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Boe And Mortgage Interest Rates


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HOLA441

I really think not. The tax advantages of leveraged betting on property are useless if you can't make an investment gain on property.

The investment gains that were made in the past were a consequence of the expansion of credit. We've now reached a point where the system simply cannot absorb any more debt and is choking to death on the debt it has already tried to swallow.

Carney is an irrelevance.

I'd bet that if Osborne went to all that trouble to get him, then Carney is inclined to do what Osborne and his policy wonks at the Treasury want to do anyway. Osborne's intentions have already been clearly signalled. Osborne wants to eliminate the deficit, he wants to reduce the ratio of debt to GDP and he wants GDP growth. He's gone out and found someone willing to exercise monetary policy in service of those aims, but, and this is a very, very big "but", the economy is in an extremely fragile state and the fact that choices are made in order to elicit a given change in the system (e.g. cut public sector spending in order to reduce the deficit) does not mean that the policies will produce the intended changes. The economy is on one path, policy changes may perturb the system and set it on a different path but how different could that path be? I suspect that the inevitable consequence of there being too much debt in the system is that the amount of debt will reduce, regardless of policy. There is no other story since the late 1980s apart from a massive continuing credit boom.

Then in October 2008 we had to bailout RBS and Lloyds TSB. Then in March 2009 the government had to resort to getting the Bank of England to buy its debt with new money created out of thin air. Then in July 2012 the government had to use Funding for Lending to bribe the banks to lend at all and most of what they appear to have done with it is try to poach each others customers with 60% LTV who can't afford the SVR.

Transaction volumes are comical and it seems fairly clear that all that is supporting the London bubble is speculative investment from overseas and the world's super rich buying up London Prime. The speculation will eventually run out of steam. The impact of the world's super rich buying London prime will reduce as increasingly it becomes one foreigner selling to another foreigner (instead of foreign money buying out a UK resident who uses the money to go and buy somewhere in the sticks). This sucker is running out of rope.

I would argue that we are off the map and about to see something exciting and new regardless of what the Bank of England and the Treasury want. For Carney to be relevant to what happens next, he needed to have been here in about 1995 and he needed to have had both power and a willingness to exercise it.

It still works though doesn't it? Look at Freetrader's posts of properties that have been flipped fairly recently.

I'm not convinced Carney is an irrelevance. If he read some of his quotes he says debt isn't a problem as long as house prices keep rising and interest rates stay low. He''s already talking about abandoning our inflation target. I think he is the worst we could have got for the job.

I don't see the BoE and government bribing the banks to lend. I see it as the banks blackmailing the government, deliberately refusing to lend until the lending risk is shifted from them. This they are achieving by New Buy 14%, First Buy/Council schemes 25% and now SMI extended to 2015 in one jump (the next step is to up the threshold instead of extend the term)

Here's a BoE response about HPI:

With respect to house prices, house price inflation is considered carefully by the MPC not least because housing wealth serves as collateral for borrowing. Changes in housing wealth may therefore affect consumption and aggregate demand.

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HOLA442

I'm not convinced Carney is an irrelevance. If he read some of his quotes he says debt isn't a problem as long as house prices keep rising and interest rates stay low. He''s already talking about abandoning our inflation target. I think he is the worst we could have got for the job.

Carney is an irrelevance because he's been picked to do what they'd already decided to do! If the public would accept a Central Bankerbot that took its marching orders from the Treasury direct, then we'd have that and not Carney. All the brouhaha about him being the leading central banker of his generation is just smoke and mirrors to maintain the fiction that monetary policy is not political and that what is happening is some independent and objective best course of action, when in reality it will just be the same "making it up as we go along" muddling along down the political path of least resistance, until the next update from the real world becomes unavoidable - be it deflation or inflation.

Ultimately, if people continue to borrow, then you are right that what they want is cradle to grave debt, and that is what we will get. My intuition is that people thought they were signing up for an old age of riches. When they realise that all that is on offer is crushing debt forever, their appetite for debt may change. The guiding mantra was "speculate to accumulate", they thought they could get rich by borrowing. Now they have huge unaffordable mortgages. The "next step on the ladder" is further out of reach than ever and their retirement looks to be all tins of beans and fuel poverty. Everywhere outside London house prices are static or falling and they may fall for a long time regardless of what the Bank of England want.

I don't see the BoE and government bribing the banks to lend. I see it as the banks blackmailing the government, deliberately refusing to lend until the lending risk is shifted from them. This they are achieving by New Buy 14%, First Buy/Council schemes 25% and now SMI extended to 2015 in one jump (the next step is to up the threshold instead of extend the term)

People don't have to borrow. And if they won't, nobody can make them.

Everything that is done to make it possible for people to borrow will compel many people to save rather than spend. If you are twenties/thirties and have to pay a massive deposit, you have to save. If you are forties/fifties with a big IO mortgage and sod all pension provision you have to save, especially if monetary policy is killing annuities.

As to whether the banks are pulling the strings or not, isn't the more important fact that rather than having banks lending like crazy as they did pre-2007 with the complicity of the government, you now have banks that will only lend if either the credit risk is managed or someone takes it off their books? That's got to be a step in the right direction. Maybe there is some terrible design by which Carney can get the banks to lend like crazy by taking all the risk off them, but personally I don't see it. Goodness know what fate has in store for Mr Carney but if he wants to make UK house prices go up, he better have direct contact with God Almighty and some compromising paparazzi snaps as leverage.

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HOLA443

People don't have to borrow. And if they won't, nobody can make them.

People in the UK didn't decide to stop borrowing when the financial crisis struck. They were made to stop. There is no point in FLS if they don't relax lending criteria as well.

I'm getting emails from RM about properties and now they state "95% mortgage available".

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  • 2 years later...
3
HOLA444

The idea that a low base rate will lead to stable low mortgage interest rates which support current prices is a very suspect piece of conventional wisdom. Not least because rates really aren't that low.

[...]My thesis is this. The Bank of England and the Treasury are not trying to support house prices. They have two separate but related priorities. Firstly they must keep the interest costs that the government pays on its own debt as low as possible because of the ratio of debt to GDP. This is the purpose of QE and this is why generally the costs of borrowing are low and savings rates are really low. Secondly, they feel that they must "fix" the banks. Fixing the banks, according to the Bank of England and the Treasury means returning the banks to solvency. This is going to be facilitated by maintaining profits (via schemes like Funding For Lending) and allowing the banks to take their losses only when they are ready to take them (which is why forbearance is being allowed and encouraged).

One way to look at it is, "What can't the banks control?". They can't control earnings, utility costs, transport expenses and food. Hence they effectively have to "solve for x" and gouge as much as they can, given the things that they cannot control. What does that look like?

[..]The banks have a short-term incentive to keep house prices where they are but they own only a fraction of the housing stock and they don't wholly control even that portion. I'd argue that they only control the portion that are in arrears, and even then their hands are tied a little with regard to what they can do. If they repossess swathes of the country and start selling they will crystallise their losses and move the value of their remaining security against the remaining mortgages in the wrong direction. Further, the estate agents and the banks both have an aligned medium term goal: they need to see transactions.

IMO it will be sentiment on the part of the sheeple that breaks the deadlock, and it will be a downwards move because an upwards move is impossible.

Upwards is impossible because the statistics evidence that the mortgage market really has changed. The weapons of choice for the final phase of bubble inflation were high-LTV IO and self certification. IO really is gone and this graph shows that self-certification at high LTV is also gone.

[..]How can we maintain yesterday's prices when the lending practices that facilitated them are gone? Those prices were an artefact of an unsustainable credit boom, and that boom is over. People are too besotted with bricks and mortar to work it out and allow sentiment to respond quickly to changes in the real economy, but eventually, like death by a thousand cuts, sentiment will align with the new reality.

Merryn Somerset Webb on Radio 4's Moneybox talking about the what the "market wants" is just daft journalese. The market is where buyers meet sellers and where prices are discovered. In the context of UK housing most important factors are the banks' willingness to lend and the appetite of the sheeple for credit and the extent to which earnings allow the sheeple and the banks to meet somewhere in the middle. By my reckoning we remain three from three on for a crash. The banks are trying to deleverage. The sheeple are edgy about the continuing depression and have lost their appetite for credit. QE will keep inflation ticking along nicely and force the prudent to set aside more of their income as savings, both consequences keeping the share of the sheeple's income available to service debt under sustained pressure.

Randy Newman singing "I'm dead, (but I don't know it)" at the

.

Do you still hold to much of this, in 2015?

I do; except we had a large HPI uplift in many low-mid-high prime areas in 2014. Maybe overlooking the flood of foreign money?

There's suggestions there's a slight pick up in houses in the £500K+ range coming to market vs lower-price houses.

Looking for a point where you can hear the sound of a barrel bottom being scraped for buyers at the £500K+ end, but there is still a remarkable lust and lack of concern for many such buyers that are still out there.

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HOLA445

Do you still hold to much of this, in 2015?

I do; except we had a large HPI uplift in many low-mid-high prime areas in 2014. Maybe overlooking the flood of foreign money?

There's suggestions there's a slight pick up in houses in the £500K+ range coming to market vs lower-price houses.

Looking for a point where you can hear the sound of a barrel bottom being scraped for buyers at the £500K+ end, but there is still a remarkable lust and lack of concern for many such buyers that are still out there.

poor people wanting to be rich and throwing their monthly salary check into a bankers back pocket truing to appear so. you got to laugh. :lol:
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HOLA446

Do you still hold to much of this, in 2015?

I do; except we had a large HPI uplift in many low-mid-high prime areas in 2014. Maybe overlooking the flood of foreign money?

There's suggestions there's a slight pick up in houses in the £500K+ range coming to market vs lower-price houses.

Looking for a point where you can hear the sound of a barrel bottom being scraped for buyers at the £500K+ end, but there is still a remarkable lust and lack of concern for many such buyers that are still out there.

I hold with a lot of it.

What surprised me was how easily Osborne could goose house prices and the fact that he elected to do so - when I was running my ignorant mouth in January 2013 all the Help to Buy insanity was not yet out in the wild.

One thing that I've totally changed my mind on is Carney and Carney's Bank of England. Again, he wasn't even in post at time of writing. What seems now to be the case is that you have an activist central banker trying to manage mortgage debt in order to meet the obligations he deems imposed on him by his financial stability remit, setting him at odds with a Chancellor who just needed to juice the economy in order to have better shot at winning an election and was prepared to push for a housing boom.

Another thing that I've totally changed my mind about is the role of sentiment. Presently, I believe that the belief, particularly in London and the South East, that house prices can race away from earnings forever, giving decade after decade of HPI in real terms, is absolutely rock solid. The fallout from 2008 is that people now believe that UK house prices cannot and will not go down. However, I'm more and more convinced of the importance of buy-to-let lending, and consequently I think confidence in prices is misplaced. As residential property prices are increasingly informed by leveraged speculators, where one set of people see support for prices, I see the construction of a fragile edifice. Basically, once again wild lending inflates prices and sets up a bust.

As I've posted at length elsewhere, I feel that these disparate threads come together if Carney completes the journey that the regulators have been on since 2009 and extinguishes interest-only lending from the financing of UK residential property, and that means that buy-to-let financed with interest-only mortgages has to go, and I really think there is a non-zero probability of the slated revisions from the BCBS being used by Carney to seriously re-draw the lines of battle between aspirant owner-occupiers financing with repayment mortgages and wannabe buy-to-let investors financing with interest-only mortgages.

My fundamental thesis remains that we're trying to live with boom prices which were reached by incautious borrowing and irresponsible lending. As the irresponsible lending is extinguished, prices will have to fall to meet what people can actually afford to pay with their earnings.

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HOLA447
7
HOLA448

I hold with a lot of it.

What surprised me was how easily Osborne could goose house prices and the fact that he elected to do so - when I was running my ignorant mouth in January 2013 all the Help to Buy insanity was not yet out in the wild.

Because transactions are so low and, where there are sales, the majority are in London/SE, where most of the money was foreign.

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HOLA449

Because transactions are so low and, where there are sales, the majority are in London/SE, where most of the money was foreign.

Pure speculation on two other mechanisms not involving foreigners, and hands up to the fact that this could legitimately be moderated off to Anecdotals.

Firstly, I think that there is a the possibility of a bubble equity concentration mechanism. For example, take a young-ish couple of senior professionals in London who've ridden the bubble. When they meet they both have property. When they get together, one of the properties goes BTL, when they move to a slightly larger place, but still inadequate to raising a family, the other goes BTL. After they marry they roll together all the bubble equity from the two BTLs and their current home by selling all three in order to purchase at some ludicrous price a big house in the London.

Secondly, I suspect that if the very high LTI lending allowed by the Bank's soft cap is focussed on high wage-earners in the South East then not only are these people concentrating their bubble equity, but they are also borrowing like billy-o. If you take two people with joint earnings of £150k, then 5.5x income is £825k.

When you roll these two mechanisms together you get a perhaps non-trivial number of people who can put down serious money. (I also suspect from my local market that the sellers of the big London house then spill out into markets in the South East or further afield - when they downsize they can drop serious money, certainly way out of keeping with what local wage-earners without bubble equity can drop.)

As I say, just speculation, so if anyone feels an inclination to gut the argument, I'd be grateful if they went about it diplomatically. Even bears have feelings.

Edited by bland unsight
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HOLA4410

Its a wierd, low transaction market.

Its hard to say one way or anoher; there are so few transactions that any attempt to provide a rational explanation will fail.

I can only guess about London/SE. I do not live there. Im not planning on living there.

I *do* know about my home area's local market - NYork coast.

There has been no 'normal market since the late 90s - thats over 15 years for those not mathematically adept.

The normal market of OO purchases died in 98ish. They were replaced by second home owenrs/holiday let buyers and the odd BTL slum lord. These buyers disappeared (or rather, could not or would not take on mortgates) in 2006ish. Since 2007 the number of transaction has been less than a thrid of the normal numbers. The period of 2011-2013 saw even less transaction.

I think the people buying investment property from 2002 onwards have been commiting the most stupid act of mal-investment since,oh, the south sea bubble. My local market is unusual as the majority is holiday homes and second homes. There is comparitvely little BTL - some but not much. Investors 'made' the market from the late 90s to now. A number are now trying to sell-up and go - holiday homes provide a worse return than BTL (and I think BTL is a pretty crappy return) and require much work - lots of 'I cannot sell xxxx' inthe local FB pages.

Comparing the expected transaction to the actual, I would guess there's about 5 to 8 years of housing stock kicking around in the For Sale, Tried to Sell and failed, and Probate stock.

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HOLA4411
11
HOLA4412

Its a wierd, low transaction market.

Tis true....plenty of offers going in, fewer have the ability to buy........anything put onto the market at a price to sell, will sell....many saleable properties are sold before being marketed.....well over priced stuff sticks, and sticks out like a sore thumb, in other words it is not truly or willingly for sale, only for show.....thanks, but no thanks. ;)

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HOLA4413

Tis true....plenty of offers going in, fewer have the ability to buy........anything put onto the market at a price to sell, will sell....many saleable properties are sold before being marketed.....well over priced stuff sticks, and sticks out like a sore thumb, in other words it is not truly or willingly for sale, only for show.....thanks, but no thanks. ;)

There's a good game I do:

Pick an area + enter a RM search.

Then open a new tab, and search the same area using houseprices.io.

There's a good 100k difference in the Asking and Getting prices.

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HOLA4414

There's a good game I do:

Pick an area + enter a RM search.

Then open a new tab, and search the same area using houseprices.io.

There's a good 100k difference in the Asking and Getting prices.

Good game. Unfortunately in the area I know best the difference is only £10,000 to £20,000 e.g. asking £180,000 / £190,000, getting £170,000.

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HOLA4415

Spyguy, just looked at houseprices.io site...I assume green means sold above last sold price, red below, but what does plain mean?.....also, is there anyway that you can get other details i.e. number of bed etc in this website or do you have to take the address and put it into Zoopla?

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HOLA4416

Spyguy, just looked at houseprices.io site...I assume green means sold above last sold price, red below, but what does plain mean?.....also, is there anyway that you can get other details i.e. number of bed etc in this website or do you have to take the address and put it into Zoopla?

The price comparisons are in real i.e. inflation adjusted prices.

Green is a real price increase over the last sale.

Grey mean no previous LR sales info. This is getting rarer + rarer.

My comment about Getting + ASkingprice differences was not about how much of a discount a house sold for. Rather the prices ofthe hosues that are selling versus the prices of houses on RM.

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