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Uk House Prices 'to Slump As Credit Crunch Returns'


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http://www.telegraph.co.uk/finance/economics/houseprices/7245801/UK-house-prices-to-slump-as-credit-crunch-returns.html

A second mortgage credit crunch that will send UK house prices into a new tailspin is looming, economists and credit experts have warned.

By Philip Aldrick, Banking Editor

Published: 6:00AM GMT 16 Feb 2010

UK homebuyers may have trouble getting their foot through the mortgage door.

The squeeze on debt will begin to be felt in January next year, when lenders are due to start repaying £319bn borrowed from the Government during the original crisis in 2007 and 2008 – a quarter of the UK's entire £1.3 trillion stock of mortgages.

To pay the money back, credit-rating agency Moody's said, banks and building societies may "limit their lending through tighter credit criteria" – in other words reducing availability and making mortgages more expensive.

Capital Economics added: "The prospect of a fresh mortgage credit squeeze later this year or during 2011 hardly inspires confidence in the durability of the housing market recovery."

Credit is already tight. In 2009, societies removed £7.4bn from the mortgage market and approvals dropped to 1.3m, compared with 3.4m annually from 2005 to 2007.

Lobby groups have called on the authorities to delay the timetable but, last week, Mervyn King, Bank of England Governor, confirmed that the main state-backed liquidity scheme, providing £185bn of funding, would end in January 2011 as scheduled. The full £319bn must be repaid by April 2014.

Echoing a warning from the Council of Mortgage Lenders (CML) that removing Government support will choke off lending and raise mortgage costs, Moody's said yesterday: "If debt markets cannot take up some of the funding gap left by Government schemes, the impact on the UK mortgage market will be significant... The contraction will put pressure on house prices ."

The £319bn "funding gap" is the difference between the amount the banks hold in retail deposits and the sum they have loaned. The gap used to be financed in the wholesale markets, which froze in August 2007. They have been replaced with emergency state schemes.

Illustrating the scale of the crisis, CML data shows that UK lenders raised £130bn in the markets in the 12 months before the crunch but just £11.5bn in the past two years.

Moody's added that the benign environment of low interest rates and "other Government stimulus [which] have helped borrowers" may just have been "transitory".

Rising bad debts would be particularly severe for building societies, which lost £7.6bn of deposits last year. Their credit ratings have also been slashed, effectively barring all but Nationwide, the largest society, from using the wholesale markets.

"Building societies have been the main victims," Moody's said. "Without access to cheaper Government-backed funding, many will find it increasingly difficult to survive."

Societies are in discussions with the Financial Services Authority about creating a new debt instrument to shore up their balance sheets. Called mutual ordinary deferred shares (MODS), the debt will not mature and will pay an annual coupon that can be axed to preserve capital in extreme circumstances.

The FSA has not yet approved the instruments.

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The squeeze on debt will begin to be felt in January next year, when lenders are due to start repaying £319bn borrowed from the Government during the original crisis

So maybe not just yet, according to that. Unless, the banks/BS start reining in lending in anticipation of having to start repayments...

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Two points;

1. This will not begin until 2011 and probably not in full flight until 2014 - how much rent will you pay in the next 4 years waiting for these prices to fall?

2. Blanchflower, who often writes for the Telegraph this morning, was talking on Fivelive this morning about the CPI figure being higher - nearer 4% - to take into account house inflation.

Yes, that is closing the door after the door is bolted but if that happened now then the result would be to keep IRs low - he even talked about IRs being negative - which would prop up house prices. The journo questioned about that punishing the prudent/thrifty and rewarding those who took on debt but the gist seemed to be to inflate away the debt - so watch out STRers.

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Two points;

1. This will not begin until 2011 and probably not in full flight until 2014 - how much rent will you pay in the next 4 years waiting for these prices to fall?

2. Blanchflower, who often writes for the Telegraph this morning, was talking on Fivelive this morning about the CPI figure being higher - nearer 4% - to take into account house inflation.

Yes, that is closing the door after the door is bolted but if that happened now then the result would be to keep IRs low - he even talked about IRs being negative - which would prop up house prices. The journo questioned about that punishing the prudent/thrifty and rewarding those who took on debt but the gist seemed to be to inflate away the debt - so watch out STRers.

1) The intention has always been to wait until at least 2013 to rebuy in the UK, i would imagine for alot STR's rent is being covered by interest/ cap gains on the STR so is practically zero

2) Blanchflower is a plank whos idea was to solve the problem of malinvestment by lowering interest rates even earlier. For some reason people fog over and dont understand his solution is the exact cause of the current problems

Ive come off the fence on interest rates now and think they are more likely to go negative than up over the next 3 years, if interest rates go negative that is deflation, it will destroy the economy, houseprices will collapse the same as they did in 08. I dont understand this sites obsession with interest rates going up to cause a price crash, they really dont need to

Edited by Tamara De Lempicka
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1) The intention has always been to wait until at least 2013 to rebuy in the UK, i would imagine for alot STR's rent is being covered by interest/ cap gains on the STR so is practically zero

Ive come off the fence on interest rates now and think they are more likely to go negative than up over the next 3 years, if interest rates go negative that is deflation, it will destroy the economy, houseprices will collapse the same as they did in 08

rates are already negative for banks....hence QE.

rates in the real world for people needing new credit are positive.

introducing actual negative rates will be the end....why would banks lend when they PAY to do it on top of inflation...why would savers deposit when keeping cash under the mattress makes them better off?

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rates are already negative for banks....hence QE.

rates in the real world for people needing new credit are positive.

introducing actual negative rates will be the end....why would banks lend when they PAY to do it on top of inflation...why would savers deposit when keeping cash under the mattress makes them better off?

I am talking about the central bank rate, i dont think its possible on retail deposits for the reason you highlight although , this is an extraordinary situation in financial history so there is no guarantee what levels of stupidity or financial force will be implemented going forward

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I am talking about the central bank rate, i dont think its possible on retail deposits for the reason you highlight although , this is an extraordinary situation in financial history so there is no guarantee what levels of stupidity or financial force will be implemented going forward

got to keep bankers employed...its the only industry we have left according to the Lord Mayor of London.

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The recovery will be underway in 2011. There is no way we will be in the same state then as we were in 2007-8 and are now.

I think this is just wishfull thinking by some desperate HPC's.

Im not saying things will be great and back to normal, but we will have came a long way from the start of the credit crunch. I have said all along that when 2012 comes we will have had the worst of it and see the begining of more prosperous times. That gives us 5 years to get to grips with whats happened and also to adjust.......it could be ten years (from 2007) till full recovery is in place......but we will not be going backwards as predicted.

Edited by Jister1
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Good article. The CML and other lobbies can rail and bay as much as they want, but the conclusion is simple: Without state subsidy, current prices are not sustainable. And the state should have better things to do than subsidising crippling house prices. Wait until after the GE

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I think this article and some of you are being slightly myopic about the housing market. The real action between then and now is going to be in the general economy. Consumer spending for 10 years has been funded by unsecured debt and that will continue to be expensive and less available. This will cool the economy, reduce pay claims (more cuts on the way too) and enhance job losses. People without work can't get mortgages, people who fear losing their job don't take out mortgages. The credit expansion hasn't just been funding real estate and there is more than one crisis unfolding as I write.

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I think this article and some of you are being slightly myopic about the housing market. The real action between then and now is going to be in the general economy. Consumer spending for 10 years has been funded by unsecured debt and that will continue to be expensive and less available. This will cool the economy, reduce pay claims (more cuts on the way too) and enhance job losses. People without work can't get mortgages, people who fear losing their job don't take out mortgages. The credit expansion hasn't just been funding real estate and there is more than one crisis unfolding as I write.

You should have used your real name when joining the forum "nostradamus" ;)

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1. This will not begin until 2011 and probably not in full flight until 2014 - how much rent will you pay in the next 4 years waiting for these prices to fall?

About 20K

2-3 bed house in my 'neck of the woods' sold at the peak from 330K (1970's cul de sac 'out of city' estate development) to 600 K (semi-detached barn conversion, no significant land, town buyer's misguided view of a rural idyll). My 'standing outside looking at them' value of those properties, albeit in my dreamworld : 180K to 280K. Prices not really fallen yet.

I'll wait. In the meantime, barring eviction, I know my outgoings and have the reassurance of savings to pay the rent and food should/when I lose my job. Who knows, by then I might want to live somewhere else.

(Edited for arithmetic)

Edited by LiveinHope
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The recovery will be underway in 2011. There is no way we will be in the same state then as we were in 2007-8 and are now.

I think this is just wishfull thinking by some desperate HPC's.

Im not saying things will be great and back to normal, but we will have came a long way from the start of the credit crunch. I have said all along that when 2012 comes we will have had the worst of it and see the begining of more prosperous times. That gives us 5 years to get to grips with whats happened and also to adjust.......it could be ten years (from 2007) till full recovery is in place......but we will not be going backwards as predicted.

What issues have they resolved since the onset of the 07 credit crunch?

I am interested to know where your optimism is coming from because I can only see actions that have added to our future problems not resolved them?

Extending the bubble has only increased the malinvestments as discussed earlier, this will add years to this depression. Just look at housing for example, the government actions has caught more people buying at bubble prices than would have been if the cycle had been allowed to play out on it's own. This malinvestment has to be worked out of the system.

Income to house price ratio

areaundergraph.jpg

Edited by Confounded
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The recovery will be underway in 2011. <snip>

I think this is just wishfull thinking by some desperate HPC's.

....

Hmmm... I think the wishful thinking is yours TBH.

The government has just borrowed 60 grand on your behalf without asking you. When do you intend to pay it back?

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The recovery will be underway in 2011. There is no way we will be in the same state then as we were in 2007-8 and are now.

I think this is just wishfull thinking by some desperate HPC's.

Im not saying things will be great and back to normal, but we will have came a long way from the start of the credit crunch. I have said all along that when 2012 comes we will have had the worst of it and see the begining of more prosperous times. That gives us 5 years to get to grips with whats happened and also to adjust.......it could be ten years (from 2007) till full recovery is in place......but we will not be going backwards as predicted.

Righto

:rolleyes:

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The recovery will be underway in 2011. There is no way we will be in the same state then as we were in 2007-8 and are now.

I think this is just wishfull thinking by some desperate HPC's.

Im not saying things will be great and back to normal, but we will have came a long way from the start of the credit crunch. I have said all along that when 2012 comes we will have had the worst of it and see the begining of more prosperous times. That gives us 5 years to get to grips with whats happened and also to adjust.......it could be ten years (from 2007) till full recovery is in place......but we will not be going backwards as predicted.

The wishful thinking is all yours.

Some simple figures.

  • UK consumer debt increased from £650 billion to 1.43 trillion between 1997 and 2007.
  • This equates to £78 billion a year.
  • UK GDP is about 2.6 trillion
  • £78 billion is about 3% of GDP
  • People borrow money to spend on goods and services
  • Therefore most of that borrowing became part of our GDP
  • Therefore the 2% to 3% growth in GDP over those 10 years was caused by growth in CONSUMER DEBT

    With me so far?

  • Since 2007 we have become net savers. So, no more borrowing to create growth.
  • Instead of consumers borrowing, the government is now borrowing to the tune of £178 billion a year.
  • Even with this level of borrowing (and, by definition, spending) growth has (allegedly) just about managed 0.1%. Or, in plain terms, massive government borrowing has resulted in zero growth.

    Now, after the election these things will happen.

  • Taxes will go up
  • Government spending will go down
  • Interest rates will (at some point) go up
  • Anyone and everyone who is in debt (government and consumers) will be paying more interest on their debts.

    So, my question to you is ...

    How will a recovery be underway by 2011? Where is the growth going to come from?

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The wishful thinking is all yours.

Some simple figures.

  • UK consumer debt increased from £650 billion to 1.43 trillion between 1997 and 2007.
  • This equates to £78 billion a year.
  • UK GDP is about 2.6 trillion
  • £78 billion is about 3% of GDP
  • People borrow money to spend on goods and services
  • Therefore most of that borrowing became part of our GDP
  • Therefore the 2% to 3% growth in GDP over those 10 years was caused by growth in CONSUMER DEBT

    With me so far?

  • Since 2007 we have become net savers. So, no more borrowing to create growth.
  • Instead of consumers borrowing, the government is now borrowing to the tune of £178 billion a year.
  • Even with this level of borrowing (and, by definition, spending) growth has (allegedly) just about managed 0.1%. Or, in plain terms, massive government borrowing has resulted in zero growth.

    Now, after the election these things will happen.

  • Taxes will go up
  • Government spending will go down
  • Interest rates will (at some point) go up
  • Anyone and everyone who is in debt (government and consumers) will be paying more interest on their debts.

    So, my question to you is ...

    How will a recovery be underway by 2011? Where is the growth going to come from?

Excellently put. Those few bullet points tell you exactly what is happening and should be pinned somewhere.

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The wishful thinking is all yours.

Some simple figures.

  • [*]UK consumer debt increased from £650 billion to 1.43 trillion between 1997 and 2007.[*]This equates to £78 billion a year.[*]UK GDP is about 2.6 trillion[*]£78 billion is about 3% of GDP[*]People borrow money to spend on goods and services[*]Therefore most of that borrowing became part of our GDP[*]Therefore the 2% to 3% growth in GDP over those 10 years was caused by growth in CONSUMER DEBT

Um....... look, don't get me wrong. I'm a bear. I agree the market will drop. I disagree with the poster you are arguing with who seems to beleive a recovery is in the immediate offing BUT........

Your logical chain breaks at.....

People borrow money to spend on goods and services - SNAP

People borrowed money to spend on houses. A large proportion, in fact possibly almost all of that debt increase, was caused by increased borrowing to spend on houses (you may remember that house prices went up quite a bit since 1997 so quite a few people had to borrow quite a lot to buy them).

Houses are not a consumer good. They are not "consumed". The purchase of one from another buyer does not show in GDP. As long as you live in it yourself the "return on assets" also does not show in GDP (i.e. if you pay rent to a landlord, it shows.... if you effectively rent from yourself it doesn't).

So...... yes our debt went up massively........ but, no....... it didn't show up in GDP as the figures you are suggesting, not even close. Our GDP was not "falsely inflated" by people buying a house off another home owner for 200k instead of 100k. The effect on our GDP would be a small-ish fraction of the 2-3% you suggested with crude manipulations of the figures.

With me so far?

Well, no...... but carry on anyway.........

[*]Since 2007 we have become net savers. So, no more borrowing to create growth.

Edited by TGP
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The wishful thinking is all yours.

Some simple figures.

  • [*]UK consumer debt increased from £650 billion to 1.43 trillion between 1997 and 2007.[*]This equates to £78 billion a year.[*]UK GDP is about 2.6 trillion[*]£78 billion is about 3% of GDP[*]People borrow money to spend on goods and services[*]Therefore most of that borrowing became part of our GDP[*]Therefore the 2% to 3% growth in GDP over those 10 years was caused by growth in CONSUMER DEBT

With me so far?[*]Since 2007 we have become net savers. So, no more borrowing to create growth.[*]Instead of consumers borrowing, the government is now borrowing to the tune of £178 billion a year.[*]Even with this level of borrowing (and, by definition, spending) growth has (allegedly) just about managed 0.1%. Or, in plain terms, massive government borrowing has resulted in zero growth.

Now, after the election these things will happen.[*]Taxes will go up[*]Government spending will go down[*]Interest rates will (at some point) go up[*]Anyone and everyone who is in debt (government and consumers) will be paying more interest on their debts.

So, my question to you is ...

How will a recovery be underway by 2011? Where is the growth going to come from?[/list]

I said the recovery will be underway in 2011....not by 2011.....in 2011 :) It could well be the last quarter....but imo it will be started within that year.

The growth will come from exports and services thanks to a low pound. Rates will remain low. Savers will be forced to spend or watch what cash they have evaporate. Wages will start to rise. through all this inflation will be rampant, the figures will be fudged to disguise it best they can. Property will still be your best bet.

Once out the other side hopefully guys like you will be flat on their ****! B)

Edited by Jister1
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I said the recovery will be underway in 2011....not by 2011.....in 2011 :) It could well be the last quarter....but imo it will be started within that year.

The growth will come from exports and services thanks to a low pound. Rates will remain low. Savers will be forced to spend or watch what cash they have evaporate. Wages will start to rise. through all this inflation will be rampant, the figures will be fudged to disguise it best they can. Property will still be your best bet.

Once out the other side hopefully guys like you will be flat on their ****! B)

I despair.

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  • 442 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • up 5%



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