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ralphmalph

Boe Fsr Report June

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http://www.bankofengland.co.uk/publications/fsr/2010/fsrfull1006.pdf

I do not have the technical ability to cut and paste so the graphs start on page 29.

Graph 2.15 is interesting because this shows the %tage of take home income the mortgagees of this country pay out to service their mortgages. Currently at 7.5% versus the low of 1996 (end of last crash) of 7%. 2007 high was 11%. 1990 bubble was 15%. Then it gets even more interesting as the BoE models the impact of base rate going to 5% with current mortgage spreads and historical spreads. If base rate went to 5% with average spreads then 11% of income would be needed. Base rate plus current spreads would be 14% or exactly the level when the market crashed in 1990.

The accompanying text to the graph will depress hpc'ers. I never believed QE was primarily meant to prop up the housing market but I did not understandhow determined the BoE were. The text makes it very clear that they know the % income needed to service mortgages and at what level it is that starts house prices to fall. They seem to be very clear that they will not allow that to happen. It seems out interest rate policy is being set to stop house prices declining.

The even go so far as to measure the mortgages in negative equity (about 5%) by year the mortgage was taken out.

Another little gem in the text is that in 2009 5% of mortgage holders had mortgage payments of between 50% and 100% of post tax income.

Anyway have a read it remains to be seen how much inflation the BoE will allow to keep there precious %tage of take home income at the level where house price falls do not occur (according to thier model).

Edited by ralphmalph

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7.5% of income goes to pay the mortgage.

averages do wonders to this BS.

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http://www.bankofengland.co.uk/publications/fsr/2010/fsrfull1006.pdf

I do not have the technical ability to cut and paste so the graphs start on page 29.

Graph 2.15 is interesting because this shows the %tage of take home income the mortgagees of this country pay out to service their mortgages. Currently at 7.5% versus the low of 1996 (end of last crash) of 7%. 2007 high was 11%. 1990 bubble was 15%. Then it gets even more interesting as the BoE models the impact of base rate going to 5% with current mortgage spreads and historical spreads. If base rate went to 5% with average spreads then 11% of income would be needed. Base rate plus current spreads would be 14% or exactly the level when the market crashed in 1990.

The accompanying text to the graph will depress hpc'ers. I never believed QE was primarily meant to prop up the housing market but I did not understandhow determined the BoE were. The text makes it very clear that they know the % income needed to service mortgages and at what level it is that starts house prices to fall. They seem to be very clear that they will not allow that to happen. It seems out interest rate policy is being set to stop house prices declining.

The even go so far as to measure the mortgages in negative equity (about 5%) by year the mortgage was taken out.

Another little gem in the text is that in 2009 5% of mortgage holders had mortgage payments of between 50% and 100% of post tax income.

Anyway have a read it remains to be seen how much inflation the BoE will allow to keep there precious %tage of take home income at the level where house price falls do not occur (according to thier model).

Who needs graphs/charts?

Your summary is infinitely more edifying.

Good work.

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Is it just me? :unsure:

Could anyone paste up the graphs?

The links work for me. As said in the intitial post I do not know how to cut and past from this doc. Perhaps someone else can.

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The text makes it very clear that they know the % income needed to service mortgages and at what level it is that starts house prices to fall. They seem to be very clear that they will not allow that to happen. It seems out interest rate policy is being set to stop house prices declining.

I think Mervyn is doing it as a vendetta against HPC because we are all so rude about him :lol:

On a serious note though.. it basically backs up what many have said, the BoE doesn't target inflation, it targets house prices.

That said, they are already at 0.5% and will struggle to justify more QE while inflation is so high above "target". It will be interesting to see what they try to do.. probably just put more pressure on banks to lend sub-prime.

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7.5% of income goes to pay the mortgage.

averages do wonders to this BS.

I suspected the same mistake. If IR goes up to 5%, and spreads remain at present levels (3% plus?) mortgage rates will be above 8%. And that will take only 13% of the income of the mortgaged households? Or 13% of the total household income in the fecking country? Remember that around a third of the population rent, a third own out-right, and just about a third have mortgages.

If they did the national average, then the real average, for mortgaged households, will be around three times that.

Edit: These comments are in relation to the chart mentioned in the OP, chart 2.15, posted by wtb, in post #9, below.

Edited by Tired of Waiting

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I think Mervyn is doing it as a vendetta against HPC because we are all so rude about him :lol:

On a serious note though.. it basically backs up what many have said, the BoE doesn't target inflation, it targets house prices.

That said, they are already at 0.5% and will struggle to justify more QE while inflation is so high above "target". It will be interesting to see what they try to do.. probably just put more pressure on banks to lend sub-prime.

Reading the text the BoE do not seem to see any adverse affects of the previous sub prime lendning in the UK.

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I suspected the same mistake. If IR goes up to 5%, and spreads remain at present levels (3% plus?) mortgage rates will be above 8%. And that will take only 13% of the income of the mortgaged households? Or 13% of the total household income in the fecking country? Remember that around a third of the population rent, a third own out-right, and just about a third have mortgages.

If they did the national average, then the real average, for mortgaged households, will be around three times that.

I think you need to check the income ratios are only for mortgage holders not averaged across the whole country.

But back to your point. It is how many will be in distress when the income ration is 13%. Currently as they say only 5% of mortgages are paying between 50% and 100% of take home pay to service their mortgage. Now if the income required goes to 13% and that puts 25% of mortgages in the 50% to 100% bracket it is crash time here we come.

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interesting, if obvious, sentence here:

"In the absence of significant deleveraging by the

household sector, UK banks are exposed to the risk of higher

defaults were interest rates to rise from their current

historically low levels or recovery to falter."

The recovery faltering is the wild card they can't control.

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Charts 4.1 and 4.2 on pages 45 and 46 confirm the QE was to buy the banks time.

They've gone from an average leverage ratio of 30:1 to 20:1 and their Tier 1 capital ratio has gone from 6% to near 9%. All in the last 2 years of "bounce" on 225bn of money printing.

Time to let asset prices go.

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If the "UK major banks" have gone from 6% tier 1 to 9% and total assets are 9tn, of which about 1.5tn are mortgages, then a 20% drop in house prices would, worst case, wipe out 0.3tn. That's exactly 3.3% of the total 9tn.. in which case, we're right back to 6% tier 1.

Have they just prepared for a 20% drop???

Edited by AvidFan

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I think you need to check the income ratios are only for mortgage holders not averaged across the whole country.

But back to your point. It is how many will be in distress when the income ration is 13%. Currently as they say only 5% of mortgages are paying between 50% and 100% of take home pay to service their mortgage. Now if the income required goes to 13% and that puts 25% of mortgages in the 50% to 100% bracket it is crash time here we come.

My comments were in relation to the chart you mentioned in your OP, chart 2.15 (also posted by wtb, in post #9, above).

If mortgage rates go up to 8%, then I don't think "Gross interest payments as a percentage of post-tax income (...)" would be only 13%.

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http://www.bankofengland.co.uk/publications/fsr/2010/fsrfull1006.pdf

Graph 2.15 is interesting because this shows the []b%tage of take home income the mortgagees of this country pay out to service their mortgages. Currently at 7.5%[/b] versus the low of 1996 (end of last crash) of 7%. 2007 high was 11%. 1990 bubble was 15%. Then it gets even more interesting as the BoE models the impact of base rate going to 5% with current mortgage spreads and historical spreads. If base rate went to 5% with average spreads then 11% of income would be needed. Base rate plus current spreads would be 14% or exactly the level when the market crashed in 1990.

7.5%? I'd like to see a detailed explanation of that. I suspect that's not the full story.

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Chart 4.21 on page 55 - look at the spreads on new and existing mortgages... :ph34r:

2.75% over deposits for new loans. Look how quickly that has shot up. We're being fleeced. 2011 could be a record year perhaps - but it's got to end, surely?

Edited by AvidFan

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I see they introduce a new acronym on page 11.

Policy action is needed to reduce the structural problems caused by banks that are too important to fail (TITF).

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If the "UK major banks" have gone from 6% tier 1 to 9% and total assets are 9tn, of which about 1.5tn are mortgages, then a 20% drop in house prices would, worst case, wipe out 0.3tn. That's exactly 3.3% of the total 9tn.. in which case, we're right back to 6% tier 1.

Have they just prepared for a 20% drop???

Have you seen this news? "Coalition ready to let property values fall" (By 25%, allegedly.)

Link: http://www.moneymarketing.co.uk/mortgages/coalition-ready-to-let-property-values-fall/1015197.article

Discussed here: http://www.housepricecrash.co.uk/forum/index.php?showtopic=147307&view=findpost&p=2624404

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I did. I was just tying it up.

Clicked on a story link just below it:

http://www.moneymarketing.co.uk/regulation/news/think-tank-says-downturn-will-last-until-2012/1016469.article

I see NIESR are calling it a depression and it's here until 2012.

I'd second that.

Edited by AvidFan

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(...)

On a serious note though.. it basically backs up what many have said, the BoE doesn't target inflation, it targets house prices.

Yep. I think you are right. First page, first line:

"The Bank of England has two core purposes — monetary stability and financial stability."

So, it is not only inflation targeting, but assuring that the banks won't go bust.

And residential mortgages absorb 2/3 of all lending in Britain. Hence, HP can't fall too much, too fast - in nominal terms.

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I think Mervyn is doing it as a vendetta against HPC because we are all so rude about him   :lol:

On a serious note though..  it basically backs up what many have said,  the BoE doesn't target inflation,  it targets house prices.

That said,  they are already at 0.5% and will struggle to justify more QE while inflation is so high above "target".  It will be interesting to see what they try to do..  probably just put more pressure on banks to lend sub-prime.

...they said last week they are going to review their inflation forecast. So, say the new one will be 4%. If inflation spikes over 5%...well they will simply review forecast again. :ph34r:

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...they said last week they are going to review their inflation forecast. So, say the new one will be 4%. If inflation spikes over 5%...well they will simply review forecast again. :ph34r:

Yup, they will just change the rules to suit, absoloodle nonsense, all of it.

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On a serious note though.. it basically backs up what many have said, the BoE doesn't target inflation, it targets house prices.

thats because UK savers deposits are backed by mortgages.

and merv doesn't want to do negative nominal rates just yet.

why can't you people understand the link between house prices and the safety of your STR funds?

CCP0002870_P.JPG

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looks about right, its the incredibly low interest rates and lots of people on tracker deals, when interest rates go up the spreads should narrow. The temptation to inflate is huge, but as prev poster has reminded the Bank of England aims for financial stability and inflation targeting. If the economy is unstable, the inflation targeting can be ignore until the country is on an even keel. Inflation/Deflation is a decision, you can turn it on and off relatively easily (although governments pretend when inflation is out of control and all the money they are printing has nothing to do with inflation).....

Edited by AteMoose

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  • 152 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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