my head in the sand about where I would live if it all went t*ts up. That is the main issue. 80-90% of punters have no idea what they are getting into with an IO mortgage. They are cannon fodder numpties for the banks to use to satisfy their insatiable desire for profit.
  7. I think this has gone way beyond a few interest rate cuts. The DOW and the FTSE and most other correlated indexes have been rising strongly as rates have been tightening. Predicated mainly on private equity buy-out fever. I doubt that cutting rates now will prevent falls in either the stock markets or the housing markets. The downside risks are far too severe at this stage surely. Where is the upside in either stocks or housing? So the FED will cut rates, and see the markets continue to fall. Then what will it do? The main problem here is not interest rates it is deceit, fraud, greedy lax lending, private equity, hedge funds. The main culprits are JPMorgan, Goldman, Lehman etc. The REALLY effective solution to "protect the system" would be to allow those profligate risk takers who have created this situation to go bust. To have their capital expunged from the system, and to start again with new players. That is the basic method by which capitalism works. In that way the "system" itself is protected and only the least efficient, greedy, lazy lenders are taken out of the game. The energy "system" didn't stop functioning because ENRON went bump did it? Of course not. Other players take up the slack. The FED are taking precisely the wrong action, and I suspect the US will be punished for it in the medium to longer term. That is the problem when the gamekeeper is in the pocket of the poacher. I just hope Mervyn King isn't persuaded by Bernanke's arguments, and sits on his hands for at least the 'Xmas until the dust settles. Although I don't have much confidence he will.
  8. That's so funny I almost daren't mention the typo....
  9. Mildly amusing the way 2002 keeps repeating itself over and over like groundhog day until it hits 2007 and falls out of bed. Isn't it about time the Indie had that graph of real house prices over the past 20 years on its front page? The one on the HPC home-page? That would have more impact than the FTSE for most people
  10. Surely there is scope here for a party that would re-nationalise all our major infrastructure companies a la railtrack? So, trains, water, electricity, gas, telecoms etc. I can't think of one of them that offers either a better service to the customer or a more cost-effective one since privatisation. With the possible exception that Virgin's new trains are very nice (even if they can't go flat out). Who is with me brothers??
  11. About the only things missing are a massive hurricane brewing in the Gulf Of Mexico to lift oil prices, Russian bombers circling over the pacific, Rooney breaking his foot again and an outbreak of bird flu Can anyone tell me why the Eton Tories are even bothering to turn up at the next election? "No, No Gordon, after you".....
  12. I've not read posts onthat forum before. J*sus that "Rebecca" is scaring me. "I'm about to move into my new house" ...."it's risne £15k already" ...."renting is dead money"...."it's in an up and coming area with lots of regeneration".....lamb...slaughter....led...springs to mind
  13. To clarify I mean sold to rent. To pay down debt rather than because they thought it was the top of the market. i.e. forced to more than chose to if that makes sense. Fortuitous timing though.
  14. Thanks for posting those stats Griptool - Puts it in some perspective! Speaking from personal experience I couldn't afford it any longer. With a modest job, 2 kids, a mortgage, 2 cars, and a wife doing a full-time degree course I used credit cards to take up the slack with a view to remortgaging when we had 2 incomes again. What I didn't plan for was divorce. I don't really know anyone with kids who doesn't use their credit cards to pay for everything over and above daily living expenses. How else does anyone absorb above inflation rises in council tax, energy costs, stealth taxes etc etc? Several of my friends have cashed in their equity in the last year or so, mostly not because they think there is an impending HPC but because they've run out of money, and renting frees up equity cash and allows them to survive a few more years. It's not ideal, but it is what is happening. I guess anyone that gets out now will be thankful in a couple of years time that they did.
  15. I agree entirely. It is difficult to understand most people's lack of understanding of financial products. I have a financial services degree, and sometimes it still takes me a while figuring out the real cost of something. I have a couple of short, true anecdotes by way of illustration. My ex-girlfriend was a very intelligent scientist. She had 2 phd's. I went with her to buy a second hand car, and I almost wept at the way she took at face value everything the car salesman told her. From the valuation of her trade-in to the APR on her loan. With 1 quick phone call we managed to get her loan rate cut with the dealer, which saved her £2,000 off her 10k loan. She had no idea people could haggle on loan interest rates or part-ex prices. I kid you not. 2 phd's and financially illiterate. The other example relates again to a differnet car dealership. I saw an advert (teaser ad basically) in a manchester paper which was offering a new car for a stupid price. Essentially I learned they do that simply to get people into the showroom. No such car exists at that price, or the one that did sold immediately. So once through the door I sat back and let the salesmen do his pitch. Everything related to the WEEKLY cost. Ikept saying ok, so how much is that in total. He refused point blank to give me a price for the car. He told me the only thing most people ever care about is the WEEKLY cost. This confirms two things to me:- 1. Most people, even the well-educated have no concept at all of simple loans/interest rates/total cost of ownership. And I mean maybe 80-90% of people/sheeple. 2. Most people don't care, so long as they can afford the weekly/monthly repayments. Tell someone with a 25 yr repayment mortgage that their 200k house will cost them 400k and they won't believe you. Tell them that their interest only mortgage with a 5% deposit is a 20 times leveraged naked call option and they'll look at you like you're stupid. All anyone wants to know is how much a week/month will it cost me, and can I afford those repayments. Tell them "yes" and they'll think its a good deal.
  16. Errr.....not quite. My 18 yr old was born in 1989. He is just off to Uni in a few weeks. He has had a part-time minimum wage saturday job which pays for his nights out, Wii games and booze. He wouldn't know what price houses were if his life depended on it. Where the economy has been the last 10 years, what is happending today in the debt markets or the stock market. Neither would most of his friends. What he WILL find out the hard way, is that in 3 years or so, he will owe £20-30k in student loans and debt. Assuming he is lucky enough to get a job, he will then be straight onto the renting/housing cost ladder we all are so familiar with today. If the global economy does got t*ts up he will lift his head up and see that houses are FALLING in value. That the economy is f*cked up, and that his parents generation have lost their jobs, gone bankrupt, lost money on their BTL's etc etc etc. When he is mature enough to understand these things, the last thing on his mind will be getting into debt or buying a house. I suspect he will do what most 20-30 somethings are now doing , which is rent and put off having kids as long as possible. Possibly into his mid-late thirties and even later. I see no reason at all for his current generation to repeat this cycle of "getting onto the non-existent hosuing ladder" as the boomers have been encouraged to do. They generally came from an era of job security, post war austerity, no hedge funds or house price specualtors etc. His ipod generation may not wish to buy property EVER. Who then will the boomer BTLers sell to to finance their retirement? More property specualtors/funds/bond companies? If this goes the way we all suspect it may do, then I honestly cannot see who is going to buy up these houses in the future. Forget there being too high a demand, surely there is going to be next to zero demand and huge over-supply. Perhaps we will end up with a more European (German especially) model, with a move towards a much bigger rental market owned by professional long-term landlords, and a much smaller pool of owner-occupied housing with much less gearing, less speculation and so on. I for one, think that would be a very good model for the UK and I hope that it is one which ultimately comes to pass. I personally have been much happier in rented accomodation, where the landlord does the maintenance, and I reap the benefits. So long as there is a plentiful supply of good quality rented housing I see no reason at all for owning. Especially given the wild swings in interest rates, probably long-term capital depreciation and rising risks from global warming/flooding etc. In fact, I think pretty much the ONLY reason to want to own a house is the prospect of long-term capital gains. If you took that out of the equation, as it likely to happen, why else would you buy?
  17. Thoroughly enjoyed the original post. I am not an economist. I am a great believer in keeping things simple. A strategy which tends to produce better decision making than economist theoreticians ever do. I have personally experienced the swing from high-earnings, high indebtedness to low earnings zero indebtedness. All I can add is that whilst I would rather earn more, you certainly find out what really matters in life, and it ain't the flashy house, the expensive mortgage, the credit cards, the foreign holidays or the eating out. It is having a roof over your head, food to eat, and your health. I suspect I am ahead of the wave on this one, and certainly don't fear what is about to unfold. In fact, I think it will make the west a better place to live in the long-term. For the reasons mentioned in the article. There are some factors which I think would be really interesting to explore this time around though, and perhaps over time people would like to comment on these as well. * Japanese experience - How can we learn from this, and how might that be translated to the UK * Economy - Won't a long period of deflation lead to the need to bring jobs back home - i.e. reversed offshoring, as the offshoring economies grow relative to ours and their labour rates rise? * Migration - Again, people mostly come here to earn more. If they can't, then they won't come. * Social unrest - If UK working class/middle class people lose their homes, pensions, jobs etc, won't they take that out on immigrant, and in particular those who don't have mortgages? * Is this the REAL reason for the step change in the UK surveillance society? Biometrics, ID cards, CCTV, car sat'nav systems. To control the likely outcome arising from an economic meltdown? * Regulation/Capital flow controls - Central banks are helpless to prevent huge and rapid swings in capital flows by hedge-funds/speculators. Why is there still almost no regulation of these people? Won't there be a tendency for governments to turn against the hedge fund and private equity industries/investment banks, who are using countries economies now purely for personal gain? * Government - I personally predict a very rapid shift away from all the main political parties if we enter either highly inflationary or deflationary periods. Gordon Brown will be toast anyway. But I think it is likely to swing much further. People will rapidly lose faith in traditional "parties" and will seek to vote in anyone who will do away greedy bankers, greedy politicians, get rid of immigrants who will be targetted for all sorts of reasons, protect their property, what little assets they have left, give them work etc....I do not know whether this will be an ultra-right wing party or ultra-left wing or even the army, but it won't be NULAB or the the ETON-TORIES. * US - The UK tail will be wagged by the US dog, as in the upswing. Won't China and Russia be using this as their time to strike? Ultimately you don't need war to cripple a country. Greenspan/Bernanke are doing more harm than Bin Laden ever could. How will the UK fit into this re-ordered geo-political world where the US becomes the bankrupt nation, but still holds their nuclear arsenal? These are all huge issues which probably go way beyond the scope of this forum and this post, but I can't help thinking that the US will do everything it can to avoid getting caught in a long-running depression. If they could go to war in Iraq because of 9/11 then they are capable of doing anything at all to avoid a financial apocalypse.
  18. I have done it in the past, mainly to secure a flat because i really liked it, it was in a great location and at a great price. Negotiated a discount on a 12 mth let, paid up front in 2x 6mthly instalments. Of course there is a theoretical risk, but it depends on the landlord, your view on life and the property. Everything in life is negotiable. I have spoken to lots of people who pay the asking rent without even thinking they could negotiate it down. There are so many empty rental flats at the moment, if you aren't getting at least £50-100 off the rent you really need to move on and try somewhere else.
  19. I live in south manchester. Don't know Bolton market at all. However, on the plus side your house looks fabulous inside. The only thing I would do is put a big vase of flowers or something in the front room fireplace (no i'm not gay it just looks like it needs some). Definately paint the render outside. Crying out for that. Also, greenery as mentioned. Maybe a couple of big silver pots with a shrub in each. (but only for the photo and for viewings, or they'll disappear). The only other thing that I am truly gobsmacked by is the amount you have spent on extending/conservatory. I suspect this will be a lesson hard learned. Conservatories are a particular bugbear of mine. You've spent all that money to house a table and a footy table. I have never seen a conservatory I would pay money for, and have zero imagination as to what it could be used for. most people seem to put a few wicker chairs, or kids toys, or their fridge freezer. Biggest waste of money ever. At least you will have learned that. As to selling your house - I would suggest that since you are using an estate agent, you firstly drag them round, sit them down, and don't let them leave till they've told you exactly what you need to do. Tell them you don't want to hear any bull***t, just what price will guarantee it sells in say 4 weeks. Then ring them up every single day until they have sold it. You are paying them good money to sell your house. Bully them every day until they do. I don't mean in an agressive way, just a blunt and persistent way. You don't say why you are having to sell. Do you HAVE to sell? or WANT to sell? If you don't HAVE to sell, you might be better not selling, since you have the house as you want it. If you have to sell, take a knock-down price and get rid. If you have financial difficulties, consider giving the keys back to the lender. Either way, taking a hit now at the top of the market will be much better than waiting 2 years till its lost 50k and kicking yourself all the way down.
  20. Hi, I have been a regular lurker for 6 months or so. Mid forties, divorced a few years ago, totally priced out and in fact have no desire to own again in the foreseable future. Have been renting a very nice flat in a prosperous suburb of south manchester at a ridiculously cheap rental. £750 p.m. for a fairly large 2 bed built 7 years ago. Underground parking, water and maintenance included (ladlord pays £125 for maintenance alone). 2 others in the building on the market for £285k. So I am paying approx 3%. In other words the landlord is subsidising me to live in his very nice flat, and I am more than happy to oblige him. The only way it pays for him is because he bought it 7 years ago. Interestingly the other 2 on the market have sat at £285k for about 6 months. I am old enough to have sat through the last HPC, the '87 crash etc, and am 100% comfortable that this coming one will be bigger and last longer. I was fortunate enough to buy my first house in 1982 on a modest 3 X joint income re-payment mortgage. I moved up the ladder in 1996, (the last trough) when it was clear house prices were at a long-term dip and it was a sensible time to move up. However, divorce, 2 cash hungry kids, credit card/loan debts and the usual money grabbing ex-wife have temporarily upset my long-term plans. I have no problem at all with renting, either long-term or short-term. I am extremely happy that there is a hugely competitive rental market full of ignorant, numpty, baby-boomer BTLers out there happy to throw their cash in my direction. I believe home ownership is not the great investment it at first appears to be. As with any asset, buying in the dips and selling at the peaks will always be better than sit and hold. I ignore those people that scoff because there has not yet been a crash, since I know it is almost impossible to predict tops in any market. However, I have been calling this top since about 2004, and the longer it goes on (muppet rallies) the deeper the falls will be. In fact, as I am now in my mid-forties, I am becoming more and more comortable with the prospect of renting for life (or at least 20 years plus) and see nothing wrong with this morally or financially. In fact, I plan to use it to my advantage to live in a more flexible less-encumbered way, and treating property like any other asset class. As soon as it is financially viable I intend to leave the UK to live in a less expensive, less regulated, European country and live a more modest and relaxed existence. I enjoy reading the posts, the comments on the press coverage immensely, and in many cases the views expressed by other members either co-incide with mine, or else inform my own views. In particular I believe there will be a sustained asset price crunch over the coming few years, with UK housing in particular falling up to 50%. In the longer-term I believe it may actually last for a generation or longer. It seems to me the "market" for home ownership is actually falling long-term, not rising. The boomers will be definition wish to cash in their BTL "investments" to fund their retirement. Today's students are leaving university with £20-30k in debt, and buying later and later. In fact, I suspect they will be put off buying forever after this coming crash. Pensioners will be forced to cash in their homes to pay for their retirement and live with their boomer children. We are likely to be entering a long period of deflation I believe and that is no bad thing. It may even turn into a period of stagflation, since most of the inflation we see relates to energy and food prices and as China and Indian economies grow and they start to make money from their home economies. Anyway, that's me. I hope I can offer my own personal take on events as they unfold, and would like to thank all other contributors ( and the site hosts) for sharing their thoughts and humour. Don't forget - Enjoy life! There are more important things than owning a home, paying a mortgage and driving a 4x4!
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