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Uk Banks’ Rush Into Property Needs Watching - Financial Times

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Seems Barclays and HSBC have gone headlong into UK property lending post-crunch - why is this??

http://www.ft.com/cms/s/0/cd902a96-6a8f-11e0-a464-00144feab49a.html#ixzz1K390XhO3

UK banks’ rush into property needs watching

By John Plender

While the financial crisis that began in 2007 had a plethora of causes, property was at the heart of the problem. The fact that the big UK-based banks, with the exception of Lloyds Banking Group which is battling with the dismal property legacy it acquired with HBOS, have been significantly increasing their exposure to the sector should thus prompt eyebrows to twitch.

Most of the growth, revealed in the banks’ recent annual reports, is coming from a big expansion in UK residential lending. Since 2008 HSBC’s UK home loans have risen 31.5 per cent, leaving commercial and residential property accounting for 31.6 per cent of total loans; the rise at RBS is 14.8 per cent, giving a percentage of total loans of 36.3 per cent; and Barclays’ UK home loans have increased by more than a fifth, taking property to 41.4 per cent of total loans.

While the figures are not directly comparable between these banks, they leave no doubt about the direction of travel. Why the enthusiasm for an asset class that has been a graveyard for lenders in countless financial busts?

Among other things, this underlines the atypical nature of the downturn in the UK housing market. In an environment of exceptionally low interest rates, mortgage defaults have been minimal. House prices are down far less in real terms than in the downturns of the early 1990s, early-1980s and mid-1970s, partly because the supply of new housing is more constrained. The contrast with the US, where some big cities have seen peak-to-trough falls of more than 50 per cent, could not be more extreme.

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my initial guess is that there was a headlong rush to occupy empty space in the retail banking sector vacated by dead banks like NR, B&B, and other nationalised institutions - that is, at a cost, HSBC and Barclays could in one fell swoop increase their high street presence and number of (cherry picked who can buy and service the debt despite paying a lot for a house) domestic customers; plus, with negative real interest rates, it was not such a bad move anyway over the medium term.

Edited by Si1

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"Housing, the graveyard asset class"

I like it.

I'm liking the penultimate paragraph too:

Of course, anyone who calls for higher capital ratios than those proposed by Britain’s Independent Banking Commission risks being accused by fund managers of being a Taliban fundamentalist. Yet the real terrorists are those short-termist institutional shareholders who relish a culture of privatising gains and socialising losses and think they can reap the upside of excessive risk-taking, while escaping the downside.

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simples.

SMI and government backed repayments for defaulters make lending here, for the last 2 years at least, a no brainer.

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simples.

SMI and government backed repayments for defaulters make lending here, for the last 2 years at least, a no brainer.

I forgot that - but yes, too true

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I forgot that - but yes, too true

I think you mentioned this but isn't the increase in lending from the likes of HSBC and Barclays simply a switch from Lloyds (HBOS) and Nationwide: they are getting into a market that they were not previously dominating?

And then of course, this does lead to the point that if these banks are grabbing a larger amount of the mortgage market it makes the house price data supplied by those with dwindling share of the market (Halifax and Nationwide) less and less accurate / credible.

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I think you mentioned this but isn't the increase in lending from the likes of HSBC and Barclays simply a switch from Lloyds (HBOS) and Nationwide: they are getting into a market that they were not previously dominating?

2 things are clear: (1) LTV and salary multiples are reduced and reducing, even if still high, not 125% at 7x salary anymore, rather than falling off a cliff they have seen a gradual reduction, (2) there are still people who NEED to buy for one of various reasons, and HSBC and Barclays can cherry pick customers likely not to default, the customer will bear the house-equity loss, not the bank, so still profitable, maybe super-profitable, in what other eras have a select handful of banks been able to loan frankly ludicrous sums of money to reliable future debt-slaves, utterly cherry-picking the best prospects, whilst other banks have their hands tied, otherwise reliable people being forced to take on ludicrous loans, in such a way that they may not be able to change mortgage provider for more than a decade due to high LTV? this might be fantastic business...

And then of course, this does lead to the point that if these banks are grabbing a larger amount of the mortgage market it makes the house price data supplied by those with dwindling share of the market (Halifax and Nationwide) less and less accurate / credible.

possibly - but other figures still back up HBOS/NW figure don't they?

Edited by Si1

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Where are things presently at in regard to SMI? Those who first applied for it at the beginning of 2009 got two years which is now drawing to a close - is that right? The amount of relief was halved though? I heard it was extended in the budget - does that mean people can claim it for a third year or the two-year scheme is open to people for another 12 months?

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2 things are clear: (1) LTV and salary multiples are reduced and reducing, even if still high, not 125% at 7x salary anymore, rather than falling off a cliff they have seen a gradual reduction, (2) there are still people who NEED to buy for one of various reasons, and HSBC and Barclays can cherry pick customers likely not to default, the customer will bear the house-equity loss, not the bank, so still profitable, maybe super-profitable, in what other eras have a select handful of banks been able to loan frankly ludicrous sums of money to reliable future debt-slaves, utterly cherry-picking the best prospects, whilst other banks have their hands tied, otherwise reliable people being forced to take on ludicrous loans? this might be fantastic business...

possibly - but other figures still back up HBOS/NW figure don't they?

its currently not about the lending amounts going on...sure, the sharks need to keep lending, thats how they earn, but by relying on SMI and other government schemes, they can STILL lend way more than most people can long term commit too because they know that if they get a bad loan, they can get the government to pay the repayments

I think it was 350,000 have been helped by SMI alone....with loans going out at about 40,000 per month, thats 9 months supply of normal possessions that have been kept off the market....therefore the bankers MBS are still worth something, (SMI is paying those investors too remember), which means the haircuts on temporary loans is lower when based on these, which means cash flow and earnings are therefore good for bankers.

Whether this is good for the people and the economy is another question.

Most people STILL have to borrow to the hilt and beyond...and by borrowing its not just from the bank, its from the parents, grand parents etc etc....ALL this is money sucked out the economy to bail the bankers and it is going to go on for the near future.

New Banking rules will see less liquidity again, and maybe some more QE.

either way....the black hole of banking continues to suck us dry.

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Where are things presently at in regard to SMI? Those who first applied for it at the beginning of 2009 got two years which is now drawing to a close - is that right? The amount of relief was halved though? I heard it was extended in the budget - does that mean people can claim it for a third year or the two-year scheme is open to people for another 12 months?

the latter

govt is aiming to prevent a nominal terms crash as far as it can, Shapps has been on the record more or less with this

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its currently not about the lending amounts going on...sure, the sharks need to keep lending, thats how they earn, but by relying on SMI and other government schemes, they can STILL lend way more than most people can long term commit too because they know that if they get a bad loan, they can get the government to pay the repayments

I think it was 350,000 have been helped by SMI alone....with loans going out at about 40,000 per month, thats 9 months supply of normal possessions that have been kept off the market....therefore the bankers MBS are still worth something, (SMI is paying those investors too remember), which means the haircuts on temporary loans is lower when based on these, which means cash flow and earnings are therefore good for bankers.

Whether this is good for the people and the economy is another question.

Most people STILL have to borrow to the hilt and beyond...and by borrowing its not just from the bank, its from the parents, grand parents etc etc....ALL this is money sucked out the economy to bail the bankers and it is going to go on for the near future.

New Banking rules will see less liquidity again, and maybe some more QE.

either way....the black hole of banking continues to suck us dry.

I wish I could disagree with you but I am forced to agree. This also lends weight to the reason behind buoyancy in the upper ends of the London market - bankers money, aka formerly the publics' money; bottom end increasingly falling as the plebs run out of cash, bankers never been richer

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Im hoping a small increase in transactions will realise some of the falls we require.

Im running out of time with this. Project marriage now booked for 2012. Project kids to follow shortly after. I was hoping we would have some substantial falls already in order to scare the missus into holding fire with the life plans until we see the big big falls.

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2 things are clear: (1) LTV and salary multiples are reduced and reducing, even if still high, not 125% at 7x salary anymore, rather than falling off a cliff they have seen a gradual reduction, (2) there are still people who NEED to buy for one of various reasons, and HSBC and Barclays can cherry pick customers likely not to default, the customer will bear the house-equity loss, not the bank, so still profitable, maybe super-profitable, in what other eras have a select handful of banks been able to loan frankly ludicrous sums of money to reliable future debt-slaves, utterly cherry-picking the best prospects, whilst other banks have their hands tied,

Correct, whilst HSBC might be increasing it's mortgage book, all the customers have been cherry picked, good credit rating and large deposit should = a win!

They've been sucking up all the people with a 40% deposit, myself included!

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Correct, whilst HSBC might be increasing it's mortgage book, all the customers have been cherry picked, good credit rating and large deposit should = a win!

They've been sucking up all the people with a 40% deposit, myself included!

and you know how to access govt help should you need it, hence the banksters have a double-headed coin, as BL says

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Special. Liquidity. Scheme.

As an aside, I thought SMI had always been available in some form - just some of the conditions changed a couple of years ago.

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Special. Liquidity. Scheme.

HBOS and Barclays did not partake in the SLS as far as i know - which is curious, as they are the big growers in mortgage market share...

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  • 284 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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