No Return To 2007 Lending Levels?

[refugee]

Building Magazine

Apologies if already posted. It's an interesting observation from the other side.

['Bart']

A lot of the money being lent was only available thanks to something called “mortgage securitisationâ€. At the peak of the market in 2007, about half of all new mortgages were destined to be securitised, that is, bundled with thousands of others and sold off to external investors.

Assuming there were always buyers for the bundles, a lender could continue to lend, almost without limit. But with the banking crisis in 2008, demand for securitisations dried up. Any lender wanting to remain active could now do so only if it had resources of its own.

[winkie]

If you can't sell it you have to keep it,,,so if you lend it, it will now have to be paid for.

[grey shark]

In 2007, banks made 800,000 mortgage approvals, but only 400,000 were made from their own resources. Banks today are already offering mortgages at an annualised rate of about 375,000 approvals – nearly as much as at the peak of the market.

So, how much more can banks realistically do? Perhaps they can lend another 20%, to reach a total of 450,000 mortgages. Add in the struggling building societies at 100,000 loans (a third of their peak) and 20,000 from specialist lenders (down 75%) and the total may be just 570,000 a year.

What does this mean for house prices? History suggests the balance point lies at about 900,000 approvals; below this, prices fall and above it prices rise. So, there may not be enough money in the system to keep house prices rising.

A vested interest explaining to his mates in the building industry that without the lending prices are likely to fall further.

[Kazuya]

A vested interest explaining to his mates in the building industry that without the lending prices are likely to fall further.

Once more stock comes on the market via the 3 D's and we all know how hard the government is trying to prevent that, atleast before the 2010 election.

[abharrisson]

A vested interest explaining to his mates in the building industry that without the lending prices are likely to fall further.

Is your last point about history suggesting 900,000 being the level to stop prices falling true ?....... in the good old days mortgages in their totality were running at something like 1,400,000...... so I'm not sure if the figure in the quote of 800,000 is right...... and by the by neither am I sure what the 375,000 relates to... if its total mortgage approvals then it looks to be considerably less than the height ( the remainging banks surely accounted for more than 25/35% of total mortgage lending ( northern rock alone was 10%, C and G about 8%, Halifax must have been 15% etc).

The way the figures are reported its difficult to know what was the height level and for what and what the level now is and for what.

[Moo]

( the remainging banks surely accounted for more than 25/35% of total mortgage lending northern rock alone was 10%, C and G about 8%, Halifax must have been 15% etc).

It's not so much the lenders remaining as where they get/got their funds from. The Happy Magic Freebie Money tap is, in fact, arguably more turned off for the remaining private sector banks than it is for the state supported \ owned ones.

[Moo]

A vested interest explaining to his mates in the building industry that without the lending prices are likely to fall further.

Which, unless you're actually holding land bought during the bubble, is not necessarily a bad thing. What construction needs is access to cheap building land a plenty of demand at a price they can build on said land at a profit at. High house prices per se are not especially 'good'.

[abharrisson]

It's not so much the lenders remaining as where they get/got their funds from. The Happy Magic Freebie Money tap is, in fact, arguably more turned off for the remaining private sector banks than it is for the state supported \ owned ones.

Yeah, of course, but at issue here was the point that the remaining lenders are apparently lending what they were pre-crunch... I am not at all convinced thats right.... It wouldn't surprise me if its still at half the level of their own previous total lending levels ( excluding all the specialists who have now ceased)

[cashinmattress]

The inflection point was met in 2007, ending the meteoric rise of the boomer bubble.

What we need now is a good large scale war and killoff to reset the machine.

[Moo]

Yeah, of course, but at issue here was the point that the remaining lenders are apparently lending what they were pre-crunch... I am not at all convinced thats right.... It wouldn't surprise me if its still at half the level of their own previous total lending levels ( excluding all the specialists who have now ceased)

We're talking total approvals here though, not net lending. Unless my memory's gone totally to ratshit (always a possible, that), net lending's down to 2001 levels, which means regardless of the number of approvals the lenders as a whole are back to pre-securitisation levels of lending.

[Timm]

We're talking total approvals here though, not net lending. Unless my memory's gone totally to ratshit (always a possible, that), net lending's down to 2001 levels, which means regardless of the number of approvals the lenders as a whole are back to pre-securitisation levels of lending.

Again, from memory:

Securitisation only really kicked off in 2004/05. We are now back to 04/05 prices and prices have temporarily stabalised.

Coincidence? My take is that the credit crunch HPC is now over, but we have yet to experience the recession HPC.

[VeryMeanReversion]

Coincidence? My take is that the credit crunch HPC is now over, but we have yet to experience the recession HPC.

Matches my view.

I think the credit crunch HPC was relatively quick but phase 2 (recession/unemployment) HPC will be a long slow grind as people hold on as long as they can whilst fundamentals play out.

At the moment, we are at half-time where the only green shoots is the grass trying to recover in the 15 minutes it has left before it gets trampled all over again.

VMR.

[babesagainstmachines]

Again, from memory:

Securitisation only really kicked off in 2004/05. We are now back to 04/05 prices and prices have temporarily stabalised.

Coincidence? My take is that the credit crunch HPC is now over, but we have yet to experience the recession HPC.

Perfectly matches how I feel. The proviso is that the credit crunch correction can be reversed if the government is determined enough with QE. I doubt they are though.

[Sybil13]

Again, from memory:

Securitisation only really kicked off in 2004/05. We are now back to 04/05 prices and prices have temporarily stabalised.

Coincidence? My take is that the credit crunch HPC is now over, but we have yet to experience the recession HPC.

For anyone interested Timm posted a RMBS chart showing the rise of the Rmbs market from 2001 its here, scroll towards teh bottom of the thread and you will see RMBS doc link:

Timms RMBS doc

Ah thought I would ask the Q that someone asked a few weeks ago and I keep asking just in case anyone knows. In an article a couple of weeks ago in relation to there being 97% fewer mortgage available for FTB's looking for a higher LTV it said:

Ray Boulger, of mortgage broker John Charcol, said the increase in price had been driven by a lack of competition and by new rules under which lenders have to set aside more capital to cover high loan-to-value mortgages. "The cost to the lender of making one 90% LTV loan available can be four or five times the cost of offering a mortgage at 60% LTV," he said. "We're in a situation where the more lending a lender does at 90% the less lending they are able to do overall."

Someone at the time posted this link from April 2003 to an article in the Times titled:

Mortgage Lending Considered Low Risk Despite Crash Fears

And asked how much capital lenders are having to put by to cover high LTV's? Anyone know.

And because Q's is what I do the article said:

In 2007, banks made 800,000 mortgage approvals, but only 400,000 were made from their own resources. Banks today are already offering mortgages at an annualised rate of about 375,000 approvals – nearly as much as at the peak of the market.

So, how much more can banks realistically do? Perhaps they can lend another 20%, to reach a total of 450,000 mortgages. Add in the struggling building societies at 100,000 loans (a third of their peak) and 20,000 from specialist lenders (down 75%) and the total may be just 570,000 a year.

What does this mean for house prices? History suggests the balance point lies at about 900,000 approvals; below this, prices fall and above it prices rise. So, there may not be enough money in the system to keep house prices rising

So if we are talking almost 50% less approvals than needed to keep prices rising, how much does a 50% drop in approvals signal property will fall?

Do you think that it is a coincidence that if you divide the number of mortgage approvals made by banks in 2007 by 12 (per month) you get 66666.666 ?

Edited July 3, 2009 by Sybil13

[Sybil13]

I just thought I would bump this thread in order to ask yet more Q's.

Every paper lately seems to be declaring that the worst is over, that February was the lowest point in the crash and I know there there is a HUGE vested interest in keeping prices high but how much longer can this carry on?

I assume the slight rise in interest rates on mortgages and the rumour they could rise to 6% soon was to prompt people uncertain about jumping to JUMP before they will not be able to get a good fixed rate deal.

Property I have been watching for months and months and zzzzzzzzzzzzzzzzz suddenly say Sale Agreed yet it is little wonder that people are JUMPING when if they do not live on HPC or read articles fully then they simply believe HOUSE PRICES ARE GOING BACK UP!

The article linked to this thread yesterday confirmed that lenders are lending to their max already but that lending is 50% down on 2007 with no hope of going back up. The article confirmed that with approvals 50% down on what is considered a stable market the banks could not lend enough to stop property falling.

Now I know that the approvals / house price stats are not straightforward, and I have no desire to prompt another 10 pages of people arguing about this, but would I be correct to assume that if the RMBS market had not clicked in in 2001 approvals would have stayed at the 90000 a month mark but property prices would not have inflated as they have?

In other words there would have been a lot of loans but property would not have inflated as it did?

So when all these pundits say that the house price crash is over are they saying that from this point forwards we will have less and less approvals , no FTB's and the market will stabilise at 40000 approvals a month to people how earn £60000 + ?

Yet for every person that says the crash is over there seems to be at least a dozen more saying that the current blip in property prices (that is going up), is only due to a lack of supply with the FT saying with regards negative equity :

all these people stuck in their homes are creating a glut of hidden property , which in turn is likely to depress house prices further. Even a short term rise in prices, Fitch argues, is likely to make things worse in the longer term, by encouraging trapped sellers to put their homes in the market, which in turn will push prices down again. It sounds like a vicious circle with no way out, for the immediate future at least

So the BIG question is, is that if there is a HUGE vested interest in keeping property prices high, at least until after the election next year, how sucessful is the government going to be?

Will we stagger through to the Autumn and instead of people then stepping out of denial will we instead then hear that prices will be back up to 2007 values by the summer of 2010 ? For all I have heard of people saying property will fall another 10% this year (Building Soc Survey) or 14% etc etc. I have not heard ANYONE say they will continue to fall next year.

So is this really it?

Despite ALL the other factors playing into this :

1. the FSA and Moodys stress testing for 40 - 60% :

Marjan Riggi of Moodys said: Whats different is the loss expectation is higher than it was three or four months ago looking at the economic forecasts on housing.

Last year we were looking at mortgage lenders and stress-testing a 25 per cent fall in house prices. In the past three or four months that assumption has changed to a 40 per cent fall, which is a considerable difference.

And I honestly cannot see why they would have done this if they thought the crash was over in February 2009 when it has put an even greater burden on lenders ...

2. Rightmove advising sellers to reduce 25 - 30% as early as January 2009 and RM and Savills saying that the market seems to have found a floor at 30% and even then sellers were finding it hard to find a buyer who could get a mortgage etc etc............

3. Banks already lending a maximum capacity and its 50% down on 2007

4. House Prices Could Fall Another 40%

almost no matter how you look at the UK housing market be that through the UK house price to history ratio; the house price to GDP ratio; the ratio of house prices to other assets, or house prices to earnings you get the same sort of target fall: 40-50% in real terms. Given that 1989-1996 saw a real-terms drop of nigh-on 40%, that's not so surprising.

Are we saying that NOTHING is going to change re house prices until after the summer of 2010?

Can property be considered 40% overvalued yet not fall?

Edited July 4, 2009 by Sybil13

[winkie]

The houses I am looking at the prices are being reduced £5k one last week or sticking, one or two sales, what they sold for is anyone's guess.

[wolfe tone]

"Property I have been watching for months and months and zzzzzzzzzzzzzzzzz suddenly say Sale Agreed yet it is little wonder that people are JUMPING when if they do not live on HPC or read articles fully then they simply believe HOUSE PRICES ARE GOING BACK UP!"

I have been following an area on Rightmove - 298 standard 3 bed houses, over one hundred are SSTC in the space of 6 weeks, this is more than cash rich speculators and panic buying from people who believe high intrest rates are on the horizon this is the fundemantals of a market which is begining to move, a bulltrap maybe; but this is going to be a long and drawn out one which has once again been manipulated by this government.

[Dave Spart]

Perfectly matches how I feel. The proviso is that the credit crunch correction can be reversed if the government is determined enough with QE. I doubt they are though.

I'm not so sure the credit crunch HPC is over.

The suggestions from the commerical property is that CMBS's are about to implode, kicking off another phase in the crunch.

Whatever greenshoots there might be in the retail property sector will be wiped out completely if the CMBS collapse happens as feared (though I'm happy to be corrected where I'm wrong).

Edited July 4, 2009 by Dave Spart

[Mikhail Liebenstein]

The inflection point was met in 2007, ending the meteoric rise of the boomer bubble.

What we need now is a good large scale war and killoff to reset the machine.

Would swine flu do?

[Mikhail Liebenstein]

"Property I have been watching for months and months and zzzzzzzzzzzzzzzzz suddenly say Sale Agreed yet it is little wonder that people are JUMPING when if they do not live on HPC or read articles fully then they simply believe HOUSE PRICES ARE GOING BACK UP!"

I have been following an area on Rightmove - 298 standard 3 bed houses, over one hundred are SSTC in the space of 6 weeks, this is more than cash rich speculators and panic buying from people who believe high intrest rates are on the horizon this is the fundemantals of a market which is begining to move, a bulltrap maybe; but this is going to be a long and drawn out one which has once again been manipulated by this government.

The weird thing I have noticed is that very few that have said SSTC or Sale Agreed ever seem to make it to the land registry. I am looking in Surrey, and whilst plenty of homes under £500k seem to make it into the list, there are very few over £500k and almost none between £700k and £900k, though a few over £1m. This trend does not of course reflect the structure of the market, as actually there are now more houses on for over £1m than there have been for a long time. This part of the market will soon drop, as those with a bit more money and have been able to hold out from selling for less are now starting to face the new reality. As said before, I've plenty of evidence of homes between £1.1 and £1.3m falling by up to £500k before a deal is done.

[flapjack]

Credit to the OP - thats a great article which explains things so that non-financial bods can understand it - like me! Should be pinned up in every office and emailed round the world!!

Regarding where the market is going - its impossible to tell at the moment - as the market is completely rigged. It would be pretty amazing if the housing market wasn't up given that IR are 0.5%.

I think eveything now depends on what happens to IR during the next few months. There will come a point - 2/3 months when IR have to increase to enable the Govn to attract more cash. So what would the market be like if ir was 5% with motgages at 6.5 - 7%? Demand would reduce again and - house price would continued downwards.

Watch the IR

Edited July 5, 2009 by flapjack

[Sybil13]

Thought it was worth linking this one too :

UK Lenders Need to Cut Lending by £500billion

Last week the Bank of England declared that UK banks might need to cut their lending by £500 billion within 4 years as the Governmental support will be withdrawn.

The report on financial stability published by the Bank on June 26th suggests that the widening financial gap of British lenders coupled with the reduction in the Bank of England’s assistance will mean that lenders will be obliged to look for additional sources of funding.

According to the central bank, some of the shortfall was met as the banks have sold their debt, which was backed by the governmental Credit Guarantee Scheme that amounted to £250 billion.

The balance sheets of British banks have significantly grown in the past years; for instance, the balance sheet of the Royal Bank of Scotland Group has reached £2.4 trillion in 2008 – the figure exceeds the one of the UK economy as a whole. At the moment, the UK Government possesses the major share of the RBS Group and 43% of the Lloyds Banking Group.

Analysts are determined that the Government’s plans on the increased banks’ lending towards the population are in controversy with its requirement to cut banks’ lending by £500 billion.

However, the Bank of England is confident that the measure is a must.

In 2008, the difference between banks’ lending and deposits was constantly growing and reached as much as £800 billion with almost 50% of the amount being backed by residential property securities. The Lloyds banking Group is expected to be hit the hardest as it mainly relies upon the wholesale funding.

Another important change, which is reflected in the Bank of England’s report, is associated with financial institutions that act like banks. The Bank of England wants these organizations to be treated and regulated as banks.

[Jason]

Again, from memory:

Securitisation only really kicked off in 2004/05. We are now back to 04/05 prices and prices have temporarily stabalised.

Coincidence? My take is that the credit crunch HPC is now over, but we have yet to experience the recession HPC.

That post has summed up my thinking. I do think prices will fall more, but it will not be as fast, and will be a drawn out process.

[Sybil13]

That post has summed up my thinking. I do think prices will fall more, but it will not be as fast, and will be a drawn out process.

And I suppose just how long depends on whether they expand QE another £150bn?