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The Masked Tulip

Catch 22 Just Got Worse

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This is Catch 22.

So what happens now - the banks are going to have less money to lend for mortgages but, with IRs held low for years to come, asking prices are going to stay nuts.

In fact, with inflation rising the asking prices probably will get worse. The more that sellers lose out to inflation the more some of them will be inclined to add their losses to their asking prices IMPO.

So we will have stalemate - EAs and sellers with ludicrous asking prices, banks not giving mortgages out becuse they lack the cash and people unable or unwilling to buy.

Everyone is having a guess at what will happen in the markets this week but it looks like low IRs and more QE are going to be the order of the day - assuming that the world is prepared to take on moe QE - so it is stalemate for the UK housing markets as far as I can see.

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This is Catch 22.

So what happens now - the banks are going to have less money to lend for mortgages but, with IRs held low for years to come, asking prices are going to stay nuts.

In fact, with inflation rising the asking prices probably will get worse. The more that sellers lose out to inflation the more some of them will be inclined to add their losses to their asking prices IMPO.

So we will have stalemate - EAs and sellers with ludicrous asking prices, banks not giving mortgages out becuse they lack the cash and people unable or unwilling to buy.

Everyone is having a guess at what will happen in the markets this week but it looks like low IRs and more QE are going to be the order of the day - assuming that the world is prepared to take on moe QE - so it is stalemate for the UK housing markets as far as I can see.

which is what they want stablity out of chaos!

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which is what they want stablity out of chaos!

Yes, without price discovery (ie sales), there can be no crash.

Why not go the full hog and have price controls, let's say no house may be sold for under £300 per square foot.

Edited by Mikhail Liebenstein

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Interesting article on DM website linking US rating downgrade with higher UK mortgage rates.

Meanwhile, experts were digesting the implications of the first-ever American debt downgrade, pointing out that, unlike with a currency devaluation, the downgrading of one bond does not automatically mean the upgrading of another - it is quite possible for all government bonds to be downgraded at the same time.

‘The implication of the downgrade is that American bonds are less valuable as security for loans than they were,’ said Jan Randolph, head of sovereign risk at independent consultancy IHS Global Insight.

‘It is logical that lenders will say, “Actually, you have to stump up more American bonds for the same amount of borrowing”. If that happens, we have a credit crunch.

‘It may not be as bad as the one that followed the Lehman Brothers collapse in 2008, but we will feel the strain.’

Chancellor George Osborne has been following developments from his family holiday in Los Angeles.

Last night, a Treasury spokesman said both the American debt downgrade and the turmoil in the eurozone vindicated Britain’s tough deficit-cutting stance.

‘Because of the decisions the Government has taken to deal with our debts and support a sustainable recovery, Britain’s credit rating has been reaffirmed, helping to keep the cost of borrowing down for taxpayers, homeowners and businesses,’ he said.

But should America’s rating - now AA+ with a ‘negative’ outlook - persuade investors to shun sovereign debt, experts warn that Britain will have to offer higher rates of interest on its own bonds.

This would be a double whammy for the British public. As taxpayers, they would face higher interest on public debt and as borrowers and mortgage-holders they would face higher interest rates, as bonds are the benchmark for other lending.

Read more: http://www.dailymail.co.uk/news/article-2023302/France-Italy-stand-bail-biggest-banks-euro-crisis-worsens.html#ixzz1UKzkKcfB

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What is the difference between ir rises and cost inflation when it comes to being able to service a mortgage?

No difference, which is why its either wage inflation or HPC... Grant Shnapps wants stability! So does everyone else

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In fact, with inflation rising......

It's not clear that this is the case - the last figures showed a reasonable fall in inflation.

My own personal feeling is that it will increase, but BoE are arguing otherwise (well, to be strictly correct, they believe it will go up to 5% before falling back)

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I can see us having low interest rates, restricted lending and high rates for new loans. Those who have a house with equity will be laughing as they sit there with a tracker bumping along the bottom and minimal payments whilst house prices hold in limbo land. :(

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No difference, which is why its either wage inflation or HPC... Grant Shnapps wants stability! So does everyone else

Exactly. I'd be happy with wage inflation as it would make buying a house more affordable. However those who think we can 'inflate away the debt' don't take into account:

1. Unions are a shadow of what they used to be

2. Cheap foreign labour in this country

3. Globalisation

Hence I doubt very much wage inflation will be a factor.

However, I do see people all around me having increasing difficulty servicing mortgages due to rises in the cost of living, combined with pay freezes or in some cases drops.

I would also suggest MT that the houses you seem to be interested in are not typical FTB fodder - much higher up the chain - and in all probability with little or no mortgage remaining, so an IR rise would have no effect anyway but as I say, cost inflation will.

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It's not clear that this is the case - the last figures showed a reasonable fall in inflation.

My own personal feeling is that it will increase, but BoE are arguing otherwise (well, to be strictly correct, they believe it will go up to 5% before falling back)

But of course the inflation that will have occurred to that point in time will remain - the increased prices of things will probably remain at those increased prices, it would just be that the rate at which they increase in the future would slow. You know that of course, but I think a number of people think "inflation will fall back" means prices will drop. They should realise it merely means what has gone up in price will not go up in price as rapidly

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What is the difference between ir rises and cost inflation when it comes to being able to service a mortgage?

Big difference. HPI rewards leverage, while IR rises reward saving.

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Guest spp

It's not clear that this is the case - the last figures showed a reasonable fall in inflation.

My own personal feeling is that it will increase, but BoE are arguing otherwise (well, to be strictly correct, they believe it will go up to 5% before falling back)

??

2% above target = a fall??

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I can see us having low interest rates, restricted lending and high rates for new loans. Those who have a house with equity will be laughing as they sit there with a tracker bumping along the bottom and minimal payments whilst house prices hold in limbo land. :(

Yep.

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I can see us having low interest rates, restricted lending and high rates for new loans. Those who have a house with equity will be laughing as they sit there with a tracker bumping along the bottom and minimal payments whilst house prices hold in limbo land. :(

I can see that happening especially for those with 60% LTV, those with higher ratios will get squeezed. Although it's possible that squeezing those at the top may trigger unintended consequences causing a crash they are hoping to avoid.

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Alternatively flight to quality away from USA Govt Bonds (AA+) to UK(AAA) Gilts may lower yields and money market rates.

hahahaha

let's not pretend the UK is a better credit than the US. The downgrade is a mere matter of time

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So what happens now - the banks are going to have less money to lend for mortgages but, with IRs held low for years to come, asking prices are going to stay nuts.

In fact, with inflation rising the asking prices probably will get worse. The more that sellers lose out to inflation the more some of them will be inclined to add their losses to their asking prices IMPO.

So we will have stalemate - EAs and sellers with ludicrous asking prices, banks not giving mortgages out becuse they lack the cash and people unable or unwilling to buy.

Everyone is having a guess at what will happen in the markets this week but it looks like low IRs and more QE are going to be the order of the day - assuming that the world is prepared to take on moe QE - so it is stalemate for the UK housing markets as far as I can see.

Well what has happened so far is that Governments have borrowed money from irresponsible private banks...at interest and then given that money to them.

This has transferred the debt onto the Governments who 3 years on have the same problem the private banks originally had. They are bust!

We are heading towards a massive correction of some sort.

Phase 1 started in Aug 2007,

Phase 2 was the bank bailouts,

Phase 3 starts in earnest tomorrow, because the buck stop has been reached in the US and the EU.

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Big difference. HPI rewards leverage, while IR rises reward saving.

I'll try again..What is the difference between ir rises and cost inflation when it comes to being able to service a mortgage?

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I'll try again..What is the difference between ir rises and cost inflation when it comes to being able to service a mortgage?

I'd better try again. Cost inflation rewards existing mortgages (with zero deposit) and hence the established Haves. IR rises reward future mortgages (with growing deposit), and hence current Have-nots who aspire to become Haves.

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You've heard of the phrase 'dead man's shoes' which referred to job prospects in an ageing and static workforce where the only route to advancement was the death of one of your colleagues.

Well, that phenomenon has just been transmitted into the housing market.

Not to sound callous but with energy prices up 20% and people on fixed incomes bing hit, you may well find a glut of shoes this winter :unsure:

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I'd better try again. Cost inflation rewards existing mortgages (with zero deposit) and hence the established Haves. IR rises reward future mortgages (with growing deposit), and hence current Have-nots who aspire to become Haves.

I can see where you're coming from, but for an average family with an average mortgage, there is absolutely no difference between a BR rise of 0.5% (for argument's sake) and a 5% rise in the cost of living coupled with 0% pay increases (again, for argument's sake) in terms of increasing difficulty in servicing that mortgage. Right or wrong?

Also, for prices to fall across the board, you need more pressure on those with little or no mortgage (ie at the top of the chain) - this won't come from IR rises but will come from cost inflation. Right or wrong?

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You've heard of the phrase 'dead man's shoes' which referred to job prospects in an ageing and static workforce where the only route to advancement was the death of one of your colleagues.

Well, that phenomenon has just been transmitted into the housing market.

Correct

Those that come from familys that have property will see it or the money that comes from it when sold come to them.

Those whos familys do not have property will not be buying it . Even if property drops by a big % average people in average jobs will not be buying it , due to wages falling in real terms while essential costs like food , fuel and travel rising .

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Not to sound callous but with energy prices up 20% and people on fixed incomes bing hit, you may well find a glut of shoes this winter :unsure:

Out with a brush this winter, sweeping away the grit from the pavements..…

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Not to sound callous but with energy prices up 20% and people on fixed incomes bing hit, you may well find a glut of shoes this winter :unsure:

The pound was devalued to save these people from watching their property prices fall.

Since Thatcher sold off the family silver to the slavering hoards (private citizens), energy prices on IMPORTED energy were always going to rise.

She got away with it by throwing the wilfully ignorant populace a small bone.

All these astute "property investors" can have low energy prices (strong pound) or high property prices (weak pound).

Its not 2005, we cant have both.

In my view, the papered cracks have now started to expand and they will soon have neither.

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I can see where you're coming from, but for an average family with an average mortgage, there is absolutely no difference between a BR rise of 0.5% (for argument's sake) and a 5% rise in the cost of living coupled with 0% pay increases (again, for argument's sake) in terms of increasing difficulty in servicing that mortgage. Right or wrong?

Inadequately defined. An average family? An average mortgage? The latter in particular is a big divider: some have it, others aspire to it, while the richest own a house outright.

Also, for prices to fall across the board, you need more pressure on those with little or no mortgage (ie at the top of the chain) - this won't come from IR rises but will come from cost inflation. Right or wrong?

Wrong. Prices are set on the margins.

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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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