Lenders Need More Money To Prop Up Overvalued Market

[Sybil13]

Before the budget Mr Fisher, a BOE official warned Darling:

Don't Try to Stop the Housing Crash

Saying :

In testimony to the Treasury Committee, Mr Fisher said: I think the most important thing for the housing market is that prices should be allowed to adjust to a level at which people can afford to buy houses.€™

In recent years potential buyers were unable to get onto the property market because houses were just so expensive,he went on.

We have to allow the housing market to find a new level at which people can afford to enter it.™.......................

..................There is a danger that policy intervention in the housing market stops these sorts adjustments from happening.

We have to be very careful with policy intervention that we dont actually make it worse.™

Property prices are still 40 per cent above their historic averages, suggesting further declines are unavoidable, the Organisation for Economic Co-operation and Development said earlier this month.

Analyst Vicky Redwood of Capital Economics said: The housing market correction has to happen and we may as well get it over with sooner rather than later.

It is obviously in the governments interests to try to delay any adjustment in house prices and get them to fall at a slower pace for political reasons.€™

Treasury Committee chairman John McFall said: Policy interventions have to accept there has to be a floor in the market. There can be no artificial stimulus.€™

After the budget the CML and NAEA said there was nothing in the budget to help the mortgage market with the NAEA saying Darling had "used a water pistol to put out a fire".

For the past few months article after article has confirmed that lending is severely restricted and I have asked if extending QE can help prop up the banks AND building societies AND given them enough to lend:

HPC Link previous Q's about QE and Lending

HPC Link Previous Q's re Lending

At the weekend this article "Even if they Wanted To" 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.

In May Mr King warned:

Banks May Need More State Aid

Mervyn King said although banks' survival had been assured by recent bail-outs, they would not start lending freely unless more capital was pumped into their balance sheets.

Mr King said: "There is a big difference in practice between the levels of capital banks need to be stabilised... and those required to persuade banks to exhibit normal levels of risk-aversion. How big that gap is is impossible to say... but it looks as if it will be quite big.

Now today we have:

The problems in the mortgage market have intensified the housing market correction, and economists have warned that any recovery in house prices is likely to be fitful while the mortgage drought continues.

Peter Bolton King, chief executive of the NAEA, said: "We cannot let the banks convince us that shutting up shop when it comes to mortgage lending is a responsible move. The decision to restrict mortgages so severely is rooted in self interest.

"The Government must do more to put pressure on those banks that are refusing to lend, while highlighting those banks that are easing restrictions to help get the economy moving again. It is time to accept that responsible lending to responsible people is necessary for the country."

Great isn't it!!? Apparently lending 125% LTV and 7x's or 14 x's a couples income and allowing property to inflate to levels that broke the banks WAS "a responsible move".

What is more pumping even more money into a hugely inflated market is not "rooted in self interest".

So will or indeed can the Government extend QE ENOUGH to not only continue to bail out the banks and building societies but get them lending sufficiently to prop up the overvalued property market?

Or will they have no choice but to let the FACTS slowly dawn that property does indeed need to drop and what is more drop at least 40% in order to even begin to fall back to sensible and sustainable lending levels, which is , I assume why Moodys said earlier this year:

What’s 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.â€

On Wednesday Adrian Coles, director-general of the Building Societies Association, said Moody’s had included an extreme stress test of a 60 per cent fall in house prices

Edited July 9, 2009 by Sybil13

[Bloo Loo]

Before the budget Mr Fisher, a BOE official warned Darling:

Don't Try to Stop the Housing Crash

Saying :

After the budget the CML and NAEA said there was nothing in the budget to help the mortgage market with the NAEA saying Darling had "used a water pistol to put out a fire".

For the past few months article after article has confirmed that lending is severely restricted and I have asked if extending QE can help prop up the banks AND building societies AND given them enough to lend:

HPC Link previous Q's about QE and Lending

HPC Link Previous Q's re Lending

At the weekend this article "Even if they Wanted To" said:

In May Mr King warned:

Banks May Need More State Aid

Now today we have:

Great isn't it!!? Apparently lending 125% LTV and 7x's or 14 x's a couples income and allowing property to inflate to levels that broke the banks WAS "a responsible move".

What is more pumping even more money into a hugely inflated market is not "rooted in self interest".

So will or indeed can the Government extend QE ENOUGH to not only continue to bail out the banks and building societies but get them lending sufficiently to prop up the overvalued property market?

Or will they have no choice but to let the FACTS slowly dawn that property does indeed need to drop and what is more drop at least 40% in order to even begin to fall back to sensible and sustainable lending levels, which is , I assume why Moodys said earlier this year:

for a bear of little brain you have a photographic memory and a ton of references.

top hole.

[interestrateripoff]

Anyone would assume that these experts where clueless.

I for one would never think that, they are highly paid so must know what they are doing.

[the end is a bit nigher]

Bolton King is one of the most odious dicks on the planet. He was on the Radio this morning complaining about bank lending and peddling his usual rubbish. In particular, "Banks have to start lending again". Anyone reading this forum knows that big banks are lending at higher levels than in 2007 so what he is saying is misleading.

He also wanted prices to start rising again though heaven knows why.

Idiots like him still don't understand that the behaviour that caused house prices to rise is the same behaviour that caused the banks to fail. They can't have one without the other.

[VeryMeanReversion]

So will or indeed can the Government extend QE ENOUGH to not only continue to bail out the banks and building societies but get them lending sufficiently to prop up the overvalued property market?

The govt will keep bailing out the banks and overlook the lack of competition until the banks get back above 0 value and can start issuing new shares.

They will ignore calls from NAEA.

Or will they have no choice but to let the FACTS slowly dawn that property does indeed need to drop and what is more drop at least 40% in order to even begin to fall back to sensible and sustainable lending levels, which is , I assume why Moodys said earlier this year:

I think they would like a slow, manageable decline back to average house price ratios without an undershoot. (which will of course increase the average but ignore that for now).

I don't think govt funding on the scale necessary is able to prevent this. The best they can do is to get the BBC to report only good economic news and get a leveraging effect on their budget this way. i.e. spin and lies.

The rate of house price decline now depends on unemployment and the rate of change of mass sentiment.

VMR.

[Laura]

After the budget the CML and NAEA said there was nothing in the budget to help the mortgage market with the NAEA saying Darling had "used a water pistol to put out a fire".

I missed that comment way back then.

So the 'fire' was the lack of funds to buy property at three times its sane value?

Now, I thought any 'fire' was, thankfully, extinguished 23 months ago.

The CML may have a slight excuse to exist, but orgs like the NAEA do not! :angry:

[Sybil13]

Bolton King is one of the most odious dicks on the planet. He was on the Radio this morning complaining about bank lending and peddling his usual rubbish. In particular, "Banks have to start lending again". Anyone reading this forum knows that big banks are lending at higher levels than in 2007 so what he is saying is misleading.

He also wanted prices to start rising again though heaven knows why.

Idiots like him still don't understand that the behaviour that caused house prices to rise is the same behaviour that caused the banks to fail. They can't have one without the other.

What he is saying is "banks have to start lending again " because if they don't sellers are going to have to drastically reduce property asking prices and even then as RM said a few months ago:

the lack of mortgage availability is hindering market recovery as sellers who have dealt with the market reality and drastically dropped their asking price are faced with buyers unable to obtain finance. Rightmove commercial director Miles Shipside said:

"Some sellers are still pricing wishfully high, though it is encouraging that elements of the market have adapted relatively quickly to find a new price floor at a discount of around 25% from peak. "

"Until banks get their own houses in order, the active minority of sellers and agents who have drastically adjusted pricing will remain frustrated by the limited functioning of the financial services sector."

In April :

Peter Bolton King, chief executive of the NAEA, says: "In this difficult economic time, Mr Darling could have seized the opportunity to encourage first time buyers to the market and to send a signal of confidence that may have reverberated around the economy.

“Instead he has tried to choose a path to please everyone, which I suspect will please no one.â€

Bolton King has also criticised the speed at which the government's Homeowner Mortgage Support Scheme has taken to come in and that detail is needed on the lenders that have not signed up to it and are setting up their own schemes.

He adds: “The housing market is the engine of the UK economy and it is likely that this Budget will be remembered as largely ineffectual given the magnitude of the problem.

“There is very little here for first time buyers, who need more encouragement to climb onto the property ladder – which will get everything moving.

“Mr Darling has used a water pistol to try to put out a fire.â€

But does Darling disagree?

The UK government is set to announce its plans to reform the financial system to prevent future crises. But the White Paper will leave many questions unanswered about the role of the key regulators, the Bank of England and the Financial Services Authority. New powers will be proposed to curb bank lending and prevent asset bubbles, such as the housing boom undermining the real economy.

SO IS THE HOUSING MARKET AN ENGINE OR IS IT UNDERMINING?

[Bloo Loo]

What he is saying is "banks have to start lending again " because if they don't sellers are going to have to drastically reduce property asking prices and even then as RM said a few months ago:

In April :

But does Darling disagree?

SO IS THE HOUSING MARKET AN ENGINE OR IS IT UNDERMINING?

people spending money is the engine of ANY economy.

they could spend it on houses or paperclips....makes no difference, as long as money moves......if it doesnt move, there appears to be a shortage.

[Neil B]

Hi Sybil, I dont think that QE is proping up the housing market - there are hardly any sales at the moment so there isnt anything to prop up.

QE is helping by giving the lenders more collateral to lend - but, they are only doing this sensibly now - Try and secure a mortgage - it isnt easy.

I dont think its anything to worry about. We are not going to see lending again like we have in the last 10 years. Even 125% LTV mortgages come with more strings than an orchestra and they days of 6+ x salary are long gone never to return.

[moonriver]

for a bear of little brain you have a photographic memory and a ton of references.

top hole.

I agree.

Sybil's good memory for relevant facts and links, and ability to put them together, has been able to illustrate to us clearly what garbage some of this these "experts" come out with.

[Sybil13]

The govt will keep bailing out the banks and overlook the lack of competition until the banks get back above 0 value and can start issuing new shares.

They will ignore calls from NAEA.

I think they would like a slow, manageable decline back to average house price ratios without an undershoot. (which will of course increase the average but ignore that for now).

I don't think govt funding on the scale necessary is able to prevent this. The best they can do is to get the BBC to report only good economic news and get a leveraging effect on their budget this way. i.e. spin and lies.

The rate of house price decline now depends on unemployment and the rate of change of mass sentiment.

VMR.

Bloomberg today reported:

The Bank of England will want to keep some ammunition for a worst-case scenario, so theres certainly a high degree of probability that they will extend the quantitative easing program,said Brian OReilly, head of research at UBS Wealth Management in London. We could very well see the program extended to 200 billion pounds in total.

I have read that before , that QE was unlikely to extend beyond another £50bn but this week did read this:

John Greenwood

(Invesco Asset Management)

Vote: Hold Bank Rate and maintain current quantitative easing targets

Bias: Prepare to extend quantitative easing beyond £150bn after July

In my view QE will need to be maintained and expanded in order to ensure the full effects are transmitted to households and businesses across the country. The Bank of England should therefore increase QE beyond the £150bn (or 7.4% of M4) that it is currently authorised to complete, requesting authorisation for a further £150 billion in asset purchases. In the meantime Bank Rate should be held at its current level of ½%.

Not likely to happen thought, is it?

Last week in an article:

Lenders expect to extend more credit

Thu Jul 2, 2009 12:42pm BST

LONDON (Reuters) - Lenders expect to make credit more easily available to households and businesses over the coming quarter but are not expecting much of a pick-up in demand, a survey by the Bank of England showed on Thursday.

The quarterly credit conditions survey showed government initiatives to boost lending had enjoyed some success -- secured credit to households increased in the second quarter for the first time since the third quarter of 2007.

But lenders expected spreads on new mortgage lending to remain wide, meaning borrowers would not see the full benefit of record low interest rates. And spreads on corporate lending were expected to widen further.

"While there are some encouraging signs in the credit conditions survey, the UK is certainly not out of the woods yet," said Colin Ellis, an economist at Daiwa.

"As long as credit scores continue to tighten, that will make it harder for households to get funding, which is likely to restrict activity, particularly in the housing market, for some time."

..........Economists are split on whether the central bank will extend its QE programme but all agree that credit conditions will be key to that decision.

...........However, while lenders expected demand for loans from small businesses to pick up, they did not expect any increase in demand for mortgages.

And then of course there was the article this weekend:

UK Lenders Ought to Cut Lending by £500bn

Analysts are determined that the Governments 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.

Can't remember who said last week:

.. if ever St. Augustins prayer - Lord give me chastity, but not yet - was appropriate, it is now for banks.

Or not!!

Edited July 9, 2009 by Sybil13