Question For Str-Ers And Those Waiting

[shermanator]

As the article below demonstrates, mortgage lending is contracting and quite an alarming (not for me) rate along with broad money supply. Of course, this in an inevitable consequence of the British banking system being insolvent and just using QE and the SLS to prop up their balance sheets temporarily - so they can shovel some more bonuses into their pockets. Now, I'm surprised that nobody on these forums, that I've seen anyway, is concerned that when real estate does become affordable on a price/income ratio, no one will be lending - even if you have a good credit history. This applies particularly to the STR brigade who are sitting on what they think will be a nice little deposit and then go along to the bank for the say, 60% balance on their 'dream' property. Perhaps it has crossed various HPC minds but they're in groupthink denial?

Whatever, I get the impression that there are many on this forum who want a re-run of the early 90s, whereby house prices fall markedly but they can take advantage by borrowing. Big difference is, back in the mid 90s banks were solvent and didn't require any bail outs. I predict a lot of people are going to be disappointed that they'll be unable to take advantage of the deflationary collapse.

British mortgage approvals for house purchases fell more than expected in December to their lowest since March 2009, in a sign the housing market is set to continue to weaken, official data showed on Tuesday.

The Bank of England said mortgage approvals totalled 42,563 in December, down from 47,287 in November and the lowest since March 2009 when Britain was stuck in recession. Analysts had forecast a reading of 47,000.

Analysts said the drop in December may have been exacerbated by harsh weather in December, and that there could be a rebound in January. Nonetheless, mortgage approvals are now running at less than half their long-run average, suggesting that further house price falls may be to come.

"The level of depressed demand reflected by low mortgage approvals implies that house prices will continue declining well into 2011," said Nida Ali, economist at Ernst & Young.

Tuesday's data came after mortgage lender Nationwide said house prices in January fell at their fastest annual rate since August 2009, by 1.1 percent, and is likely to reinforce speculation that the BoE will hold off raising interest rates for some time to come.

Confidence in the housing market is being hurt by a still fragile economic recovery, reflected in an unexpected decline in gross domestic product in the fourth quarter of last year, and by the prospect of heavy public spending cuts as the government seeks to slash a record budget deficit.

Net mortgage lending unexpectedly fell by 298 million pounds in December -- its lowest since July 2010 and well below a previous six-month average of a rise of 600 million pounds. Analysts had forecast a rise of 650 million pounds.

Consumer credit rose by 181 million pounds, confounding forecasts for no rise on the month.

However, other data published at the same time suggested that credit conditions remain tight in the wider economy, despite the BoE's programme to pump 200 billion pounds of cash into the system.

The BoE's preferred gauge of money supply, M4 excluding intermediate other financial corporations eased to 0.3 percent on the month after a 0.4 percent rise in November.

The headline rate of M4 broad money supply growth, meanwhile, fell by 1.3 percent on the month -- its lowest on record and more than double the 0.6 percent decline recorded in November.

The annual rate of M4 broad money supply contracted by 1.5 percent after a decline of 1.2 percent in November, also a series low

Edited February 7, 2011 by shermanator

[169995]

I can see what you mean but surely matters will not stop there. If the Mortgages are not available in sufficient quantity to borrowers with large deposits and good credit history then in the face of a lack of buyers there must be a further easing of prices probably to the level where the deposit will be the price of the house or there is input from family and friends to make up the difference . In any case a significant crash appears quite likely even if there is a sellers strike . Of course I would think we are now waiting on the banks releasing their stocks of repossessed homes as Lloyds now plan to do.

As the article below demonstrates, mortgage lending is contracting and quite an alarming (not for me) rate along with broad money supply. Of course, this in an inevitable consequence of the British banking system being insolvent and just using QE and the SLS to prop up their balance sheets temporarily - so they can shovel some more bonuses into their pockets. Now, I'm surprised that nobody on these forums, that I've seen anyway, is concerned that when real estate does become affordable on a price/income ratio, no one will be lending - even if you have a good credit history. This applies particularly to the STR brigade who are sitting on what they think will be a nice little deposit and then go along to the bank for the say, 60% balance on their 'dream' property. Perhaps it has crossed various HPC minds but they're in groupthink denial?

Whatever, I get the impression that there are many on this forum who want a re-run of the early 90s, whereby house prices fall markedly but they can take advantage by borrowing. Big difference is, back in the mid 90s banks were solvent and didn't require any bail outs. I predict a lot of people are going to be disappointed that they'll be unable to take advantage of the deflationary collapse.

British mortgage approvals for house purchases fell more than expected in December to their lowest since March 2009, in a sign the housing market is set to continue to weaken, official data showed on Tuesday.

The Bank of England said mortgage approvals totalled 42,563 in December, down from 47,287 in November and the lowest since March 2009 when Britain was stuck in recession. Analysts had forecast a reading of 47,000.

Analysts said the drop in December may have been exacerbated by harsh weather in December, and that there could be a rebound in January. Nonetheless, mortgage approvals are now running at less than half their long-run average, suggesting that further house price falls may be to come.

"The level of depressed demand reflected by low mortgage approvals implies that house prices will continue declining well into 2011," said Nida Ali, economist at Ernst & Young.

Tuesday's data came after mortgage lender Nationwide said house prices in January fell at their fastest annual rate since August 2009, by 1.1 percent, and is likely to reinforce speculation that the BoE will hold off raising interest rates for some time to come.

Confidence in the housing market is being hurt by a still fragile economic recovery, reflected in an unexpected decline in gross domestic product in the fourth quarter of last year, and by the prospect of heavy public spending cuts as the government seeks to slash a record budget deficit.

Net mortgage lending unexpectedly fell by 298 million pounds in December -- its lowest since July 2010 and well below a previous six-month average of a rise of 600 million pounds. Analysts had forecast a rise of 650 million pounds.

Consumer credit rose by 181 million pounds, confounding forecasts for no rise on the month.

However, other data published at the same time suggested that credit conditions remain tight in the wider economy, despite the BoE's programme to pump 200 billion pounds of cash into the system.

The BoE's preferred gauge of money supply, M4 excluding intermediate other financial corporations eased to 0.3 percent on the month after a 0.4 percent rise in November.

The headline rate of M4 broad money supply growth, meanwhile, fell by 1.3 percent on the month -- its lowest on record and more than double the 0.6 percent decline recorded in November.

The annual rate of M4 broad money supply contracted by 1.5 percent after a decline of 1.2 percent in November, also a series low

[non frog]

I'm not sure there is enough consensus to have a "HPC mindset" or anything like it. There are a lot of losers and angry people on here that are desperate to find some reason (external) for their predicament. Immigrants and Gordon Brown are the top two.

I sold up all my UK property interest in 2007 and rented for a while when I was working in London. At the time it was a good move as the interest on the cash, even in a standard deposit account, was more than the rent. Then the crunch hit. My missus lost her job and we moved to the French property. I have just bought a business with the cash as property is still looking like a bad bet. Everything else looks too risky to me and at least this way I get 20% return.

I may fall into your category when we go back to the UK as the capital is now spent. Time will tell if it was the right thing to do or not. You're right though that a 90s rerun would have been nice. Fall of 40% and crazy run back up again. Wasn't/isn't going to happen though. Residential property is a busted flush. Time to buy a caravan?

[_w_]

As the article below demonstrates, mortgage lending is contracting and quite an alarming (not for me) rate along with broad money supply. Of course, this in an inevitable consequence of the British banking system being insolvent and just using QE and the SLS to prop up their balance sheets temporarily - so they can shovel some more bonuses into their pockets. Now, I'm surprised that nobody on these forums, that I've seen anyway, is concerned that when real estate does become affordable on a price/income ratio, no one will be lending - even if you have a good credit history. This applies particularly to the STR brigade who are sitting on what they think will be a nice little deposit and then go along to the bank for the say, 60% balance on their 'dream' property. Perhaps it has crossed various HPC minds but they're in groupthink denial?

Whatever, I get the impression that there are many on this forum who want a re-run of the early 90s, whereby house prices fall markedly but they can take advantage by borrowing. Big difference is, back in the mid 90s banks were solvent and didn't require any bail outs. I predict a lot of people are going to be disappointed that they'll be unable to take advantage of the deflationary collapse.

British mortgage approvals for house purchases fell more than expected in December to their lowest since March 2009, in a sign the housing market is set to continue to weaken, official data showed on Tuesday.

The Bank of England said mortgage approvals totalled 42,563 in December, down from 47,287 in November and the lowest since March 2009 when Britain was stuck in recession. Analysts had forecast a reading of 47,000.

Analysts said the drop in December may have been exacerbated by harsh weather in December, and that there could be a rebound in January. Nonetheless, mortgage approvals are now running at less than half their long-run average, suggesting that further house price falls may be to come.

"The level of depressed demand reflected by low mortgage approvals implies that house prices will continue declining well into 2011," said Nida Ali, economist at Ernst & Young.

Tuesday's data came after mortgage lender Nationwide said house prices in January fell at their fastest annual rate since August 2009, by 1.1 percent, and is likely to reinforce speculation that the BoE will hold off raising interest rates for some time to come.

Confidence in the housing market is being hurt by a still fragile economic recovery, reflected in an unexpected decline in gross domestic product in the fourth quarter of last year, and by the prospect of heavy public spending cuts as the government seeks to slash a record budget deficit.

Net mortgage lending unexpectedly fell by 298 million pounds in December -- its lowest since July 2010 and well below a previous six-month average of a rise of 600 million pounds. Analysts had forecast a rise of 650 million pounds.

Consumer credit rose by 181 million pounds, confounding forecasts for no rise on the month.

However, other data published at the same time suggested that credit conditions remain tight in the wider economy, despite the BoE's programme to pump 200 billion pounds of cash into the system.

The BoE's preferred gauge of money supply, M4 excluding intermediate other financial corporations eased to 0.3 percent on the month after a 0.4 percent rise in November.

The headline rate of M4 broad money supply growth, meanwhile, fell by 1.3 percent on the month -- its lowest on record and more than double the 0.6 percent decline recorded in November.

The annual rate of M4 broad money supply contracted by 1.5 percent after a decline of 1.2 percent in November, also a series low

Prices will fall to the a level reflected by bank landing. If banks lend less, prices will fall even more. If banks completely stopped lending prices would fall to the level of deposits.

[shermanator]

I can see what you mean but surely matters will not stop there. If the Mortgages are not available in sufficient quantity to borrowers with large deposits and good credit history then in the face of a lack of buyers there must be a further easing of prices probably to the level where the deposit will be the price of the house or there is input from family and friends to make up the difference . In any case a significant crash appears quite likely even if there is a sellers strike . Of course I would think we are now waiting on the banks releasing their stocks of repossessed homes as Lloyds now plan to do.

Correct analysis, which is why I further predict a Japan style perma-slump with no upturn, as happened in the UK post say 1996. The majority of HPCers want to see a bad housing collapse......but not so bad that mortgage availibility is severely restricted and they're unable to take advantage. Of course those with say 90% of the purchase price will be OK.

The worse the better I say - bring on Japanese 70% deflationary collapse to make the early 90s look like a more appetizer

[Executive Sadman]

They seem to be lending lots to football clubs

Just not to the 'little people'

[shermanator]

Prices will fall to the a level reflected by bank landing. If banks lend less, prices will fall even more. If banks completely stopped lending prices would fall to the level of deposits.

Welcome to the land of zombie economy resulting from zombie banks. There ain't gonna be no 'crack up' boom as happened after the early 90s crash which is why I see Japan style deflation as the inevitable ongoing outcome.

Ironic that many STRers probably supported the ludicrous bail outs in '08 as they knew they needed a functioning banking system, like we had in the mid 90s, to help them in a few years. Bet they're regretting that now; Worst of all worlds! So unlike 20 years ago when real estate was deflating, banks were solvent and giving c.8% IR on a STR fund.

Edited February 7, 2011 by shermanator

[singlemalt]

I think that when it has all finished being played out those that STR will be left feeling bitterly dissapointed , especially those without the balls to invest their fund in something that involves risk. I can quite imagine some of them still have it in a high st bank account earning nothing. They hoped to sell at peak , get 6% interest for a a few years then buy at the bottom of the cycle. Ineterst rates are near zero and the bottom is still not visible even if you were looking through Hubble.

The STR's were more than happy to offload their homes to some other mug , but for the past two years it's these mugs who are laughing and i reckon they could still be laughing in 10 years time. The STR fund is in effect being used to keep 'the mug' in your former house , while you bail out some economic illeterate BTLer by paying his mortgage for the next however many years.

Sibley and Hamish got quite a lot wrong but they were both right (up to now) on ths one.

Good post.

'I think that when it has all finished being played out those that STR will be left feeling bitterly dissapointed , especially those without the balls to invest their fund in something that involves risk...'

That's the long and short of it. I STR in 2007 and spent a bit and invested the rest. Plan was to buy again in 2012 although that could change due to mortgage drought.

[Lambie]

They seem to be lending lots to football clubs

Just not to the 'little people'

Just a little anecdotal confirmation of this, friend of mine (he works for major company and wife works as a nurse, combined income a good 60k pa at least) applied for an 8k loan to replace his wife's knackered old fiesta. He was turned down.

[scuuzeme]

Doesn't seem to be a problem if you do actually have the money and income to buy somewhere.

I saw my banks mortgage adviser a few weeks back and they have no problem lending me 5x salary.

However, I do have 30% deposit even at the max lending, and they say my credit (debt) rating is impeccable as far as they are concerned.

Only one problem - paying it all back (in my opinion, not theirs).

I'd imagine that it's not the likes of me to whom mortgage lending is restricted. Unsurprisingly, it will be to people that can't really afford it...

[Pent Up]

A re run of the 1990s crash and I won't need a mortgage and in the situation that the OP describes of zero mortgage lending then neither would anyone else with a half decent deposit/STR fund

I'm in a situation that I can't lose (barring total economic melt down), living with parents, got a fair bit saved and as long as many savings continue to outpace HPI I'm better off waiting. And with HPI negative I'm laughing!

Edited February 7, 2011 by Pent Up

[ralphmalph]

Sorry to disappoint you. I sold to move in late 2006. I have my money across different assets - index linkers / equities and I have done reasonably well - my rent is paid. Today I saw a house that was on at 300K in May 2010 reduce to 185K today. So how am I losing out? Generalising about people you don't know and whose circumstances you can only guess at is just hot air as far as I can see.

The "Mug" who bought my house is certainly not laughing as he watches his precious asset depreciate. My landlord takes a fair rent and is very obliging. I'll buy when I see real value. Don't think you know all about STRs Hamish and Sibley were both wrong on my situation.

Northern Ireland is its own little micro market for houses. Bears no resembelance to what is going on in the rest of the UK. If I remember correctly it also had a HPI boom that was far larger than the rest of the UK as well.

[DotBomb]

I believe the banks will continue to lend to borrowers with significant deposit. They are the last fools. The loan book needs rebalanced. The over leveraged need delevaraged, and the under leveraged need to agree to take on leverage. This bait and swtich is almost over. Interest rates will rise with an excuse of inflation, but it will probably be the funding gap that actually causes it. Remember the govt support runs out 2012 so watch it bite.

Its all good.

[ralphmalph]

Just a little anecdotal confirmation of this, friend of mine (he works for major company and wife works as a nurse, combined income a good 60k pa at least) applied for an 8k loan to replace his wife's knackered old fiesta. He was turned down.

But you do not know what other debts they have. They could have maxed out credit cards from here to kingdom come and the fact that with that salary they need to borrow 8K tend to support that view.

[equitystasher]

I think that when it has all finished being played out those that STR will be left feeling bitterly dissapointed , especially those without the balls to invest their fund in something that involves risk. I can quite imagine some of them still have it in a high st bank account earning nothing. They hoped to sell at peak , get 6% interest for a a few years then buy at the bottom of the cycle. Ineterst rates are near zero and the bottom is still not visible even if you were looking through Hubble.

The STR's were more than happy to offload their homes to some other mug , but for the past two years it's these mugs who are laughing and i reckon they could still be laughing in 10 years time. The STR fund is in effect being used to keep 'the mug' in your former house , while you bail out some economic illeterate BTLer by paying his mortgage for the next however many years.

Sibley and Hamish got quite a lot wrong but they were both right (up to now) on ths one.

Bought a flat in Surrey in 1999,sold June 2007 with the view to buy a house. Decided a crash was coming and moved back in with parents for a year and then into rented with girlfriend.

90% of the house fund is invested in NS@I index linked certificates and 10% in equites in a ISA wrapper. We currently live in a a excellent area,in a very nice flat with low running costs for a fair rent with a good landlord. He has spent several thousands to maintain where we live.

We are managing to save towards out future home aswell as see our savings appreciate against a backdrop of falling prices.

I am glad I did not buy in 2007.

[Lepista]

Sibley and Hamish got quite a lot wrong but they were both right (up to now) on ths one.

I think you should come clean as to your previous posting history on here

[pete.hpc]

Prices will fall to the a level reflected by bank landing. If banks lend less, prices will fall even more. If banks completely stopped lending prices would fall to the level of deposits.

Exactly, it's really rather simple.

Everyone's "wealth" is relative to everyone else, banks will determine what prices houses are sold for, but lawyers will get detached houses in Surrey, and checkout girls will aspire to town centre studio flats. The price is irrelevant really, if the banks disappeared, the flat would cost 20k and the house in Surrey 150k.

[Lambie]

But you do not know what other debts they have. They could have maxed out credit cards from here to kingdom come and the fact that with that salary they need to borrow 8K tend to support that view.

Could be, I don't think so, he went on to say that after getting turned down he went out and shelled out the 8k up front, although he was non too happy about it. But he could be lying I suppose.

He also says he has a mortgate that he fixed at 5% because he thought the whole thing was going up in smoke. He's non too happy about that either.

[Bruce Banner]

I think that when it has all finished being played out those that STR will be left feeling bitterly dissapointed , especially those without the balls to invest their fund in something that involves risk. I can quite imagine some of them still have it in a high st bank account earning nothing. They hoped to sell at peak , get 6% interest for a a few years then buy at the bottom of the cycle. Ineterst rates are near zero and the bottom is still not visible even if you were looking through Hubble.

The STR's were more than happy to offload their homes to some other mug , but for the past two years it's these mugs who are laughing and i reckon they could still be laughing in 10 years time. The STR fund is in effect being used to keep 'the mug' in your former house , while you bail out some economic illeterate BTLer by paying his mortgage for the next however many years.

Sibley and Hamish got quite a lot wrong but they were both right (up to now) on ths one.

Not strictly an STR as I sold to move area and decided to rent when I realised that there was a massive housing bubble and that having a large sum of money tied up in an illiquid, depreciating, asset was not a good idea.

I have sufficient Sterling funds, earning about 4%, to buy the house I'm renting, but it's cheaper for me to continue renting as the interest I receive more than pays the rent.

I believe that house prices will fall 30% to 40% (in nominal terms) over the next few years, so buying now would be a nonsense.

Since I am retired and spend half of my time in mainland Europe I also keep funds in Euros as a hedge against Sterling inflation and possible future exchange regulations.

I am happy with these arrangements, but keep an eye on the situation and am ready to act if necessary, which I can do quickly as all my funds are liquid.

[easy2012]

Sorry to disappoint you. I sold to move in late 2006. I have my money across different assets - index linkers / equities and I have done reasonably well - my rent is paid. Today I saw a house that was on at 300K in May 2010 reduce to 185K today. So how am I losing out? Generalising about people you don't know and whose circumstances you can only guess at is just hot air as far as I can see.

The "Mug" who bought my house is certainly not laughing as he watches his precious asset depreciate. My landlord takes a fair rent and is very obliging. I'll buy when I see real value. Don't think you know all about STRs Hamish and Sibley were both wrong on my situation.

That is good for you.

However, you are just speculating in the property market and sometimes you win, sometimes you lose.

When you win, count your blessing and be vigilant. It is always easy to look things back in hindsight.

Edited February 7, 2011 by easybetman

[TheCountOfNowhere]

I'm not sure there is enough consensus to have a "HPC mindset" or anything like it. There are a lot of losers and angry people on here that are desperate to find some reason (external) for their predicament. Immigrants and Gordon Brown are the top two.

Those are the reasons for their predicaments !!!!

[Riedquat]

Exactly, it's really rather simple.

Everyone's "wealth" is relative to everyone else, banks will determine what prices houses are sold for, but lawyers will get detached houses in Surrey, and checkout girls will aspire to town centre studio flats. The price is irrelevant really, if the banks disappeared, the flat would cost 20k and the house in Surrey 150k.

Surely the cost of building a house (even ignoring land costs) ultimately sets some sort of bottom unless you've got a rapidly decreasing population, which we haven't. Well, maybe not, but if prices were to drop below the building costs then we'd be in far, far more serious trouble than we are (either much more poverty wages, homelessness, or both).

[winkie]

Banks were hard hit from write offs and bad debt....high risks taken that almost led to their collapse, if they hadn't been saved by the tax payers.

30% deposit is a reasonable risk to them, any higher the risk so the interest rate will be higher...higher rates and smaller deposits = less affordable to pay.........the tables have changed, only affordable debt now is viable....why should the tax payer then have to bailout again by paying the debt of someone who can no longer afford to pay their mortgage?...this is no joke.

If you have a 30% deposit and your house falls in value say by 20% it is your money that you will lose not the banks.....if you have a 10% deposit and the price falls by 20% the banks will lose.....higher deposits mean the banks are factoring in a highly probable further drop in property prices.

[tennaval]

Not strictly an STR as I sold to move area and decided to rent when I realised that there was a massive housing bubble and that having a large sum of money tied up in an illiquid, depreciating, asset was not a good idea.

I have sufficient Sterling funds, earning about 4%, to buy the house I'm renting, but it's cheaper for me to continue renting as the interest I receive more than pays the rent.

I believe that house prices will fall 30% to 40% (in nominal terms) over the next few years, so buying now would be a nonsense.

Since I am retired and spend half of my time in mainland Europe I also keep funds in Euros as a hedge against Sterling inflation and possible future exchange regulations.

I am happy with these arrangements, but keep an eye on the situation and am ready to act if necessary, which I can do quickly as all my funds are liquid.

Similar position to you. Lucky to have cheap rent in great area. Have enough to buy something modest outright but with Interest at 4% (for another year) and house prices in my target area slipping it would be a poor financial decision to buy at the moment. So certainly not "disappointed" but definitely ready to pounce if and when the situation changes.

[Pent Up]

Surely the cost of building a house (even ignoring land costs) ultimately sets some sort of bottom unless you've got a rapidly decreasing population, which we haven't. Well, maybe not, but if prices were to drop below the building costs then we'd be in far, far more serious trouble than we are (either much more poverty wages, homelessness, or both).

I can't see why the build costs would come into it. At least not initially. If mortgages were unavailable to anyone. Prices would plummet below the cost of the build. In the medium term as now more houses are built for obvious reasons then demand would eventually push prices up. You can already buy a terrace up t'norf for £30k what would the build cost of that be today? Or in the US where they are going for under $10k?