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Mikhail Liebenstein

Mortgage Market Slides By Adair Turner

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Just found this set of very interesting slides by Adair Turner.

http://www.fsa.gov.uk/pubs/speeches/at_12may09.pdf

The second page make for an interesting read. Total mortgage debt now 85% of GDP.

Also the last one. As can be seen banks are reducing their total exposure to mortgage lending, though some "specialists" seem to be filling the gap.

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Just found this set of very interesting slides by Adair Turner.

http://www.fsa.gov.uk/pubs/speeches/at_12may09.pdf

The second page make for an interesting read. Total mortgage debt now 85% of GDP.

Interesting and scary slides. So by 85% GDP rising house prices are unsustainable as eventually we would not have the economic output to service the loans? !

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Details of higher risk mortgages taken out in 2007

45% Non-income verified

35% Interest-only

30% Loan-to-income ratios of 3.5 or over

15% LTV thresholds of 90% or over

5% To individuals who were already credit impaired

Scary stuff

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Details of higher risk mortgages taken out in 2007

45% Non-income verified

35% Interest-only

30% Loan-to-income ratios of 3.5 or over

15% LTV thresholds of 90% or over

5% To individuals who were already credit impaired

Scary stuff

Many people will fall into all of the above categories

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Why do LTI stop at 2005?

So frustrating being a bear of little brain but perhaps by the end of the day I will have learnt a lot more as others explain what the FSA charts actually mean.

Why do some of them, such as the LTI ones end at 2005?

What does , "Major UK banks’ customer funding gap and foreign interbank deposits" mean?

It just occurs to me to throw in two quotes from the past months in relation to the charts, perhaps someone will find them interesting enough to discuss:

Since 1930 Britain's homes have on average tended to be worth about five and a half times GDP per head. Even after the downturn of the past 12 months, this ratio still stands at a historically high 6.3 - and on that basis, prices need to fall by another 15% before they are fairly valued. Some analysts have suggested an even bigger fall may be necessary
According to the annual world retail banking report from Cap Gemini, Unicredit and EFMA, mortgage lending has "exceeded reasonable limits" with the volume of debt running at 86pc of GDP – or about £1,200bn. The report recommended 60pc as a sustainable upper level.

Andrew Sheehan, a management consultant at Cap Gemini who contributed to the report, said: "The scale of mortgage lending in the UK is unmanageable. As GDP grows, mortgage lending should decrease to about 60pc over time." Mortgage growth shrunk by 26.6pc in the UK between the first half of 2007 and the same period in 2008.

The US is even worse off with the value of mortgage debt at 104pc of GDP. The report said the "main explanation lies in the uncontrolled increase in housing prices".

And finally a chart posted on HPC relating to Value and Secured Lending:

Chart HPC

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Another interesting stat

39% of total mortgage lending in 2007 was equity release.

That 38% percent or 80,000 million has effectively been taken out of the amount that is available for consumer spending.

That figure is huge but if you take the figures over the period between 2001 to 2007 the figure is in the region of around 500,000 million.

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What grabbed my attention was slide 4: The share of mortgages leant during 2005 - 2008 to the following groups:

Credit Hungry Families 18% of all mortgages

On the Breadline 12% of all mortgages

Surviving Singles 13% of all mortgages

In other words a total of about 43% of mortgages in those three years were advanced to households that are going to struggle to maintain their payments.

Particularly as we head to high unemployment which will, as usual, hit these folk harder than most.

Lots more bank right-downs to come on those mortgages.

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What grabbed my attention was slide 4: The share of mortgages leant during 2005 - 2008 to the following groups:

Credit Hungry Families 18% of all mortgages

On the Breadline 12% of all mortgages

Surviving Singles 13% of all mortgages

In other words a total of about 43% of mortgages in those three years were advanced to households that are going to struggle to maintain their payments.

Particularly as we head to high unemployment which will, as usual, hit these folk harder than most.

Lots more bank right-downs to come on those mortgages.

Redwing, I thought you had made up those descriptions. You hadn't.

What's also interesting is slide 18: Mortgage balances outstanding: that for the Building Societies has barely moved, yet they're still in the deep brown stuff. :ph34r:

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Shame the FSA couldn't be ar5ed doing something with this information a few years earlier.

What Turner is basically saying is "We're fecking incompetent morons".

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Another interesting stat

39% of total mortgage lending in 2007 was equity release.

That 38% percent or 80,000 million has effectively been taken out of the amount that is available for consumer spending.

That figure is huge but if you take the figures over the period between 2001 to 2007 the figure is in the region of around 500,000 million.

Not sure it means that. It could mean the proportion of remortgages where some equity release was involved, doesn't mean that all the value of the re-mortgage was for equity release - so maybe it was £90k owed, they took out a £100k mortgage - did £10k of MEW, but it shows up in the figures as equity release?

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What grabbed my attention was slide 4: The share of mortgages leant during 2005 - 2008 to the following groups:

Credit Hungry Families 18% of all mortgages

On the Breadline 12% of all mortgages

Surviving Singles 13% of all mortgages

In other words a total of about 43% of mortgages in those three years were advanced to households that are going to struggle to maintain their payments.

Particularly as we head to high unemployment which will, as usual, hit these folk harder than most.

Lots more bank right-downs to come on those mortgages.

These categories are based on a geodemographic segmentation from Experian. It is possible to be classified as a "Credit Hungry Family" even if you have never availed yourself of credit. Just live alongside those who do and you might get lumped in.

If you are classified as a "Credit Hungry Family" it means that they believe there is a good chance you will exhibit some of the characteristics that make up the category. The descriptions are derived from a multi-variate classification that tries to group people based on a mix of perhaps 50+ variables. You can't fit 50+ variables into a snappy one line title. People will get put in the type for all sorts of reasons that are not in that title. Thus using credit may well not be a characteristic of many people who fall under this description.

So assuming that everyone in the category fits every aspect of the description is a serious mistake. Its simply not true, Experian would not claim it to be true, its the kind of mistake folk make when reading a slide without having the explanatory text that goes with the slide.

However your conclusion is not wrong. It should be that 43% of mortgages are to people living in places where it is felt there is a greater likelihood than average that people might have difficulty with their repayments.

As an aside Google - "Product Sales Database" Experian. There is no reference on any Experian web site to tell you where the figures come from.

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However your conclusion is not wrong. It should be that 43% of mortgages are to people living in places where it is felt there is a greater likelihood than average that people might have difficulty with their repayments.

Surely circa 50% of people must live in a place where it is felt there is a greater liklyhood than average?

:lol::P

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These categories are based on a geodemographic segmentation from Experian. It is possible to be classified as a "Credit Hungry Family" even if you have never availed yourself of credit. Just live alongside those who do and you might get lumped in.

If you are classified as a "Credit Hungry Family" it means that they believe there is a good chance you will exhibit some of the characteristics that make up the category. The descriptions are derived from a multi-variate classification that tries to group people based on a mix of perhaps 50+ variables. You can't fit 50+ variables into a snappy one line title. People will get put in the type for all sorts of reasons that are not in that title. Thus using credit may well not be a characteristic of many people who fall under this description.

So assuming that everyone in the category fits every aspect of the description is a serious mistake. Its simply not true, Experian would not claim it to be true, its the kind of mistake folk make when reading a slide without having the explanatory text that goes with the slide.

However your conclusion is not wrong. It should be that 43% of mortgages are to people living in places where it is felt there is a greater likelihood than average that people might have difficulty with their repayments.

As an aside Google - "Product Sales Database" Experian. There is no reference on any Experian web site to tell you where the figures come from.

You are partly correct about the generalisations made in geodemographic segmentation. Products like ACORN and MOSAIC allow you to apply a type to whole postal units (post codes). However, I'd guess that Experian have combined that kind of geodemographics with their own extensive database of credit records. After all, how many adults don't have some sort of credit rating with them.

Secondly, if there are people who get incorrectly defined in the groups in these stats, then there'll probably be some people who should be in these groups who have been wrongly put in a better off group.

Anyway - that's all a bit academic really. I think we're both agreed that the numbers are stunning even if there is a bit of error in there.

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Surely circa 50% of people must live in a place where it is felt there is a greater liklyhood than average?

:lol::P

No

Say that on average 1% of the population have an irrational fear of mice. In a specific postcode 2% have an irrational fear of mice - the likelihood of finding such a person in this postcode is twice the national average.

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You are partly correct about the generalisations made in geodemographic segmentation. Products like ACORN and MOSAIC allow you to apply a type to whole postal units (post codes). However, I'd guess that Experian have combined that kind of geodemographics with their own extensive database of credit records. After all, how many adults don't have some sort of credit rating with them.

Secondly, if there are people who get incorrectly defined in the groups in these stats, then there'll probably be some people who should be in these groups who have been wrongly put in a better off group.

Anyway - that's all a bit academic really. I think we're both agreed that the numbers are stunning even if there is a bit of error in there.

Yes we're agreeing on the substance - a lot of poor people have mortgages. The devil is in the detail. (I build geodemographic segmentations and have done for circa 30 years - and although I didn't build FSS the issues in interpretation are the same.)

Consider the first couple of paragraphs of the more detailed descriptions from the FSS literature

On the Breadline describes young lone parents and single people who earn low incomes and live in the lowest value council or housing association accommodation. A high proportion of households have no full-time earner and the majority pay no tax.

Lets ask some questions about the people classified as On the Breadline. Are the ones with mortgages living in the lowest value social housing? No. Are they the ones with no full-time income? Perhaps. Are these mortages with the majority who pay no tax, or the minority who do pay tax?

The point is that having a mortgage is not normal for people classified as On the Breadline. We know the folk in this slide do have mortgages ie that the classification is less accurate. So we know we are drawing conclusions on data that is, by definition, less well classified - on the assumption that the atypical people will display the typical characteristics of the type.

The other types are also a mix. Once we know that individuals have a mortgage we know there is more chance they are not typical of the type.

Credit-hungry Families have spent beyond their means and are dependent on credit to fund their lifestyles. Their incomes are below average and a good proportion of the money that comes in each month is taken up by existing debt.

They are typically couples, either married or cohabiting, in their twenties or thirties with young or school age children. They live in low-value housing, either semi-detached or terraced. Some have mortgages while others rent from the local authority.

Surviving Singles consists of young people on low incomes, living alone or sharing with friends. Most are single, some as a result of separation. Some are bringing up children on their own. There is a mix of tenure, with some renting and others owning lower value properties, predominantly in towns and coastal areas. Those who own their homes tend to have small mortgages, having bought their properties when prices were lower.

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slide 69 was very illuminating....featured a borrower and a lender eating each other....its a race to the end...who will munch who first.

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slide 69 was very illuminating....featured a borrower and a lender eating each other....its a race to the end...who will munch who first.

Living with you Bloo Loo must be the exact opposite to living with McTavish I LOVE your humour , oh sorry you weren't being funny. Thinking I might start a book for the "Best of Bloo Loo" :P

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Another interesting stat

39% of total mortgage lending in 2007 was equity release.

That 38% percent or 80,000 million has effectively been taken out of the amount that is available for consumer spending.

That figure is huge but if you take the figures over the period between 2001 to 2007 the figure is in the region of around 500,000 million.

Does this equity release cover the increase in % GDP in 2007?

Even more worrying is 39% equity release actually a larger % of total GDP than we grew by?

Edited by interestrateripoff

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