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No Recession Needed

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halifax can lie all they want. (and they will, forever more)

empty wallets will decide where house prices go - nothing else.

we've only just narrowly missed a massive recession by massive reductions in interest rates. yet people still call for a recession to help a hpc.

The best hope is for a runnaway expanding economy, forcing rates up. Then house prices will correct quicker or not?.

recession will only keep rates lower for longer causing a softy (soft landing).

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I live in the South and I agree, interest rates are the key. I have been very bearish about property prices, although I think potentially things will tick along like this for a good while longer. I have recently sold due to a change of job and desire to move back closer with family. The flat I am renting has just been sold from one BTLer to another. I know someone who has a BTL property and is busy remortaging to purchase a couple more. There really doesn't seem to be any shortage of buyers while interest rates are still low and lenders are still keen to give out the cheap money. I am now waiting by the sidelines but only a big upset in the future will alter the property outlook greatly.

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Guest Charlie The Tramp
I live in the South and I agree, interest rates are the key. 

I believe that Debt will be the number one key made worst by the future rise in IRs. <_<

I know someone who has a BTL property and is busy remortaging to purchase a couple more.

Is his name Trigger?, as in Only Fools And Horses. :)

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until people in this country stop trying to freeload of each other the sooner we can get back to normal. after all. its only the greed thats pushed prices up. until the encouraged masses get hurt by this nothing will change. and a sharp IR rise will do the trick of putting off housing speculators for a while. try 7% for a few months. i blame tihs squarley on the rise of the BTL investor and a government that allowed it.

only i think the damage has already been done and were way past the point of no return.

i cannot believe the powers which control these things have fouled up so badly and so deeply. best thing to do is speed up the crash so that normal uk spending habits and saving patterns resume and we begin the long steady payback for the last few years.

this pointless madness has to stop now. its sucking up all available spending.

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until people in this country stop trying to freeload of each other the sooner we can get back to normal. after all. its only the greed thats pushed prices up. until the encouraged masses get hurt by this nothing will change. and a sharp IR rise will do the trick of putting off housing speculators for a while. try 7% for a few months. i blame tihs squarley on the rise of the BTL investor and a government that allowed it.

only i think the damage has already been done and were way past the point of no return.

i cannot believe the powers which control these things have fouled up so badly and so deeply. best thing to do is speed up the crash so that normal uk spending habits and saving patterns resume and we begin the long steady payback for the last few years.

this pointless madness has to stop now. its sucking up all available spending.

Debt is the key.. we have £600,000,000,000 more debt..

Now pretend we are all paying that back.. but only the interest.. and all the debt was borrowed at 5% (its not, this is the best possible scenario)

.

£30,000,000,000 or thirty billion pounds a year spent just maintaining debt.. This figure is huge.. but in reality its more... (capital being repaid and money borrowed not through mortgages)

so thats £30,000,000,000 less for the economy.

minimum..

and borrowing is crashing so the debt is hitting home hard.

Edited by apom

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Debt is the key.. we have £600,000,000,000 more debt..

Now pretend we are all paying that back.. but only the interest.. and all the debt was borrowed at 5% (its not, this is the best possible scenario)

.

£30,000,000,000 or thirty billion pounds a year spent just maintaining debt.. This figure is huge.. but in reality its more... (capital being repaid and money borrowed not through mortgages)

so thats £30,000,000,000 less for the economy.

minimum..

and borrowing is crashing so the debt is hitting home hard.

To put in context, I heard a quote in a financial paper over here (canada) recently that said the UK debt levels are greater than the combined third world debts of Latin America, Africa and the Indian Sub-continent combined. Maybe someone can verify that. It also claimed 70% of that debt was owed by British Subjects as Mortgage loans to banks. Is UK land really worth so much more than land and housing in rest of the world? Is there oil or gold everywhere under the ground? Me confused.

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Guest Charlie The Tramp
recently that said the UK debt levels are greater than the combined third world debts of Latin America, Africa and the Indian Sub-continent combined. Maybe someone can verify that.

I first read it in an article in The Scotsman about six months ago, cannot find the link now as it has now been archived. You could trawl through my 3k plus posts to find it. :)

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I first read it in an article in The Scotsman about six months ago, cannot find the link now as it has now been archived. You could trawl through my 3k plus posts to find it.  :)

Hi,

I was correct then, I guess it can be easily added up together from available sources. The other quote I heard on the financial bloggs was that UK credit card debt levels was greater than the whole credit card debt levels of the entire, remaining EU nations added together. I guess these figures are pretty straightforward to verify. Does that seem like a sustainable base for a property boom? Or is it just me that thinks it is financial armagedon in waiting.

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Is UK land really worth so much more than land and housing in rest of the world? Is there oil or gold everywhere under the ground? Me confused.

Nah, it's mostly disused coal mining works causing subsidence as far as I know. But then, I never did get that metal detector for my birthday...........

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Guest Charlie The Tramp
Plastic cards in issue were 190m in 2004. This works out at an average of 4.1 plastic cards for every adult in the UK.

There are more credit cards in the UK than people according to the APACS. At the end of 2004 there were 74.3m credit and charge cards in the UK compared with around 59 million people in the country.

The other quote I heard on the financial bloggs was that UK credit card debt levels was greater than the whole credit card debt levels of the entire, remaining EU nations added together.

Looking at the above figures that is probably correct. :)

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Debt is the key.. we have £600,000,000,000 more debt..

Now pretend we are all paying that back.. but only the interest.. and all the debt was borrowed at 5% (its not, this is the best possible scenario)

.

£30,000,000,000 or thirty billion pounds a year spent just maintaining debt.. This figure is huge.. but in reality its more... (capital being repaid and money borrowed not through mortgages)

so thats £30,000,000,000 less for the economy.

minimum..

and borrowing is crashing so the debt is hitting home hard.

But we have a very healthy banking sector! Oh, that's where all the money went. The banks have been permitted to create vast sums of cash (i.e. the debt) and charge us interest on it. Why? Well that's just the way it works, according to some people!

The UK banking sector requires some hardball regulations. They have singlehandedly screwed the whole economy via mortgage debt.

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But we have a very healthy banking sector! Oh, that's where all the money went. The banks have been permitted to create vast sums of cash (i.e. the debt)

I would prefer to also blame the borrowers. No-one forced them to take the loans. Besides, I cannot see why at least those of them who can afford the repayments should not be allowed to borrow.

When you say 'permitted', how would you have stopped the banks? I would be especially interested in ways that do not involve the abolition of civil liberties that we became accustomed to.

and charge us interest on it. Why? Well that's just the way it works, according to some people!

Indeed it does. If you borrow money then you pay interest on it. Long may it continue. Do you seriously think there is something wrong with that principle? If so, what?

The UK banking sector requires some hardball regulations. They have singlehandedly screwed the whole economy via mortgage debt.

No, they haven't. At least not yet. The economy might be about to fall off a cliff but so far things appear to be fine. I don't think either of us can predict with any certainty when said fall off a cliff might happen, or indeed to be certain that it will happen at all. The stockmarket is rising for some reason, so at least some clearly believe it will not come to that. (FWIIW: not me, I *am* expecting a crash but excessive personal debt might turn out to be just a contributory factor rather than the cause. It might not be just around the corner, either.)

Better regulation of banks might well help. The question is, what would you do differently compared to the current regulatory regime that is already quite strict? I can see it might be possible to do better but fear it might be even easier for yet another government intervention to make things worse. The question is not rethorical - I *would* be grateful for an answer.

Thanks,

MoD

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Better regulation of banks might well help. The question is, what would you do differently compared to the current regulatory regime that is already quite strict? I can see it might be possible to do better but fear it might be even easier for yet another government intervention to make things worse.  The question is not rethorical - I *would* be grateful for an answer.

At the risk of sounding like a complete idiot - Three things:

1. Rigorously enforce a income multiple limit on how much you you can borrow for a mortgage (and current financial commitments - not gross income). No more bogus self certs - if you want to self cert because you're self employed be prepared to submit the business' books. NB Turnover is not the same as income (although that's all one couple I know had to certify when they self-certed).

2. Ditto for personal debt - which means banks sharing data about consumer credit card usage.

3. Desposit (always at least a fixed percentage - no more 100+% mortgages) - you should be able to demonstrate where you got your desposit from and if it was a "gift" from relatives, credit card company, local mobster etc they should certify that they don't want it back.

There's probably lots of good reasons why these couldn't happen - but it seems to be me that relaxation of the rules in the banking sector is partly to blame for our current problems. That and people's ignorance, greed and stupidity (not something you can legislate against unfortunately).

Edited by greencat

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Good post pop. I agree with it all.

This is the sort of economy you get when you give control of the economy to the Bankers! :angry:

We would have been better off giving control of the economy to the cobblers, they could

Hardly do any worse, and at least we would have nice foot wear to walk around in. :blink:

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Guest X-QUORK

Hi folks,

Don't get too carried away with the UK credit card debt figures. I'm pretty sure that the six billion pounds figure was credit card "turnover" or usage rather than the total amount owed. Many people use their CCs instead of cash and then clear the balance at the end of the month. Apparently it's a cultural difference which skews the UK figures as most other EU nations still prefer to pay with cash.

This doesn't detract from the general "debt is cool" culture that seems to have developed over the last 10 years or so...it's bound to end in tears. :blink:

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At the risk of sounding like a complete idiot - Three things:

1. Rigorously enforce a income multiple limit on how much you you can borrow for a mortgage (and current financial commitments - not gross income). No more bogus self certs - if you want to self cert because you're self employed be prepared to submit the business' books. NB Turnover is not the same as income (although that's all one couple I know had to certify when they self-certed).

How would you stop people from using unsecured borrowing in addition to to taking out the maximum-multiple mortgage? More importantly, who would decide what the multiple should be? Would the restrictions apply just to banks or also to loan sharks?

2. Ditto for personal debt - which means banks sharing data about consumer credit card usage.

Sharing data sounds like a good thing but that would not change people's behavior in a bubble.

3. Desposit (always at least a fixed percentage - no more 100+% mortgages) - you should be able to demonstrate where you got your desposit from and if it was a "gift" from relatives, credit card company, local mobster etc they should certify that they don't want it back.

So they would. If people lie about their incomes then this would be a trivial hurdle. Besides, who would decide what the right kevel of deposit should be? Under the current lot there would probably be one rate for mere mortals, and another for key workers :-)

(Do you really want a bank to ask you to prove where your deposit came from? I find it can be annoying even to have to prove my identity using two of an arbitrary list of documents. When I wanted to open a new account recently, I had to do it at an old address because I could only prove that I lived there :-( Can you imagine what a nightmare it would be if the jobsworths in banks got told to verify the origin of your money?)

There's probably lots of good reasons why these couldn't happen

I fear so.

- but it seems to be me that relaxation of the rules in the banking sector is partly to blame for our current problems.

Agreed.

That and people's ignorance, greed and stupidity (not something you can legislate against unfortunately).

Quite. I think this is the main factor.

Thanks,

MoD

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I would prefer to also blame the borrowers. No-one forced them to take the loans. Besides, I cannot see why at least those of them who can afford the repayments should not be allowed to borrow.

When you say 'permitted', how would you have stopped the banks? I would be especially interested in ways that do not involve the abolition of civil liberties that we became accustomed to.

The problem is not banks exercising their civil liberty to lend irresponsibly. Its the borrowers who have exercised their civil liberty to borrow irresponsibly. Banks are corporations. Corporations are things. They just do business and make profits for shareholders. They can't be expected to exercise morality because they are things and things can't think. Individuals on the other hand should be able to think for themselves. I blame the borrowers.

If they are things does that mean they by definition have no civil liberties?

Edited by Elizabeth

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I blame fractional reserve banking (or something like that)…

The idea that banks can take your savings and lend it out to the first 12.5 people who walk in the door. This is effectively printing money (up to 11.5x more money in the economy?) and forces up the price of anything that can be purchased with a loan (i.e. a house).

If banks needed deposits to match their loans they would all be competing for savers by offering higher savings rates (and other incentives). Under the current system the saver gets screwed to benefit the borrower. This allows the banks to get rich collecting interest payments and charging for bogus loan insurance.

All the while creating a situation where normal people need to borrow greater amounts of money, i.e. asset inflation. :angry:

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Is there oil or gold everywhere under the ground? Me confused.

Even if there was you would not own it - the Queen would. In the US if you find oil under your property you can ring up the Porsche dealership and book that worldwide cruise straightaway... but here in the good old democratic UK anything found under your property belongs to you know who!

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Banking is a highly regulated business. For obvious reasons, since the average joe hasn't got the education to understand what an APR is, they need to be protected from unscurpulous operators.

A political decision was made to allow the Banks to carry greater risks, by permitting speculative lending.

Can anyone seriously argue that the additional risks inherent in the current speculative bubble are all fully priced in to the interest rate differential between an owner occupiers and BTL interest rates?

There is currently a huge misspricing of risk which in my opinion increases the risk of systemic failure in the event of an external economic event.

The risk weighting of BTL mortgages should be vastly higher, but the banks are getting ready for Basle II which will allow them to use their own risk models to assess prudential ratios.

Anyone care to guess what the result will be? A tidal wave of underpriced lending, followed by huge bonuses for the bankers. By the time the consequences become apparent we will have fewer credit institutions and many more people borrowing from their friendly neighbourhood loan shark...

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I blame fractional reserve banking (or something like that)…

Sorry for being naive: It seems banks are highly powerful to lend 11.5 pounds for every pound of deposit they have. Does only UK and US follow this "fractional reserve banking" or are there other countries too?

Regards,

A

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Sorry for being naive: It seems banks are highly powerful to lend 11.5 pounds for every pound of deposit they have. Does only UK and US follow this "fractional reserve banking" or are there other countries too?

Regards,

A

It's common banking practice. I think it is x10 for USA. Hence they are in a similar situation to us.

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At the risk of sounding like a complete idiot - Three things:

1. Rigorously enforce a income multiple limit on how much you you can borrow for a mortgage (and current financial commitments - not gross income). No more bogus self certs - if you want to self cert because you're self employed be prepared to submit the business' books. NB Turnover is not the same as income (although that's all one couple I know had to certify when they self-certed).

2. Ditto for personal debt - which means banks sharing data about consumer credit card usage.

3. Desposit (always at least a fixed percentage - no more 100+% mortgages) - you should be able to demonstrate where you got your desposit from and if it was a "gift" from relatives, credit card company, local mobster etc they should certify that they don't want it back.

There's probably lots of good reasons why these couldn't happen - but it seems to be me that relaxation of the rules in the banking sector is partly to blame for our current problems. That and people's ignorance, greed and stupidity (not something you can legislate against unfortunately).

I agree with your suggestions, abd would add that an increase to reserve requirements would help as well. Perhaps a slow increase in the reserve % from 8% up to......whatever the economy functions well at.

Given that the banking system has grown up with FRB, I think this gradual change would allow observation of the effects of change. I'm not aware that anyone can say with certainty what effect it would have.

As for interest, it is paid to cover inflation mainly. A reduce in money supply would reduce inflation (we may even see deflation....) so interest would not be necessary. Banking should be split between savings institutions who you pay a small fee to safeguard your cash. Competition for this basic service would ensure that pricing was reasonable.

If you want to use your money to lend to others (as we are forced to do currently with our banking system) you could invest in a lending corporation which uses its own capital to make loans. This way you can profit from lending if you so choose.

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I first read it in an article in The Scotsman about six months ago, cannot find the link now as it has now been archived. You could trawl through my 3k plus posts to find it.  :)

Ok,ok! Perhaps I need to get a life. But here's the link to the thread containing the Scotsman's article posted by Charlie. B)

http://www.housepricecrash.co.uk/forum/ind...483&hl=scotsman

NB. It only took a couple of minutes to find using advanced search. I swear on my life! :ph34r:

From the Scotsman

As at the 30th July 2004

Britain's £1+ trillion debt mountain

HOUSEHOLD debt smashed through the £1 trillion barrier for the first time on the 30th July 2004 as consumer groups warned that six million families across Britain are struggling to keep up with repayments.

The Bank of England (BoE) said that consumers now owe £1.004 trillion as at the 30th July 2004 through mortgages, personal loans, overdrafts, hire purchase agreements and on credit cards. This represents £16,700 for each man, woman and child.

British household debt is now equal to the total amount owed by Africa, Asia and Latin America to international banks and through loans from other countries.

Borrowing increased at a rate of around £1 million every four minutes during June, soaring by £11.23 billion.

The majority of the £1 trillion now owed is secured on property, with £827.31 billion owed through mortgages, while £55.1 billion is owed on credit cards and £121.88 billion of outstanding debt through other unsecured lending.

The spend-now-pay-later frenzy has soared in recent years due to a combination of low interest rates, rising house prices and low unemployment, which have boosted consumer confidence.

But debt experts and MPs warned that people could be storing up problems for the future, with interest rates now rising and debt repayments increasing.

Shadow chancellor Oliver Letwin said: "It took 600 years of banking history for household debt to reach half a trillion pounds. Now, under seven years of Labour, this has doubled. What else can we expect from a government that persistently attacks pensions and has decimated the savings culture?"

Citizens Advice has seen a 44 per cent increase in the number of people seeking help for debt problems over the past six years. "We have been warning for some time that personal debt problems threaten to overwhelm large numbers of people," said Teresa Perchard of Citizens Advice.

But the BoE’s monetary policy committee, which has previously expressed concern over the level of personal debt, yesterday sought to play down fears of a debt "time bomb". Its chief economist, Charlie Bean, said more people had chosen to borrow money to invest in houses and other assets rather than fund a general spending spree, and higher interest rates would spell trouble for only a fraction of households.

Interest rates have increased four times since November, taking the base rate to 4.5 per cent, in an attempt to restrain inflation and consumer spending, and cool the housing market.

But this gradual strategy has failed to have a meaningful impact on consumer behaviour. A report released yesterday by the Nationwide showed that house prices soared by 2.1 per cent during June, pushing annual price growth above 20 per cent and quashing hopes that the market has slowed.

The BoE said it was not in the business of "clobbering the consumer" but most experts predict it will raise interest rates for the fifth time in less than a year next month.

David Page, an economist at Investec, predicted rates would peak at 5.25 per cent early next year, although he added that this was unlikely to cause problems for most households.

This view was echoed by John Healey, economic secretary to the Treasury.

He said: "We will take no risks with our hard-won economic stability, which has delivered historically low inflation and interest rates alongside uninterrupted growth and record levels of employment.

"Because inflation and interest rates are at historic lows, debt interest repayments as a percentage of household income are now half the level of the early 1990s when we faced 10 per cent inflation, 15 per cent interest rates, 1.5 million in negative equity and 250,000 homes repossessed."

He added that in 1990 an average 15 per cent of a household’s income was taken up by interest payments on debt, compared with 7.1 per cent in the first quarter of this year.

Hilary Cook, investment strategy director at Barclays Stockbrokers, said: "One of the reasons it [the £1 trillion] isn’t as scary as it seems is because the value of assets held by the consumer has gone up massively as well." She said during the past nine years people’s assets, which are mainly property, had risen by about 60 per cent in real terms.

She said: "We are borrowing against assets which have gone up massively, interest rates are still relatively low and we all have jobs."

But consumer groups remain concerned. Malcolm Hurlston, of the Consumer Credit Counselling Service, said: "There are now a trillion reasons why consumers need to stop and think if they can afford their debt burden, particularly if interest rates go up."

Edited by Baz63

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Sorry for being naive: It seems banks are highly powerful to lend 11.5 pounds for every pound of deposit they have. Does only UK and US follow this "fractional reserve banking" or are there other countries too?

This is a common misunderstanding, luckily. The following discussion might explain it if you care. I am afraid I do not know how to get a link to point directly to a post; the link in the top right corner of each post does not seem to work. The thread starts at http://www.housepricecrash.co.uk/forum/ind...howtopic=14860# and I will refer to posts by their numbers (again, shown in top right corner of every post).

#20 Post by Marko I replied to because he appeared to misunderstand how things worked.

#29 My brief reply.

#30 Marko points out he understands things a lot better than most others

#32 My reply (still no explanation of FRB but it shows that his interpretation leads to absurd conclusions)

#47 Marko never replied but STF did, defending him. He posts a reasonable explanation of FRB taken from elsewhere but misunderstands it.

#48 My reply

#50 His reply

#53 My reply, some more explanations

#54 His reply

#58 My reply

#60 His reply, moves topic away from FRB

#66 My reply, so far final

It's common banking practice. I think it is x10 for USA. Hence they are in a similar situation to us.

No, it isn't. Please stop claiming otherwise. The post you responded to was incorrect. It is not true that banks can lend out more money than they have in deposits [1]. If you disagree then a good way of showing I am mistaken would be to point out factual errors in any of my posts.

Thanks,

MoD

[1] Loans can be securitised but that is not relevant when discussing FRB

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  • 301 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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