Mortgage Lending 'rose In February'

[we the sheeple]

But what sort of country are we living in?

Think Eastern Europe in 1970s, then it all starts to make sense.

[Pole]

It is (sadly) an impossible society.

In such a society somebody would invent the idea of a mortgage and then allow people who either don't have enough money or want an even bigger home to borrow the money to buy. this would then drive up the price as those people would add to the demand and eventually out-bid people buying outright. you would then see HPI as everybody bought with a mortgage in order to compete as the money that formerly would have allowed them to buy out-right is no longer sufficient. This would carry one until that society hits a point where people can no longer afford the finance as prices have got out of control.

And that is pretty much the story of the UK.

...and normally you'd expect those out-of-control prices start crashing at some point and then the lenders who created the situation going bankrupt. However, the government would do whatever it takes (I heard that on TV from Gordon) to prevent substantial house price falls and please the lenders.

I realise that every society needs banks (lenders) and mortgages. But in the UK, the system has stayed overgrown for a while. I'd prefer other industries to be overgrown instead of banking industry. Banks aren't really improving our lives. And teh value that we get for our money is really low.

[The McGlashan]

This time last year:

http://news.bbc.co.uk/1/hi/business/7952198.stm

"The slump in mortgage lending continued in February, with gross lending down by 60% on February last year, the Council of Mortgage Lenders (CML) has said.

Lending, at £9.9bn, was 15% lower than in January, and was the lowest figure for any month since February 2001."

So, we're 6% down on the "lowest figure for any month since February 2001" as of this time last year.

Heres a graph of Gross UK Mortgage lending going back for years and years.

And here's the same data plotted with YoY delta.

[Greg Bowman]

I hear this a lot. But I don't really get it.

Can you explain the mechanism whereby low house prices would destroy the UK?

Here we go:

I employ 40 people. Our business is supported by a modest overdraft secured on a house at a given value. My house is halved in value the bank halves my facility.

I stop trading. 40 people lose their jobs.

Do you get it now?

[Pole]

Heres a graph of Gross UK Mortgage lending going back for years and years.

thanks

Looking at this graph, my question is this:

The lending has dropped massively, volumes are ultra low - so how come house prices are still ultra high? Strange, isn't it?

What special ingredient do we still need now to make this thing go p-o-p?

[Pytyr]

Here we go:

I employ 40 people. Our business is supported by a modest overdraft secured on a house at a given value. My house is halved in value the bank halves my facility.

I stop trading. 40 people lose their jobs.

Do you get it now?

Oh I see.

You employ 40 people. Your business doesn't generate enough cashflow to remin trading. You secure an overdaft against your house. Your house value declines and your overdraft declines with it. Your business is incapable of supporting itself and deserves to be shut down. 40 People lose their jobs because your business model doesn't work. 41 Including you. What has this got to do with the value of your house?

Do you get it now?

[moneyfornothing]

In response to the OP --

And therein lies the big fallacy in most of these indices you see. All it needs in this case is an overestimation of the published figures for the current month. It will be guaranteed to show an increase by the next month unless the actual falls are too big. Or in other words a perfect example of a metric that has been biased to show 'growth' - These indices are biased to exaggerate increases and correspondingly minimise the impression of 'falls'

There will be similar algorithms and logic in all of these HP Indices that make it biased to show growth. Unless there are really big falls, they will tend to show 'growth' and thats the way it will be because the people tha publish them have a vested interest in 'growth'.

[Kazuya]

thanks

Looking at this graph, my question is this:

The lending has dropped massively, volumes are ultra low - so how come house prices are still ultra high? Strange, isn't it?

What special ingredient do we still need now to make this thing go p-o-p?

High interest rates.