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cletus

Why A House Price Crash Is Being Engineered

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Its officially the middle of 2010 and for the past 3 years we have seen little to no marked reduction in the affordability of housing. For the non-economists and I count myself amongst you, we hear terms like "M3 money supply, liquidity, Quantitive Easing " etc etc. What do these terms me ?

Well, I come from a computer background (Certified IT Professional). From time to time, we come across a problem and we havent got the foggiest idea how to fix it. Instead of saying "I dont know what the problem, but pay me anyway to fix it", we have a few phrases of our own. You get the picture.

In essence these terms are a way of confusing us. But why ?

Well when you find your perfect house and wish to place an offer of say £300,000, you go to a mortgage broker, who in turns gets various different deals from lenders (the banks). Your mortgage plus interest is usually (if paid to term) double the property price. The debt of £300,000 is to be repaid with interest.

Heres where it gets interesting.

Because as a combined population, banks couldnt possibly lend us all their money, because there isnt enough to go around. So it in the banks interest to sell the debt plus interest to a investment group or pension fund. Before this is done, a credit score/rating is attached to a pot of maybe 1000s different mortgages at a time. This clears the debt off the bank who is then free to lend that money again.

In the US, a phrase coined "Ninja or N------R Loans (Offensive word I am not prepared to repeat, derogratory of African Americans). Describes a package whereby a bank would lend a very low interest rate to hook in people who couldnt really afford to be a homeowner and then after a period of years, usually after 2 years, the interest rate would hike. The bank would have cleared off the debt by reselling it off to a investment group and so they encouraged the practice.

It was thought that if they mixed in these Ninja loans with good buyers that everthing would be ok, and it was. The process worked perfectly. A few repossesions here and there, but generally the investment banks couldnt lose money.

Greed being greed, more and more of these sub prime mortgages became available with ever increasing temptations such as 100% mortgages, 120% mortgages and even 125% mortgages being lent to people who didnt have two pennies to rub together.

We all know what happened next, House prices in the poorest parts of America, UK and elsewhere went beyond affordability. This was fine when house prices were forever rising. But also the number of repossesions forced the prices in the US to slump. Investors lost money and a blame game, spread like a wild bush fire, which left every banking institution in the world in a position where they were facing huge losses. If they had just sold the mortgage books and not rebought these so called investment grade credit default swaps then they stood half a chance.

The companies that were the most active, faced ruin until Leman Brothers collasped in the end of 2008, this brought the whole banking system into a state of bankruptcy.

Only with the help of national governments could catastrophe be averted.

Now we are faced with countries with massive debts which they cannot afford the interest on. But wait, who is this interest being paid to.

Thats right they would have you believe that government debts at least in the UK called Gilts was bought by the Saudis or Pensions funds etc. But actually the vast majority of the Gilts of the UK was bought by no less than the Bank of England.

The Bank of England received payments from the treasury, through tax reciepts to pay the Bank of England.

One arm of government is actually paying another arm of government.

Heres where the really interesting bit comes in. As a result of the past few years, the UK now has vast amounts of shares in many of the banks on the high streets. They can introduce cuts which we not only need but in many case are asking for.

Its time to turn our attention on housing. Whenever te BoE chooses, it can raise interest rates, as soon as it does, then we will see a chain reaction. People will face crippling mortgage repayments and repossesions will be on a scale not seen before.

As the bank raises interest rates sterling will strengthen and inflation will fall forcing the so called debt to be repaid.

When are interest rates going to rise I hear you ask. My guess is by the end of 2010

The higher interest rates rise the more houses will flood the markets (Thanks for abolishing HIPS).

Forcing prices down into an completely controllable and engineered House Price Crash.

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Its officially the middle of 2010 and for the past 3 years we have seen little to no marked reduction in the affordability of housing. For the non-economists and I count myself amongst you, we hear terms like "M3 money supply, liquidity, Quantitive Easing " etc etc. What do these terms me ?

Well, I come from a computer background (Certified IT Professional). From time to time, we come across a problem and we havent got the foggiest idea how to fix it. Instead of saying "I dont know what the problem, but pay me anyway to fix it", we have a few phrases of our own. You get the picture.

In essence these terms are a way of confusing us. But why ?

Well when you find your perfect house and wish to place an offer of say £300,000, you go to a mortgage broker, who in turns gets various different deals from lenders (the banks). Your mortgage plus interest is usually (if paid to term) double the property price. The debt of £300,000 is to be repaid with interest.

Heres where it gets interesting.

Because as a combined population, banks couldnt possibly lend us all their money, because there isnt enough to go around. So it in the banks interest to sell the debt plus interest to a investment group or pension fund. Before this is done, a credit score/rating is attached to a pot of maybe 1000s different mortgages at a time. This clears the debt off the bank who is then free to lend that money again.

In the US, a phrase coined "Ninja or N------R Loans (Offensive word I am not prepared to repeat, derogratory of African Americans). Describes a package whereby a bank would lend a very low interest rate to hook in people who couldnt really afford to be a homeowner and then after a period of years, usually after 2 years, the interest rate would hike. The bank would have cleared off the debt by reselling it off to a investment group and so they encouraged the practice.

It was thought that if they mixed in these Ninja loans with good buyers that everthing would be ok, and it was. The process worked perfectly. A few repossesions here and there, but generally the investment banks couldnt lose money.

Greed being greed, more and more of these sub prime mortgages became available with ever increasing temptations such as 100% mortgages, 120% mortgages and even 125% mortgages being lent to people who didnt have two pennies to rub together.

We all know what happened next, House prices in the poorest parts of America, UK and elsewhere went beyond affordability. This was fine when house prices were forever rising. But also the number of repossesions forced the prices in the US to slump. Investors lost money and a blame game, spread like a wild bush fire, which left every banking institution in the world in a position where they were facing huge losses. If they had just sold the mortgage books and not rebought these so called investment grade credit default swaps then they stood half a chance.

The companies that were the most active, faced ruin until Leman Brothers collasped in the end of 2008, this brought the whole banking system into a state of bankruptcy.

Only with the help of national governments could catastrophe be averted.

Now we are faced with countries with massive debts which they cannot afford the interest on. But wait, who is this interest being paid to.

Thats right they would have you believe that government debts at least in the UK called Gilts was bought by the Saudis or Pensions funds etc. But actually the vast majority of the Gilts of the UK was bought by no less than the Bank of England.

The Bank of England received payments from the treasury, through tax reciepts to pay the Bank of England.

One arm of government is actually paying another arm of government.

Heres where the really interesting bit comes in. As a result of the past few years, the UK now has vast amounts of shares in many of the banks on the high streets. They can introduce cuts which we not only need but in many case are asking for.

Its time to turn our attention on housing. Whenever te BoE chooses, it can raise interest rates, as soon as it does, then we will see a chain reaction. People will face crippling mortgage repayments and repossesions will be on a scale not seen before.

As the bank raises interest rates sterling will strengthen and inflation will fall forcing the so called debt to be repaid.

When are interest rates going to rise I hear you ask. My guess is by the end of 2010

The higher interest rates rise the more houses will flood the markets (Thanks for abolishing HIPS).

Forcing prices down into an completely controllable and engineered House Price Crash.

Are you Mrs Sybil Fawlty from Torquay, specialised subject: the bleedin obvious.

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I happen to agree that the House Price Crash is slowly being engineered, though this thread does not provide any explanation of it. The policy is very low interest rates, and I'm quite happy for the "more money than sense" brigade to take the fall, rather than the banks (and thus the taxpayer/bank customers).

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Just to be a pita... NINJA loan - No Income, No Job or Assets.

The teaser rate you refer to is ARMs - Adjustable Rate Mortgages.

Interestingly by setting the Base Rate at close to 0% the central bank effectively turns almost all mortgages into absolutely devastating timebomb ARMS - any fluctuation in base rate leads to a significant increase in the level of interest paid. Given that a lot of the worst case loans are interest only, and stretching the customers ability to pay at 3% - the base rate going up by 3% (quite likely one would imagine) would then double their payment. (Not the repayment obviously, as they are only paying interest whether they know that or not).

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Like your sig.

But run that by me again; why is a house price crash being engineered?

Majority of housing wealth is owned by people retiring in the next 10 years or so, at which point it will be difficult to tax. Crash prices now, new generation of workers can afford housing allowing basic rate of income tax to rise, effecting a transfer of wealth from boomers back to the government via workers with their whole working lives ahead of them. If the gov gets some CGT on the way as well, then perfect. The government can't afford housing wealth to be frittered away on luxurious retirements by the property-is-my-pension brigade, and the government know this.

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The government can't afford housing wealth to be frittered away on luxurious retirements by the property-is-my-pension brigade, and the government know this.

But they stand to lose more votes by alienating the boomer generations (more of them and more likely to vote) than they do by cultivating the 20-40s.

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In the same way Brown wanted to hold prices up before the election, the Libcons want to pour cold water on the market now.

Most people think property is overvalued. Likely that there will be a reduction in prices/crash over the next five years. Having a crash just before an election is electoral suicide. Do it now, get it over with and get everyone happy for the next election. Make it short and sharp, and make it now so that in 5 years time people will have forgotten.

A rapid correction to the market is in the Libcons best interest, and that's why it will probably happen. Heap the pain on now, blame it on NuLabour and hope there is a stonking recovery underway by the time the country next goes to vote.

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Let this thread descend into wild uncalculated speculation. Here goes my theory:

A house price crash is being engineered because…high values have served their purpose, and are no longer needed.

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HPC isn't being engineered.

Being engineered implies creating something unnatural, that would exist normally.

Like engineering a watch.

Or spending vast sums of money to prevent a house price crash in the middle of a depression caused by an epic house price boom.

It is not really engineering they are doing, it is accepting that reality is unavoidable, no matter how much money you try to steal from your children and grandchildren to pretend it is.

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HPC isn't being engineered.

Being engineered implies creating something unnatural, that would exist normally.

Like engineering a watch.

Or spending vast sums of money to prevent a house price crash in the middle of a depression caused by an epic house price boom.

It is not really engineering they are doing, it is accepting that reality is unavoidable, no matter how much money you try to steal from your children and grandchildren to pretend it is.

Agreed. We are going down to the call of "we are all in this together!" (as Clegg, Cameron and Osbourne elbow Billy Zane out of the lifeboat)

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Hmm, they have bottled it on 40% CGT and stated an intention to maintain a low interest rate environment, this latter device being central to their plans and for the longterm, I think they said.

Im not convinced they are engineering a HPC.

Though to be fair 3% base rate would be still a low interest rate environment.

I cant get clear about whether their stance on Housing Benefit will have much of an impact or not. Any opinions out there ?

I think they fancy they can engineer a private sector recovery.

I think they will poop themselves if HP's crash and endanger the banks.

I think they have a desire to see inflatiion. They will need to QE to achieve it though surely ?

They have obviously considered cuts as part of the remedy, so its not like in ten years time they will be going ...Duhh....also inflate our way out of the problem, why didn't we think of that ...they obviously have thought of that and must see it as part of the solution.

Well thats my guesses.

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Hmm, they have bottled it on 40% CGT and stated an intention to maintain a low interest rate environment, this latter device being central to their plans and for the longterm, I think they said.

Im not convinced they are engineering a HPC.

Though to be fair 3% base rate would be still a low interest rate environment.

I cant get clear about whether their stance on Housing Benefit will have much of an impact or not. Any opinions out there ?

I think they fancy they can engineer a private sector recovery.

I think they will poop themselves if HP's crash and endanger the banks.

I think they have a desire to see inflatiion. They will need to QE to achieve it though surely ?

They have obviously considered cuts as part of the remedy, so its not like in ten years time they will be going ...Duhh....also inflate our way out of the problem, why didn't we think of that ...they obviously have thought of that and must see it as part of the solution.

Well thats my guesses.

Problem is we can't inflate or QE as the bond market will scream, rates will go up and the housing market will ubercrash as no one will be able to pay their mortgage.

Or more accurately, we can't QE until America QE's, but we have to make it look like we are doing less and it is all their fault anyway and not ours.

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  • 260 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% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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