Jump to content
House Price Crash Forum
Sign in to follow this  
88Crash

Robbing Peter To Pay Paul

Recommended Posts

A separate thread, but more less in response to the one earlier reported in the Daily Mail about people using credit cards to pay their mortgage or rent

The official figure is related to people drawing out cash and that’s the obvious one – the other one is when so many people are using more credit than they earn i.e. they may not use cash from a credit card, but they use credit cards to buy food or petrol, instead of cash from their salary or earnings, in effect they subsidise their living expenses by credit to pay expensive mortgages or rent (obviously very inflated prices in UK and totally out of sync with UK earnings)

IMO that is the real problem and the one that will really cause the sh*t to hit the fan very soon!

It makes F*ck all difference if the money comes from credit cards, loans,MEW, overdraft etc, etc, - you can only rob Peter to pay Paul for so long and then it catches up – simple as that - I guess the economic term would be 'unearned income'

With the massive HPI in the UK, this process has taken a while, but it will happen and add a wee bit of intervention by the previous government, HPC has been delayed longer than USA, Ireland, Spain and so on, but that doesn’t change the fact that at some point in the near future the game is up and add to that the extra problems looming i.e. Job losses, increased inflation etc, I reckon its only a matter of time before we see 50%+ drops!!!

I am not suggesting 50% drops in the next few months, but give it time and sadly it will be a horrible situation for many people in the UK that simply wanted a home

BTL’rs are going to get knocked big time (unless they were the early movers and are achieving decent yields) and a lot of them will suffer from the secondary effect i.e. they will lose their personal homes, which will be a shame for their kids

At least longer term a REAL UK HPC will make the country more competitive, but first I suspect there will be a big price to be paid, maybe for the next 10 years?

Share this post


Link to post
Share on other sites

A separate thread, but more less in response to the one earlier reported in the Daily Mail about people using credit cards to pay their mortgage or rent

The official figure is related to people drawing out cash and that’s the obvious one – the other one is when so many people are using more credit than they earn i.e. they may not use cash from a credit card, but they use credit cards to buy food or petrol, instead of cash from their salary or earnings, in effect they subsidise their living expenses by credit to pay expensive mortgages or rent (obviously very inflated prices in UK and totally out of sync with UK earnings)

IMO that is the real problem and the one that will really cause the sh*t to hit the fan very soon!

It makes F*ck all difference if the money comes from credit cards, loans,MEW, overdraft etc, etc, - you can only rob Peter to pay Paul for so long and then it catches up – simple as that - I guess the economic term would be 'unearned income'

With the massive HPI in the UK, this process has taken a while, but it will happen and add a wee bit of intervention by the previous government, HPC has been delayed longer than USA, Ireland, Spain and so on, but that doesn’t change the fact that at some point in the near future the game is up and add to that the extra problems looming i.e. Job losses, increased inflation etc, I reckon its only a matter of time before we see 50%+ drops!!!

I am not suggesting 50% drops in the next few months, but give it time and sadly it will be a horrible situation for many people in the UK that simply wanted a home

BTL’rs are going to get knocked big time (unless they were the early movers and are achieving decent yields) and a lot of them will suffer from the secondary effect i.e. they will lose their personal homes, which will be a shame for their kids

At least longer term a REAL UK HPC will make the country more competitive, but first I suspect there will be a big price to be paid, maybe for the next 10 years?

Have you carefully considered the core reality that circa 63% of the TOTAL capital value of UK plc is represented by residential housing stock? (See: ONS Annual Reports)

A 50% drop in house prices would mean such a significant destruction of bank capital, the country would be finished.

Sterling would be on its knees: essential imports unaffordable (Such as food); and the whole socio-economic system as is finished.

It would make the Great Depression of the 1930s look rather like the Teddy Bear's Picnic!

It is for such reasons, government, hand-in-glove with the B of E's MPC have purposively depressed Base Rates and kept them down for so long.

Even a modest hike in base rates would (Will!) have a severe knock-on effect for already over-extended mortgagors: particularly in transit from a low start rate to market.

That is precisely why politicians soft pedal and hope for a slow correction over considerable time: rather than the short sharp and wholly destructive shock of an instant economic hard landing.

I fear you are engaged in wishful thinking!

Share this post


Link to post
Share on other sites

Have you carefully considered the core reality that circa 63% of the TOTAL capital value of UK plc is represented by residential housing stock? (See: ONS Annual Reports)

A 50% drop in house prices would mean such a significant destruction of bank capital, the country would be finished.

I fear you are engaged in wishful thinking!

With repect NO I'm not - thats why in my post I said over the next 10 years - If UK dropped 50% overnight I agree it would be very bad

Although I think if you look at countries like USA (some parts) Ireland and Spain - 50% has already happened, so it is not beyond the realm of possiblity

PS I am using round figures to make a point - not trying to quote precise economic figures <_<

Share this post


Link to post
Share on other sites

Have you carefully considered the core reality that circa 63% of the TOTAL capital value of UK plc is represented by residential housing stock? (See: ONS Annual Reports)

A 50% drop in house prices would mean such a significant destruction of bank capital, the country would be finished.

Sterling would be on its knees: essential imports unaffordable (Such as food); and the whole socio-economic system as is finished.

It would make the Great Depression of the 1930s look rather like the Teddy Bear's Picnic!

It is for such reasons, government, hand-in-glove with the B of E's MPC have purposively depressed Base Rates and kept them down for so long.

Even a modest hike in base rates would (Will!) have a severe knock-on effect for already over-extended mortgagors: particularly in transit from a low start rate to market.

That is precisely why politicians soft pedal and hope for a slow correction over considerable time: rather than the short sharp and wholly destructive shock of an instant economic hard landing.

I fear you are engaged in wishful thinking!

Govt. can influence base rates and the major banks wrt mortgage rates, but they evidently don't influence credit card rates.

Anyone stuck with a credit card balance that they can no longer MEW out of will have rapidly escalating bills to meet regardless of their mortgage rate. And that's before fuel costs and general inflation are considered.

Share this post


Link to post
Share on other sites

Have you carefully considered the core reality that circa 63% of the TOTAL capital value of UK plc is represented by residential housing stock? (See: ONS Annual Reports)

A 50% drop in house prices would mean such a significant destruction of bank capital, the country would be finished.

But it depends if it is nominal or inflation adjusted.

UK averages are down 18% since peak + another 10% or so after inflation over the last three and half years.. so currently almost down 30% off peak after inflation.

An additional 10% nominal falls plus 10% more inflation over the next three years will mean a 50% drop.

I dont expect 50% nominal drops. That would mean the haliwide indices down to 100K. Aint going to happen.

Share this post


Link to post
Share on other sites

Govt. can influence base rates and the major banks wrt mortgage rates, but they evidently don't influence credit card rates.

Anyone stuck with a credit card balance that they can no longer MEW out of will have rapidly escalating bills to meet regardless of their mortgage rate. And that's before fuel costs and general inflation are considered.

The same large number of people that used to MEW and live off of credit (same difference apart from the interest rates charged) have had a radical stop to thier lifestyle - thats the bit that is stopping Paul being paid and that applies to millions of people in UK

I remember at one time circa 2005 - the number of credit cards in the Uk was approx the same as the rest of Europe - there is a clue that big trouble is coming our way - takes time, but it is coming

Share this post


Link to post
Share on other sites

But it depends if it is nominal or inflation adjusted.

UK averages are down 18% since peak + another 10% or so after inflation over the last three and half years.. so currently almost down 30% off peak after inflation.

An additional 10% nominal falls plus 10% more inflation over the next three years will mean a 50% drop.

I dont expect 50% nominal drops. That would mean the haliwide indices down to 100K. Aint going to happen.

A bit of both IMO and to expand that further who really knows what the real inflation figure is?

If you take the view the inflation figures have been rigged, then a true figure over the next 10 years could be more like 70% - who knows? I certaintly don't

One thing I do know is that in other parts of the world that have had major HPC's - the percentage doesn't matter too much - Many homes have become unsaleable

Edited by 88Crash

Share this post


Link to post
Share on other sites

A bit of both IMO and to expand that further who really knows what the real inflation figure is?

If you take the view the inflation figures have been rigged, then a true figure over the next 10 years could be more like 70% - who knows? I certaintly don't

One thing I do know is that in other parts of the world that have had major HPC's - the percentage doesn't matter too much - Many homes have become unsaleable

An anecdotal from Germany which never had HPI.

A friend of mine invested her life-insurance payout (100,000+) in a Property Fund a few years ago - a fund linked to the German property market.

She has now been told that her funds are frozen in that fund because the market is stagnant - the only way she can (maybe) get her money back is via fund brokers who may give her 35-40% of her money.

The fund managers have no idea when the property market may bounce back and unfreeze her funds.

Share this post


Link to post
Share on other sites

You also seem to realise the socio-economic implications of what will happen if we have a major currency crisis.You do however,seem to believe that there's something our govt can do to stop it via some printing and borrowing.

When you tlak about the great depression being a teddy bears picnic in comparison,I don't think it would be consdiered so by solely assessing the potential damage in terms of debt to gdp which is a useful basic metric for comparison imho.(although you'd get a healthy debate about what constitutes the national debt I would guess).like fof like,this one's worse and the worlds creditor nation this time is china.

Just to add to that, in the last HPC the UK had major influence in the world and the Uk going bust like Ireland simply could not happen (too much vested interest)

Not too sure this time - IMF to the rescue possibly?

One thing is as sure as the sun rising - the last HPC wrecked the economy - if....another HPC happens it really will make the last one look like a teddy bears picnic - rough example = last HPC - 30,000 BTL mortgages - now well over a million - whoops!!!!

Share this post


Link to post
Share on other sites

With repect NO I'm not - thats why in my post I said over the next 10 years - If UK dropped 50% overnight I agree it would be very bad

Although I think if you look at countries like USA (some parts) Ireland and Spain - 50% has already happened, so it is not beyond the realm of possiblity

PS I am using round figures to make a point - not trying to quote precise economic figures <_<

My own conclusion is that politicians hope a stagnation of house price will allow the essential linkage between values and income to gradually slide more into function: rather than continue with the presently obvious dysfunction.

Additionally, rapidly building inflation will in itself reduce real values accordingly.

However and that said I believe they (politicians) are themselves dreaming: as price increases on essentials (Food, energy, fuel etc) plus tax increases will soon this year produce a situation where the average family's net disposable income fails to cover base costs.

Synthesising other markets such as USA and Ireland is not a good exemplar: since particularly in the USA property prices have always been far lower than UK: with certain exceptions such as Silicon Valley which saw an insane real estate price increase as tech employment boomed.

Unfortunately, Britain's (Mainly England and later, Scotland's) love affair and fixation on and about property allowed Gordon Brown more than any before, to predicate his "Economic Miracle" on HPI.

Having analysed the numbers, no other developed nation state presents with 60% + of its whole capital value represented by housing stock. They wouldn't be so stupid!

Yes it will correct - over time - but how and why no one can forecast.

Worth remembering, also perhaps, that this insanity was funded mainly with "Imported" capital: from the global interbank market, initially and then transitioned into MBSs sold to every capital market globally. (Where the obligation was Securitised, packaged and sold on).

This was mainly since Great Britain PLC failed increasingly to create fresh new capital residuals from - mainly - manufacturing exports and high added value activities, from circa 1965 onwards: and this reality worsened year-on-year from that time onwards.

Johnny Foreigner investor isn't about to be conned again, anytime soon.

Of course, we would all like to see the essential re-connect between gross wages/salaries re-established.

However that either means the average wage/salary elevating to £ 70,000 PA: or average house price falling to £ 98,000.

(At present Average income if £28K: and average house price £ 246K: sources BBC and ONS)

Government would fight tooth and claw to avoid a meltdown: even increasing the QE concept to expand the previous government's spavined and failed mortgage support programme.

Share this post


Link to post
Share on other sites

A 50% drop in house prices would mean such a significant destruction of bank capital, the country would be finished.

Sterling would be on its knees: essential imports unaffordable (Such as food); and the whole socio-economic system as is finished.

It would make the Great Depression of the 1930s look rather like the Teddy Bear's Picnic!

The current BANKS would be finished. The country just shrugs its shoulders, starts some new banks and moves on. If house prices were 50% lower we would still have the same people, houses, offices, factories, roads, cars, fields etc as we do now. Prices have fallen 50% in other countries like US and Ireland and life still goes on.

Share this post


Link to post
Share on other sites

Have you carefully considered the core reality that circa 63% of the TOTAL capital value of UK plc is represented by residential housing stock? (See: ONS Annual Reports)

A 50% drop in house prices would mean such a significant destruction of bank capital, the country would be finished.

Sterling would be on its knees: essential imports unaffordable (Such as food); and the whole socio-economic system as is finished.

It would make the Great Depression of the 1930s look rather like the Teddy Bear's Picnic!

It is for such reasons, government, hand-in-glove with the B of E's MPC have purposively depressed Base Rates and kept them down for so long.

Even a modest hike in base rates would (Will!) have a severe knock-on effect for already over-extended mortgagors: particularly in transit from a low start rate to market.

That is precisely why politicians soft pedal and hope for a slow correction over considerable time: rather than the short sharp and wholly destructive shock of an instant economic hard landing.

I fear you are engaged in wishful thinking!

Are you suggesting that MBS, now returned to bankers books, but real value insome cases 0, others 20p in the £, has had the effect of crashing the banks?

it hasnt...because they can mark to model.

same thing with the mortgage market....house prices are that which provide security for bankers assets...the loans....more important is the constant repayment of the loans rather than the underlying security....underlying being the operative word.

Share this post


Link to post
Share on other sites

Then you believe that mortgage debtors would happily continue to debt service (let alone amortise capital) on an obligation where they owed twice what the asset was really worth?

The US model doesn't demonstrate that.

Quote:

"What kinds of consequences?

A collapse in confidence in the banks' ability to quantify their exposure to bad debts, a fresh wave of write-offs in the sector, and a renewed housing slump that helps push the US economy back into full-scale recession. Some doom-mongers even predict a crisis of confidence in the whole system of land title in the US. They point out that mortgages have been diced and sliced, repackaged and sold on so many times that nobody properly understands where rights of ownership lie any more. As a result, title insurers are starting to turn down insurance on foreclosed homes. Banks don't lend money on houses whose titles can't be insured. And if banks don't lend, the market will collapse, no matter how many foreclosed homes remain unsold. "

See here:

And:

See here:

Furthermore, it is perhaps an excellent study to consider precisely what happened to those banks, which, in the late 1970s decided the road to supra-profits was to pile into the Eurobond market fiasco of lending vast syndicated loans to Latin American sovereign debtors who couldn't actually afford to borrow the cash: couldn't actually debt service the obligation: and couldn't repay capital.

The bank's brilliant answer was to charge over market rates due to the risk!

Sub Prime in another coat.

At the peak of this insanity, for example, Midland Bank had lent perhaps 1.25 X their whole capital base to such unworthy obligors: and even turbocharged their incompetence by acquiring Crocker Bank: well over-extended in similar high risk Latin American debt instruments.

And then shortly after, selling this superb acquisition to Wells Fargo at circa 50 cents on the dollar: with the one proviso that prior to sale, Midland extracted all the high risk Latin American debt and added it to their own balance sheet!

Had it not been for HSBC absorbing Midland (Since it wanted a retail banking presence in the UK), it would have been toast.

If you remember, High Risk Latin American sovereign and delinquent debt (Non Performing Loans) was eventually being discounted at around 10% of face value.

Share this post


Link to post
Share on other sites

My own conclusion is that politicians hope a stagnation of house price will allow the essential linkage between values and income to gradually slide more into function: rather than continue with the presently obvious dysfunction.

Additionally, rapidly building inflation will in itself reduce real values accordingly.

However and that said I believe they (politicians) are themselves dreaming: as price increases on essentials (Food, energy, fuel etc) plus tax increases will soon this year produce a situation where the average family's net disposable income fails to cover base costs.

Synthesising other markets such as USA and Ireland is not a good exemplar: since particularly in the USA property prices have always been far lower than UK: with certain exceptions such as Silicon Valley which saw an insane real estate price increase as tech employment boomed.

Unfortunately, Britain's (Mainly England and later, Scotland's) love affair and fixation on and about property allowed Gordon Brown more than any before, to predicate his "Economic Miracle" on HPI.

Having analysed the numbers, no other developed nation state presents with 60% + of its whole capital value represented by housing stock. They wouldn't be so stupid!

Yes it will correct - over time - but how and why no one can forecast.

Worth remembering, also perhaps, that this insanity was funded mainly with "Imported" capital: from the global interbank market, initially and then transitioned into MBSs sold to every capital market globally. (Where the obligation was Securitised, packaged and sold on).

This was mainly since Great Britain PLC failed increasingly to create fresh new capital residuals from - mainly - manufacturing exports and high added value activities, from circa 1965 onwards: and this reality worsened year-on-year from that time onwards.

Johnny Foreigner investor isn't about to be conned again, anytime soon.

Of course, we would all like to see the essential re-connect between gross wages/salaries re-established.

However that either means the average wage/salary elevating to £ 70,000 PA: or average house price falling to £ 98,000.

(At present Average income if £28K: and average house price £ 246K: sources BBC and ONS)

Government would fight tooth and claw to avoid a meltdown: even increasing the QE concept to expand the previous government's spavined and failed mortgage support programme.

this is the great thing with HPC in my opnion - I start a post - but i'm a bit limited through education - then like the poster above, someone else that is a bit smarter than me will elaborate

I now am reading the posts and like the old saying goes "You learn something new everyday" :D

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.

  • 276 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.