Jump to content
House Price Crash Forum
Sign in to follow this  
jplevene

Why House Prices Will Crash - Banks Will Profit

Recommended Posts

There is going to be a huge car crash in house prices, but this time the banks are going to make fortunes while the British public loose theirs, which will all be due to the Bank of England Policy Committee. Their actions will also determine how bad the crash will actually be.

From what Deputy Governor Bean just said, that keeping the rates low helped the financial markets make their recent fortunes. This makes it obvious that the BOE Policy Committee don't care about the British people, businesses or inflation, they only care about the financial markets. This is worrying as if interest rate rises are timed in a certain way, the banks will make a fortune, while British people will loose theirs. Here's the reason:

Currently rates are at a record low (0.5% in the UK for those who have just come out of a coma), and in the UK, most people signed up to various mortgage offers, most of which lasted 2 to 3 years. As these offers are finishing, people are being put onto the bank's standard variable rate which is usually cheaper than the offer they just finished, so they stay on that. The longer we keep rates low, more people will be on the bank's standard variable rate. Here is where the problem lies.

At the moment (beginning of September 2010) house prices are just starting to crash, here are the two scenarios:

1) In a year, house prices will have gone down, the fall would be slowing down and more people would have gone to the Bank's Standard Variable Rates. If rates rise at this time, those people on the Standard Variable Rates would be trapped there, as it would be harder to get an offer mortgage with the new regulations, a deteriorating market and lower property values. As they would be stuck on what will turn into an expensive mortgage, the banks would be earning large profits on them. As many people wouldn't be able to afford the new rates (people are struggling now at 0.5%), they would be forced to sell, sending a flood of new properties with desperate vendors onto the market, thus causing a further crash.

2) If interest rates are raised now, people on the bank's standard variable rates would have a far better chance of getting an offer mortgage (like a fixed, discount, etc.) as their house is worth more than it will be in lets say a year and offer mortgages would be more affordable. This action would also ensure that house prices don't drop too far. This scenario however won't make the banks any fortune as more people would be able to save money and change their mortgage.

Banks are currently protecting themselves and setting themselves up for the first scenario by getting large deposits, etc., which would protect them for the properties that they would have to reposes.

Interest rates will have to rise due to the low rates for the last 18 months which has had high inflation (needs to be corrected), and the very high inflation predicted within the next 2 years, the risk to Government Bonds, etc. The BOE will be tested whether they care about inflation, the people and the economy or if their loyalties lie with their fiends in the financial markets. My bet is that they help their friends and stitch us up, just like every other Quango.

Share this post


Link to post
Share on other sites

Currently rates are at a record low (0.5% in the UK for those who have just come out of a coma), and in the UK, most people signed up to various mortgage offers, most of which lasted 2 to 3 years. As these offers are finishing, people are being put onto the bank's standard variable rate which is usually cheaper than the offer they just finished, so they stay on that.

evidence please

Share this post


Link to post
Share on other sites

There is going to be a huge car crash in house prices, but this time the banks are going to make fortunes while the British public loose theirs, which will all be due to the Bank of England Policy Committee. Their actions will also determine how bad the crash will actually be.

From what Deputy Governor Bean just said, that keeping the rates low helped the financial markets make their recent fortunes. This makes it obvious that the BOE Policy Committee don't care about the British people, businesses or inflation, they only care about the financial markets. This is worrying as if interest rate rises are timed in a certain way, the banks will make a fortune, while British people will loose theirs. Here's the reason:

Currently rates are at a record low (0.5% in the UK for those who have just come out of a coma), and in the UK, most people signed up to various mortgage offers, most of which lasted 2 to 3 years. As these offers are finishing, people are being put onto the bank's standard variable rate which is usually cheaper than the offer they just finished, so they stay on that. The longer we keep rates low, more people will be on the bank's standard variable rate. Here is where the problem lies.

1)The record low rates have so far stopped the crash from happening so it can't be cited as the resaon for any future crash.

2) If there is a crash, the banks are only going to "profit" on houses bought in the last two years. They are still going to take a bath on the ones purchased in 2006-2008

tim

Share this post


Link to post
Share on other sites

evidence please

http://www.thisismoney.co.uk/mortgages-and-homes/article.html?in_article_id=497931&in_page_id=8

21 January 2010

The SVR is the mortgage rate that customers revert to when their special deal, such as a two-year fix or three-year tracker, comes to an end. Up to 5.5m people in the UK have a mortgage linked to their lender's SVR.

Not sure what the total number of mortgages are but quite a few it would appear are linked to SVR according to this article.

Share this post


Link to post
Share on other sites

However I doubt that the banks will profit, they will be forced to write down the values of the loans and take some big losses.

It will be interesting to see whether the banks are really capitalised enough to deal with it if a real crash does happen.

Large deposits only gives the banks an equity cushion for new loans, unfortunately that won't balance out the losses from the loans made leading up to 2007/2008.

Share this post


Link to post
Share on other sites

Not sure what the total number of mortgages are but quite a few it would appear are linked to SVR according to this article.

blahblahblah

give me a graph of the proportion of borrowers on SVR, pre 2007 to now.

anything else is circumstantial/anecdotal.

Share this post


Link to post
Share on other sites

Mortgage Product Sales Data (PSD) Trends Report

Interest Rates

70% of all sales were fixed-rate mortgages (2006/07 – 66%).

84% of first-time buyers opted for a fixed-rate mortgage (2006/07 – 79%).

Average initial interest paid for all types of mortgages (where recorded) was

5.9% (2006/07 – 5.2%).

Obviously doesn't help with total numbers.

Share this post


Link to post
Share on other sites
Fixed interest rate mortgages were by far the most popular over the period, accounting for around 70% of all mortgages sold, which was up on 2006/07 (66%). Fixed rate mortgages peaked in Q2 2007, when they accounted for 77% of all mortgages, but declined as a proportion thereafter and only accounted for 55% of sales in Q1 2008. Most of the difference was taken up by base-rate tracker mortgages, which increased from 14% of the total in April 2007 to 31% by March 2008. Standard variable rate mortgages accounted for just 4% of the total market.

Share this post


Link to post
Share on other sites

1)The record low rates have so far stopped the crash from happening so it can't be cited as the resaon for any future crash.

2) If there is a crash, the banks are only going to "profit" on houses bought in the last two years. They are still going to take a bath on the ones purchased in 2006-2008

tim

Higher interest is nothing more than a tax on people take home pay that can be used to bid up housing. Low interest now gives rise to CPI/RPI inflation which again act as a tax on the 'housing pot'. Also, for the reckless, once they get used to the new normal / lifestyle, then their cost of maintaining that life style is baseline against the 0.5%ish rate. So, if their pay doesn't go up (or go down due to redundancy/taking new jobs), then houses will have to go down.

Neither will fixed rate help - fixed rate fixed the cost of servicing the mortgage, but not the cost of living which is almost certain to be higher this time next year - for a starter, then is a 2.5% VAT rise.

Not sure whether UK banks will profit though as foreclosure is a pretty administratively taxing process. However, think some of the 2006-08 mortgages are now in the Asset Protection Scheme, so the banks will be OK (but not the poor peasants)

Edited by easybetman

Share this post


Link to post
Share on other sites

no it doesn't.

that is graph of varible vs fixed, not SVR vs fixed.

Does that matter though... the question is how many will be affected by interest rate rise. If it is not fixed, then it got to move in the same direction as the based rate.

Share this post


Link to post
Share on other sites

However I doubt that the banks will profit, they will be forced to write down the values of the loans and take some big losses.

It will be interesting to see whether the banks are really capitalised enough to deal with it if a real crash does happen.

Large deposits only gives the banks an equity cushion for new loans, unfortunately that won't balance out the losses from the loans made leading up to 2007/2008.

tax relief...A: on the losses, and B: on the bonuses they paid.

Share this post


Link to post
Share on other sites

There is going to be a huge car crash in house prices, but this time the banks are going to make fortunes while the British public loose theirs, which will all be due to the Bank of England Policy Committee. Their actions will also determine how bad the crash will actually be.

From what Deputy Governor Bean just said, that keeping the rates low helped the financial markets make their recent fortunes. This makes it obvious that the BOE Policy Committee don't care about the British people, businesses or inflation, they only care about the financial markets. This is worrying as if interest rate rises are timed in a certain way, the banks will make a fortune, while British people will loose theirs. Here's the reason:

Currently rates are at a record low (0.5% in the UK for those who have just come out of a coma), and in the UK, most people signed up to various mortgage offers, most of which lasted 2 to 3 years. As these offers are finishing, people are being put onto the bank's standard variable rate which is usually cheaper than the offer they just finished, so they stay on that. The longer we keep rates low, more people will be on the bank's standard variable rate. Here is where the problem lies.

At the moment (beginning of September 2010) house prices are just starting to crash, here are the two scenarios:

1) In a year, house prices will have gone down, the fall would be slowing down and more people would have gone to the Bank's Standard Variable Rates. If rates rise at this time, those people on the Standard Variable Rates would be trapped there, as it would be harder to get an offer mortgage with the new regulations, a deteriorating market and lower property values. As they would be stuck on what will turn into an expensive mortgage, the banks would be earning large profits on them. As many people wouldn't be able to afford the new rates (people are struggling now at 0.5%), they would be forced to sell, sending a flood of new properties with desperate vendors onto the market, thus causing a further crash.

2) If interest rates are raised now, people on the bank's standard variable rates would have a far better chance of getting an offer mortgage (like a fixed, discount, etc.) as their house is worth more than it will be in lets say a year and offer mortgages would be more affordable. This action would also ensure that house prices don't drop too far. This scenario however won't make the banks any fortune as more people would be able to save money and change their mortgage.

Banks are currently protecting themselves and setting themselves up for the first scenario by getting large deposits, etc., which would protect them for the properties that they would have to reposes.

Interest rates will have to rise due to the low rates for the last 18 months which has had high inflation (needs to be corrected), and the very high inflation predicted within the next 2 years, the risk to Government Bonds, etc. The BOE will be tested whether they care about inflation, the people and the economy or if their loyalties lie with their fiends in the financial markets. My bet is that they help their friends and stitch us up, just like every other Quango.

I have long thought that far from being the HPC enemy, cheap money will turn out to be their friend. To have let prices crash 2 years ago would have wiped out the banks. Refinancing the banks with cheap virtually free money has given them room to take a hit from houses being sold for less than the debt owed upon them. At the same time, 2 years of low rates and SMI have given mortgage holders the opportunity to pay down debt meaning that they can now lower their asking prices in line with a falling market. It is no coincidence that as we come to the end of the 2 year period of support for the housing market that the forces of establishment have done a 180 dgree turn in sentiment for house prices. Prices will fall from here on in because now as opposed to 2008, they can let them fall.

Edited by campervanman

Share this post


Link to post
Share on other sites

The record low rates are one reason for the price correction being posponded, paying people's mortgages is another along with high housing benefit rate.

How many of the 2006 - 2008 buyers will default? Many will have had substantial equity and others may just get on and pay the mortgage rather than go bankrupt.

Who knows how many will default but they are the most likey set.

That is the set where all the people with (origial) 100% mortages on houses that are now "under water" will be, so your suggestion that they will, as a group, have lots of equity is false.

tim

Edited by tim123

Share this post


Link to post
Share on other sites

I dont know of many offer short term mortgages where its cheaper after you come off the special 2-3 yr term. I think you might find banks have adjusted their SVR up quite substatially to avoid another give away like those lucky types who got put onto lifetime SVR's just as the BOE dropped IR's thought the floor. Anyone going onto SVR now from a fixed teaser will get an arseramming. e.g. Base rate +4% etc.

Share this post


Link to post
Share on other sites

What a load of tripe.... Falling house prices have a negative effect on bank cash flow hence the situation in the US in 2008, its where banks have the majority of the lending tied up and 10 years of excessive lending, 125% mortgages, self cert the banks can not afford to see prices fall to levels where walking away and handing back the keys becomes widespread.

They are not concerned with making money out of those who have bought in the last 2 years, the numbers are insignificant, they are making enough money now with low IR, paying savers pennies whilst pulling in ££££ from borrowers.

An old bank manager friend once told me, as long as people keep borrowing, and those borrowers keep repaying the banks will never lose, regardless of IR.

Edited by Jonnybegood

Share this post


Link to post
Share on other sites

However I doubt that the banks will profit, they will be forced to write down the values of the loans and take some big losses.

It will be interesting to see whether the banks are really capitalised enough to deal with it if a real crash does happen.

Large deposits only gives the banks an equity cushion for new loans, unfortunately that won't balance out the losses from the loans made leading up to 2007/2008.

If banks agree to reposes and then rent back, they will be able to easily balance their books, and even profit from the repo. It comes down to numbers, they are making as many people have a huge collateral (large deposits) giving them a huge cushion. Yes there are a few still with very little collateral, but this is outweighed by all the others.

Share this post


Link to post
Share on other sites

I have long thought that far from being the HPC enemy, cheap money will turn out to be their friend. To have let prices crash 2 years ago would have wiped out the banks. Refinancing the banks with cheap virtually free money has given them room to take a hit from houses being sold for less than the debt owed upon them. At the same time, 2 years of low rates and SMI have given mortgage holders the opportunity to pay down debt meaning that they can now lower their asking prices in line with a falling market. It is no coincidence that as we come to the end of the 2 year period of support for the housing market that the forces of establishment have done a 180 dgree turn in sentiment for house prices. Prices will fall from here on in because now as opposed to 2008, they can let them fall.

I agree, but this time round, the fall is going to net the banks a fortune from circumstance and pre-emptive planning on their behalf .

Share this post


Link to post
Share on other sites

How many of the 2006 - 2008 buyers had 100% mortgages? Not all buyers clearly but a percentage.

dunno. But the most likely people to default are the ones with the 100% loans.

tim

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.