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RichM

Osborne Must Move Fast On Housing

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If so, it may take more than ultra-loose monetary policy to prevent a destabilizing slide in the housing market. The question is what, if anything, Mr. Osborne can do about it? Politically, it is hard for the government to be seen to be intervening, particularly given Prime Minister David Cameron's strictures on excessive lending pre-election. One idea doing the rounds in Whitehall is to establish a mortgage insurance scheme partly-paid for by the house builders to encourage the banks to offer higher LTV mortgages.

Mr. Osborne needs to move quickly to implement such ideas if he is to avoid the housing market blowing a hole in his economic strategy—just as it did for Gordon Brown.

:ph34r:

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Innovative

Whatever happened to Grantley? :unsure:

Edit: There's a glaringly obvious 'problem' with the new Basel capital requirements. Whilst it is a positive counter-cyclical move to discourage higher LTVs in a rising market, that becomes pro-cyclical in a falling market effectively requiring banks to cut LTVs when prices are falling. The more rapidly prices are falling the more rapidly LTVs need to be slashed.

It's pretty gobsmacking that Merv hasn't spotted this. If they wanted to ensure counter-cyclicality in the housing market they should of course do the opposite of what Basel is requiring. LTVs should be cut as prices rise (naturally happens to existing owners anyhow, but discourages MEW) and they should be relaxed as prices fall.

But banksters seem to be more stupid than it's possible to give them credit for.

Edit2: In fact, it would be far better if mortgages were treated by banks as if there was no 'security' and valued on the to-maturity return on the loan rather than the ongoing price changes in the asset itself. The entire house lending/banking system is totally ridiculous.

Edited by Red Karma

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I don't get it why they're making it so difficult and complicated.

Simply don't let banks lend more than 75% and the market will adjust over time.

It won't take 4 yrs longer to save up for a deposit if prices are much lower.

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If so, it may take more than ultra-loose monetary policy to prevent a destabilizing slide in the housing market. The question is what, if anything, Mr. Osborne can do about it? Politically, it is hard for the government to be seen to be intervening, particularly given Prime Minister David Cameron's strictures on excessive lending pre-election. One idea doing the rounds in Whitehall is to establish a mortgage insurance scheme partly-paid for by the house builders to encourage the banks to offer higher LTV mortgages.

Mr. Osborne needs to move quickly to implement such ideas if he is to avoid the housing market blowing a hole in his economic strategy—just as it did for Gordon Brown.

Strewth, this is desperate stuff.

I am sure that there is a way out of this mess, and it isnt this way.

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http://online.wsj.co...0579660022.html

Or just let it crash and FTB can spend some money in the economy? Just a thought.

Still a cracking article overall - pity it isn't in something that is more widely read. If only the major UK papers had article like that :)

Of course, it's in no one's interests that house prices remain overvalued, and it makes no sense to try to pump more air into a bubble.

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American politics/economics is a funny thing - the GD still must leave a bad taste, with Hoovers uber-capitalist destruction of the economy still hovering like a ghost.

Between the pork-barrel republicans and the public union democrats, there lie some sensinble deficit-reducer-democrats and republicans alike

however, the status quo (presumably the Wall Street Journal is part of this) can't possibly see markets re-asserting themselves and the moneyed banking classes taking a hair cout, so they have to appeal to both pork barrel republican AND democrat sensibilities to say 'look at the stupid British - let's not do that!'

they hope, desperately, that the UK govt have it wrong, however, this govt DO know about Keynisian demand destruction and will aim to walk a tightrope, but what terrifies them is that our Tories make the Republicans look corrupt and pocketed by bankers, which they are of course, GWB being the original

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I don't get it why they're making it so difficult and complicated.

Simply don't let banks lend more than 75% and the market will adjust over time.

It won't take 4 yrs longer to save up for a deposit if prices are much lower.

Agreed on point 1 but on point 2 with wide scale wage freezes and cost of living increases, the cash left available to save is being reduced too (+low IRs to help grow the cash) so unless house prices halve from where we are now, an extra 4 years still looks realistic if LTVs head towards 75%.

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http://online.wsj.com/article/SB10001424052748703730804576315430579660022.html

Or just let it crash and FTB can spend some money in the economy? Just a thought.

This is very interesting:

There are good reasons why banks won't lend at higher LTVs. First, they are routinely stress-tested to see how their balance sheets would cope with a 15% fall in house prices. So any loan with an LTV of 85% or more would show up under the tests as being in negative equity, triggering hefty provisions. Second, under the new Basel capital rules, mortgage risk-weights will be calculated on a sliding scale; the higher the LTV, the more capital banks must set aside. Lloyds estimates the return on equity from a 90% LTV mortgage will be one third that of a 70% LTV loan with the same interest rate.

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This is very interesting:

+1

it is again hard not to see a long protracted end to the boom, a supercycle event, lasting a decade+, irrespective of previous 18 year cycles

the anti-leverage rules being implemented are generational, as is the demographic-interest rate cycle playing out over next 20 years

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+ 1

basically, the housebuilders going out of business would be much worse for you and your family, as then there really would be little chace of hosue building to relive pressure in the SE, rents and house prices would go up

house builders have a real risk of going bust in the event that the housing correction is too vertical, and then the damage caused goes beyond the initial problems of leverage

this seems a nice scheme, providing it is not subisidised

I am sorry to say that it does involve propping up the market in the medium term, but two things come out of it that are good: (1) continued provision of house building, needed in your neck of the woods, (2) in the long term, an even lower deeper bottom, 10 years+ as I was saying.

I am getting used to long term renting, I am afraid. Such is life.

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+1

it is again hard not to see a long protracted end to the boom, a supercycle event, lasting a decade+, irrespective of previous 18 year cycles

the anti-leverage rules being implemented are generational, as is the demographic-interest rate cycle playing out over next 20 years

The question is if this idea ...

One idea doing the rounds in Whitehall is to establish a mortgage insurance scheme partly-paid for by the house builders to encourage the banks to offer higher LTV mortgages.

... can neutralise the bank's restraints, and allow them to lend enough to slow down the correction.

If I learnt 1 thing in these past years is that the sheeple will always always buy if there is a mortgage available, and if initial monthly payments are low. The sheeple will not care about price, or possible future interest rate rises. Sadly.

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If I learnt 1 thing in these past years is that the sheeple will always always buy if there is a mortgage available, and if initial monthly payments are low.

"sheeple will always always buy if there is a mortgage available" - only because we are still in a bubbl, this will not last

The sheeple will not care about price, or possible future interest rate rises. Sadly.

the sheeple are volunteering to take the economic hit, and thus savign you the need, it is sad because I didn't particularly want tyhem to suffer this much, but having said that, I don't give a sh*t about the f*ckers anymore, they have been invited into the furnace and they will burn - I'll keep my hands warm off the glow at a safe distance

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basically, the housebuilders going out of business would be much worse for you and your family, as then there really would be little chace of hosue building to relive pressure in the SE, rents and house prices would go up

house builders have a real risk of going bust in the event that the housing correction is too vertical, and then the damage caused goes beyond the initial problems of leverage

this seems a nice scheme, providing it is not subisidised

I am sorry to say that it does involve propping up the market in the medium term, but two things come out of it that are good: (1) continued provision of house building, needed in your neck of the woods, (2) in the long term, an even lower deeper bottom, 10 years+ as I was saying.

I am getting used to long term renting, I am afraid. Such is life.

House builders might go bust, but it wouldnt be the end of house builders. Those with debt would be crushed, but someone would buy the assets for pennies on the pound perhaps, and could then build houses again. The demand for boxes is still going to be high.

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House builders might go bust, but it wouldnt be the end of house builders. Those with debt would be crushed, but someone would buy the assets for pennies on the pound perhaps, and could then build houses again. The demand for boxes is still going to be high.

I don't agree that it would be that quick, there is a momentum to these things, and it can compound itself in a spiral of destruction and poor sentiment, as Keynes pointed out

Edited by Si1

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basically, the housebuilders going out of business would be much worse for you and your family, as then there really would be little chace of hosue building to relive pressure in the SE, rents and house prices would go up

house builders have a real risk of going bust in the event that the housing correction is too vertical, and then the damage caused goes beyond the initial problems of leverage

this seems a nice scheme, providing it is not subisidised

I am sorry to say that it does involve propping up the market in the medium term, but two things come out of it that are good: (1) continued provision of house building, needed in your neck of the woods, (2) in the long term, an even lower deeper bottom, 10 years+ as I was saying.

I am getting used to long term renting, I am afraid. Such is life.

I must be a bit sleepy still. I only noticed now that if house-builders are part of this idea then it must be for new builts only. In which case, it is OK. It won't support the whole market.

About the construction industry prospects though, cheap building plots would be very helpful, for them and buyers alike, particulalry here in the south. Planning gain here is the biggest market distortion of all.

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I must be a bit sleepy still. I only noticed now that if house-builders are part of this idea then it must be for new builts only. In which case, it is OK. It won't support the whole market.

good point, hadn't thought of that myself!

About the construction industry prospects though, cheap building plots would be very helpful, for them and buyers alike, particulalry here in the south. Planning gain here is the biggest market distortion of all.

yep

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I don't agree that it would be that quick, there is a momentum to these things, and it can compound itself in a spiral of destruction and poor sentiment, as Keynes pointed out

Yes, there is a threat of a really destructive spiral. However, it is possible to get things going again pretty quickly if you have enlightened government, as Keynes pointed out. You can put people to work with newly minted money. Others will trade with those that you put to work, things find their value, and you are off.

A bit like Iceland. The benefit is that you get rid of your bankers who are strangling the economy. The disadvantage is that it is going to be very painful for a while. Handy to have a bit of gold in the central vaults just to tide you over.

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Quite - it should be secured solely against your labour. Your prospects. Your capacity to repay. Your reputation. Your propensity to repay. Trust. Credit.

Security distorts and makes banks lazy and reckless.

But that would be applying common sense to the problem and we can't have that.

Where would we be without market competition, together mortgages, short term fixes, discounts, mortgage indemnity products, fees, charges etc.

The problem IS the bankers, the regulators, the cartels and their sponsors. They actively create the bubbles and busts to enrich themselves at everyone else's expense.

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It may well be that Dave n' Osborne realise that a correction in house prices is needed, if we are ever to get the economy working again. Yet could they hold out against siren noises from the likes of the Daily Mail for long? I very much doubt it.

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Lots of house builders wind up even during the good times. It's their standard practice to get out of the various difficulties encountered. The same directors seem able to just spring up in new ventures until things get difficult again and wind up again. It's one of the reasons for the skills problems in the industry and also one of the reasons for having to employ so many from overseas but there always seems to be those ready to fill the very short college courses for brickies etc in boom times. Usually youngsters and my guess is it's those who accept the college marketing of these courses at face value.

It's been the same for a long time and I don't expect the basic structure of the industry to change in that connection anytime soon even if there's plenty of lip service that it has or is going to.

I doubt if government policies are aimed directly at the survival of builders (it's never been a particular priority in the past) it's more likely to be to do with helping the bankers and suchlike and perhaps trying to just keep the UK economy afloat as it's in such awfully dire straits.

Edited by billybong

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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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