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Mr_Sminty

Likely Bank/lender Actions If Large Defaults

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Okay what are peoples ideas or likely possible outcomes on what will happen to consumer lending if things go a little awry? Say in a downturn in the economy theres is not financial meltdown but quite hefty defaults etc that has a real effect on banks profits

Say large defaults and other kind of shenanigans and lenders go back to 3.5-4 times max mortgages and 95% jobs etc. If there was steady house price deflation would this speed it up?

Also oversupply of all these 2 bed apartment jobbies, if they all start falling the most etc will banks only say lend you 75% due to risk? Would this then smash down such proprty prices further?

How would stricter supply of finance affect the economy and say in 3-5 years what are peoples likley predictions on how things will be on financial products? Will it be say illegal(govn intervention etc) for banks to offer 120% mortgages for example

Cheers

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I can very easily see a situation where FTB's are unable to buy, even though prices may have fallen.

Imagine if banks start asking for 50% deposits on BTL?

Those already in the market could benefit as the BOE chops rates to help the struggling economy.

Their cash flows increase, and the high deposits create a barrier for those trying to enter the market.

It may be the worst of all scenarios.

So keep saving for that deposit, and keep your credit rating squeaky clean.

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Is there a posibility we may see the opposite. The banks need 'new blood'..existing customers are defaulting...the banks (which are a business after all) target a new group of potential customers...FTB.

Personally I think this happened (to some extent) after the last crash and has fuelled the current debt and housing problem.

There was a short time when it was very difficult to get credit but then the banks realised that if they excluded everyone who had a poor credit history then they would have no customers.

I envisage a short restriction to reduce existing debt getting any higher followed quickly by relaxing the rules again.

Banks need to lend money...they will find someone to lend it to and it could be you!!!

Sorry...I am no economist. This is just a possibility based on historical observations

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I can very easily see a situation where FTB's are unable to buy, even though prices may have fallen.

Imagine if banks start asking for 50% deposits on BTL?

Is there a posibility we may see the opposite. The banks need 'new blood'..existing customers are defaulting...the banks (which are a business after all) target a new group of potential customers...FTB.

I'm mid-way... no doubt banks would tighten the requirements to borrow.. but what is "tighten"?

All banks need to lend, and when things get bad they want to lend to "safe" causes... this can be

1) increasing the deposit.. so cover the risk. But their are not many FTB's with a 50% deposit

2) stricter lending rules.. ie if you missed a council tax payment, no mortgage.. otherwise from past history the bank assumes you are less likely to default

1) is possible if you are on the "bad" list (and it will not be good news)... also 2) is possible, and it could be a winning strategy B)

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Okay what are peoples ideas or likely possible outcomes on what will happen to consumer lending if things go a little awry? Say in a downturn in the economy theres is not financial meltdown but quite hefty defaults etc that has a real effect on banks profits

Say large defaults and other kind of shenanigans and lenders go back to 3.5-4 times max mortgages and 95% jobs etc. If there was steady house price deflation would this speed it up?

Also oversupply of all these 2 bed apartment jobbies, if they all start falling the most etc will banks only say lend you 75% due to risk? Would this then smash down such proprty prices further?

How would stricter supply of finance affect the economy and say in 3-5 years what are peoples likley predictions on how things will be on financial products? Will it be say illegal(govn intervention etc) for banks to offer 120% mortgages for example

Cheers

Banks will probably not be able to increase the % of deposit required because people have insufficient savings.

Most likely they will increase the spread they charge (the amount they charge above Gilt rates). I therefore believe that is is possible that in the future interest rates will drop but mortgage rates will remain unchanged or eventually even rise.

Edited by jacob

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I think tbh it would be great if they said 50% for BTL. Ive always liked the saying - "put your money where your mouth is!". Then the true BTL's out there would think twice about buying up all your property in your area. As it stands - if anyone saw the article about the 3 entrepreneurs that have £9m worht of housing stock in 9 months and had one boasting "whats the worst that can happen... you go bankrupt - ah well they say its best to be bankrupt before your 30!". This is irresponsible lending.

I do feel though that if you have a good credit rating there would not be a 50% down demand. I went to my bank in March to enquire about a mortgage - at the time we were looking at borrowing £108K which was the max. 3.5 +1x GF limit. I enquired about borrowing more BUT maintaining a 90 LTV. They said they could not forsee a problem with £127 based on affordability. I didn't follow up the enquiry.

A few month later - I phoned my bank to see someone about the best place for my savings. When I phoned they said "Hi, yes Ive got your details here and your MORTGAGE APPROVAL!!! Well unless you sign for it its not worth anything, but I told them that I would not be buying in the near future. The popint being - based on my credit score they approved a mortgage more or less straight away!

If things do go tits up - my credit rating is STILL the same unless I borrow and default. The fact the the amount borrowed would be less also makes this a SAFE bet for the lender.

Lets hope they do tighten up lending. Then everyone who wants to stretch themselves to get on the first rung will be knocked back on finances. This should mean that the houses would have to drop to the affordability otherwise they will simply NOT sell.

TB

Edited by teddyboy

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How would stricter supply of finance affect the economy and say in 3-5 years what are peoples likley predictions on how things will be on financial products? Will it be say illegal(govn intervention etc) for banks to offer 120% mortgages for example

Cheers

IMO it will have a big impact and the effects can snowball pretty quickly downwards in the same, but opposite way, as when the housing market booms

Its a bit like the chicken and egg situation

Did the UK housing market start booming approx 8 years ago, then the bank released billions into the UK proprty market or did the banks release billions in the first place to start the boom?

Certainly in the last boom big US lenders like Chase Manhatten and Japanese like Sumitoma poured a lot of money in to UK property and that helped to increase HPI rapidly (why lend to South America, when you can get the better returns off a flat in London docklands)

Problem then, and maybe now, is if you have a lot of global liquidity pouring into a domestic market (UK homes) it can distort things a bit and also this aggressive/lax lending means the boys from the Halifax/Nationwide etc, have to compete on the same terms i.e. relax their criteria

Problem is, once/if that global money is withdrawn, local lenders will quickly return to normal (sensible) lending

Average small house in London/South East is 250K+

How many people do you know on average incomes that can afford 250K?

In a global economy such as ours, things move quite rapidly

If the enough of the hot money leaves the UK property market for obvious reasons, Mervyns comments from last year start to have some real meaning

"Property Value is a matter of opinion, whereas debt is real"

If the banks refuse to lend 250K for an assett that is probably worth 125K based on the long term average, what will happen to the price?

Have no doubt, there is massive VI in place to stop this happening, because if it crashes so does the economy, but the cracks are appearing and the only thing thats holding it together is lots of sticky tape

printed on the tape are the words

"Its different this time!"

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During the last crash some of the lenders didn't reposess the property until prices had recovered again. If you miss payments then the bank can reposess at any time. Once the crash was in full swing it made little sense to do so when prices were very low. So in some cases they continued to take minimal payments to cover the interest, but then took the property when the market recovered and they could realise the outstanding loan.

This was often a shock for homeowners because they thought they'd come to an agreement with the bank only to have their home taken from them a couple of years later.

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  • 302 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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