cashinmattress Posted June 13, 2009 Share Posted June 13, 2009 (edited) UK house prices; over one million in negative equity Well, well, well...the first bit of 'bad' housing market news (for a while) hit the newswires this morning. True to form (as I type) only 13 news organisations, 14 including ourselves, have bothered to cover this study. The BOE have stated that up to eleven percent of mortgage holders, or just over 1.1million mortgagees may be under-water, or as we call it in the UK in negative equity...They fail to put a 'this time last year' figure in their release but negative equity in 2008 was in the region of 250K (according the the cml) so the figure has grown exponentially inside a year. If we play around with the figures it would appear that for every downward shift in house prices of 5% another 250,000 mortgagees fall into the trap of negative equity. If the UK experiences another 15% fall in house prices then approximately one in five of all mortgagees will then be in negative equity, a total of close on two million outstanding mortgages. An organisation called Capital Economics have been steadfast in their house price 'musings' over the past two years, their considered opinion is that house prices will fall by close on 40% from the peak in 2007. Seema Shah, a property economist with Capital Economics, said: "Our forecast is still a 40 per cent drop from peak to trough, but the difference is we expect it to be drawn out. We previously expected prices to trough in late 2010; we now expect it to be later." The BOE now accept that houseprices have fallen by 20% since the peak of 2007. If they fall by another 20% then the negative equity figure could rise to 2.5 million outstanding mortgagees is negative equity. This would be over one in four properies having negative equity attached.. Do the math... The average outstanding mortgage is approx. £115K (cml figures). If the average negative equity is 20K per property then the total negative equity will be enormous. Not withstanding that fact the amount of total mortgage business, with potential to default in a recession, would be mind boggling. Now here's a simple sum, at the last available count the total outstanding (secured) mortgage debt for UK property was circa £2.2trillion. If up to 40% of that value is wiped off then, given the methods by which the mortgage backed security model worked (or didn't), then a hole of over 500bl has to be plugged. Remind me how much new cash the UK banks have been propped up with and how much QE has been infused into the economy? For anyone looking for a crash course for dummies (me included) as to how we got in this mess, and why the BOE and the Govt. were/have been in a desperate race to plug the gap, there it is. To date the most concrete figures we have is that banks have been plugged with close on £300bl via the various imaginative methods employed. So far the govt. and the BOE have succeeded in arresting the crash in house prices. However, as Sheema from Capital Economics points out, this dubious 'achievement' to date has been to push out into the distant future the correction in house prices. They (Capital) now expect prices to fall by the same amount, 40%, but the correction to take longer. Previously they expected the correction to be over by the end of 2010, now they find it difficult to put a time stamp on the end of the correction. Although the hot air has been let out of the housing market gently the correction is (as pointed out by the BOE) a record amount; 20% is unprecedented. Therefore if you want to buy, and heh, there are positives, it's imperative that you offer a price based on where you think the market will be in two years time, or how far you believe the total fall will be. According to Miles Shipside of Rightmove offers of 25% below peak prices of 2007 are being accepted, as an FTB you have to find motivated sellers. Currently they're scarce but they will re-appear once the latest froth is blown away. Big numbers. Crash only just gaining momentum folks. Edited June 13, 2009 by cashinmattress Quote Link to comment Share on other sites More sharing options...
cashinmattress Posted June 13, 2009 Author Share Posted June 13, 2009 (edited) Negative equity surges ONE in 10 homeowners was in negative equity during the first quarter of the year, the Bank of England said yesterday.The Bank estimates that between 7% and 11% of homeowners owed more to their lender than their property was worth during the first quarter, the equivalent of between 700,000 and 1.1 million households. In addition, around 200,000 buy-to-let investors are also estimated to have owed more on their mortgage than their property was worth. It is thought some of these may also be in negative equity on their own home or on more than one investment property. The research said the overall number of people in negative equity during the first quarter was similar to those who suffered from the problem in the mid-1990s, during the last housing market correction. Being in negative equity can increase the risk of a borrower defaulting on their mortgage as they do not have capital in their home to fall back on if they run into difficulties. The Bank said house prices had fallen by around 20% between the autumn of 2007 and the spring of 2009, the largest fall on record. But despite the steep drop, it found that the majority of homeowners had large equitycushions, while for others the total value of negative equity was relatively small. In Wales, figures from the Council of Mortgage Lenders (CML) show around 6% of homeowners who have taken out a mortgage since 2005 are in negative equity. This equates to around 59,000 households in Wales. Despite a number of recent upbeat housing market reports, Cardiff economist Brian Morgan, pictured, said negative equity was likely to worsen. Mr Morgan said: “It’s also going to have a knock-on effect for the speed of the economic recovery, because that is held back until the housing market leads the way.†The research suggested that between 73% and 78% of households who were in negative equity faced a shortfall of less than £15,000, and between 56% and 65% had one of less than £10,000. At the same time, three-quarters of all households with a mortgage owed less than 75% of their home’s value to their lender during the first quarter. North West Wales estate agent Dafydd Hardy said there are growing signs of families struggling with mortgage repayments. Mr Hardy also believes the furore over MPs’ expenses and the possibility of an early election has created an element of instability that could hold back economic recovery. He said: “The level of repossessions has increased slightly, but it’s not a torrent by any means.†Mr Hardy said the “dead cat bounce†theory was the best way to describe the state of the recovery. This means the economic picture has improved slightly after a big fall, but a significant spring is unlikely. Shelter Cymru director John Puzey said most homeowners now have fixed-interest rate mortgages and there is a danger that when these come up for renewal banks will refuse to offer loans. He said: “Treating housing as a commodity, as we have done over many years, means you get caught in the boom and bust scenario. “We need a range of housing options that allow people to lend responsibly and affordably, which sometimes could mean part-renting and part-owning if that suits the household.†The report also pointed out that the overall financial position of a household was important when assessing the impact of negative equity. The issue was less of a concern for people who had additional assets, such as savings or investments, while it was more of a problem for people who had additional debt. It added that rising levels of negative equity could also lead to a reduced supply of credit to the economy as a whole, as it could increase the losses that lenders incur if borrowers default on their mortgage. This in turn can make banks less willing or less able to supply credit to households and firms. It's going to wipe out possibly two generations of property, err, mortgage holders. Edited June 13, 2009 by cashinmattress Quote Link to comment Share on other sites More sharing options...
Y-QUERK Posted June 13, 2009 Share Posted June 13, 2009 Dont worry house prices are rising. Quote Link to comment Share on other sites More sharing options...
quad Posted June 13, 2009 Share Posted June 13, 2009 But Gordon said he ended boom and bust. but seriously, its going to be a drag on the economy for years to come. Quote Link to comment Share on other sites More sharing options...
Guest DissipatedYouthIsValuable Posted June 13, 2009 Share Posted June 13, 2009 Quote Link to comment Share on other sites More sharing options...
cashinmattress Posted June 13, 2009 Author Share Posted June 13, 2009 Lol. What in the name of all that is holy is that picture? Jebus! Quote Link to comment Share on other sites More sharing options...
the flying pig Posted June 13, 2009 Share Posted June 13, 2009 But Gordon said he ended boom and bust... he did. well, kind of. he did an excellent job of fighting the old war, preventing a repeat of the mistakes of the 70s. an unfortunate by-product of this is that he inadertently turned, ahem, a blind eye to the new, probably even bigger, problems of the early 21st century. Quote Link to comment Share on other sites More sharing options...
the flying pig Posted June 13, 2009 Share Posted June 13, 2009 Lol. What in the name of all that is holy is that picture? Jebus! charley says - house prices always go up? Quote Link to comment Share on other sites More sharing options...
Sir Sidney Ruff-Diamond Posted June 13, 2009 Share Posted June 13, 2009 Please please could everyone stop using such negative terms such as Negative Equity. The term needs to be updated to make it more fashionable, more Web 2.0, more socially acceptable. Here are some suggestions: "I'm deep in nequity across my whole portfolio" "We're equitably challenged" "I'm underwater and blowing bubbles on my recent new build flat" "Our equity cushion is flat" "Our house value is growing in non-positive trend right now" Thanks. It sounds much more media friendly and personally acceptable for the bruised egos of recent speculators. Quote Link to comment Share on other sites More sharing options...
Prime Realist 8 Posted June 13, 2009 Share Posted June 13, 2009 LOL! Charlie says, always tell your Mum before you go off and sign up for a 7x salary mortgage. Where's McTavish? I want to know how this figures in his play book. Quote Link to comment Share on other sites More sharing options...
Beggar Thy Children Posted June 13, 2009 Share Posted June 13, 2009 Lol. What in the name of all that is holy is that picture? Jebus! You don't know what it is? I think you've just revealed your approximate maximum age Quote Link to comment Share on other sites More sharing options...
cashinmattress Posted June 13, 2009 Author Share Posted June 13, 2009 LOL! Charlie says, always tell your Mum before you go off and sign up for a 7x salary mortgage.Where's McTavish? I want to know how this figures in his play book. Oh I am sure he is scouring the net looking for some article to back up his ideal. Remember, his house is his pension, which is haemorrhaging equity as we speak. I have him on ignore, but no doubt it will be the same old tired stuff. Quote Link to comment Share on other sites More sharing options...
cashinmattress Posted June 13, 2009 Author Share Posted June 13, 2009 (edited) You don't know what it is?I think you've just revealed your approximate maximum age Hehe, I wish. Actually, I had globe-trotting parents when I was young so I never really got to watch much tele as we were always relocating and living in temporary accommodations. My time was spent reading, drawing, playing music and fist fighting, lol. And I don't know what it is, but it looks a bit macabre. Care to enlighten me? Edited June 13, 2009 by cashinmattress Quote Link to comment Share on other sites More sharing options...
Beggar Thy Children Posted June 13, 2009 Share Posted June 13, 2009 http://en.wikipedia.org/wiki/Charley_Says Quote Link to comment Share on other sites More sharing options...
the_austrian Posted June 13, 2009 Share Posted June 13, 2009 Access to land is blocked by the aristocratic landowners and those who benefited from the boom, this is why we must borrow so much to get a house. Quote Link to comment Share on other sites More sharing options...
50%deposit Posted June 13, 2009 Share Posted June 13, 2009 http://en.wikipedia.org/wiki/Charley_Says Charlie says never trust a politician, policeman or social worker. Charlie says never let a corporate executive manipulate your life by working for him, just say no. Charlie says never believe the stuff you hear on the news. Quote Link to comment Share on other sites More sharing options...
Garry AKA Pod Posted June 13, 2009 Share Posted June 13, 2009 Those adverts fecking scared me as a kid. Not as much as John Hurt warning us about AIDS though. Christ the 80's were very dark at times. Quote Link to comment Share on other sites More sharing options...
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