Letter Sent To Council Ref: Local Authority Mortgage Schemes

[Dorkins]

I read, I considered, and I came to the following conclusion:

You :0

Council: 1

The council's position that all will be well as long as house prices don't fall more than 10% seems like a winning hand to you?

[eric pebble]

You could mention that the subsidy allows developers to effectively sell houses at 25k over market value. The properties drop in to negative equity immediately after sale.

Ok, this is a bit of a stretch, but you get my drift...

So bloody obvious isn't it?!?!!!

These Council property price-fixing scams are just ANOTHER version of the age-old Ponzi/Pyramid Scam, a.k.a.

PREDATORY LIAR LOANS.

.

[tkane]

The council's position that all will be well as long as house prices don't fall more than 10% seems like a winning hand to you?

Yes, because you all fail to recognise (or choose to ignore) the fact that even if the house price falls there will have been equity built up through monthly mortgage repayments which will be offset against the losses. On a 123k mortgage this can cover a fall of 5% per annum at the very least.

[eric pebble]

I thought Lloyds were fine until they were rushed/pushed into buying HBOS.

Yup. By that C**T Brown.

[Dorkins]

Yes, because you all fail to recognise (or choose to ignore) the fact that even if the house price falls there will have been equity built up through monthly mortgage repayments which will be offset against the losses. On a 123k mortgage this can cover a fall of 5% per annum at the very least.

A 25 or 30 year repayment mortgage clears very little of the principal in the first few years, so the equity does not grow by much even if nominal house prices are static. A buyer certainly doesn't gain 5% equity every year when house prices are flat.

[eric pebble]

I read, I considered, and I came to the following conclusion:

You :0

Council: 1

That's because you're a C**T.

[tkane]

A 25 or 30 year repayment mortgage clears very little of the principal in the first few years, so the equity does not grow by much even if nominal house prices are static. A buyer certainly doesn't gain 5% equity every year when house prices are flat.

My 5% figure was wrong I'll admit. I just did some quick calculations comparing interest only and repayment mortgages for a 123k house at 95% LTV. It seems you will gain about 2% equity per annum, which over 5 years is 10%.

[@contradevian]

This is essentially the same logic that was used by the creators of tranches of CMBS / RMBS which went from a price of 100 to a price of 0 pretty quickly.

In my view, trying to assess this type of risk is beyond the remit of a council. Taking this kind of risk on behalf of taxpayers is bordering on insanity.

Some of us have memories of the Hammersmith and Fulham interest rate swaps affair. The term ultra vires should send shivers down some people's spines.

Hopefully this council and Lloyds have a few legal opinions which are unanimous in their agreement that this is something that a council can do.

Interesting. I wonder if the councils policy could be subjected to judicial review.

[roadtoruin]

Owning a BTL definitely frecking does.

Why exactly? More (even if only a few) would-be FTBers are enabled to buy rather than continue renting, so that helps BTLers?

[@contradevian]

Why exactly? More (even if only a few) would-be FTBers are enabled to buy rather than continue renting, so that helps BTLers?

Using the state to underwrite/support local house prices.

[roadtoruin]

So bloody obvious isn't it?!?!!!

These Council property price-fixing scams are just ANOTHER version of the age-old Ponzi/Pyramid Scam, a.k.a.

PREDATORY LIAR LOANS.

.

Where's the lie? These are loans of comparatively small size that will be scrutinized (i.e. no self-cert)

[Dorkins]

My 5% figure was wrong I'll admit. I just did some quick calculations comparing interest only and repayment mortgages for a 123k house at 95% LTV. It seems you will gain about 2% equity per annum, which over 5 years is 10%.

So as long as house prices fall only 10% in the next 5 years everything will be hunky dory...

Edit: you're right, need to add both figures so it's a 20% drop.

Edited January 20, 2012 by Dorkins

[tkane]

That's because you're a C**T.

Well done. This site bangs on about vested interests yet when someone comes along and dares to disagree with the mainstream view then you get called or **** or your posting rights are suspended for hours upon hours.

[eric pebble]

Where's the lie? These are loans of comparatively small size that will be scrutinized (i.e. no self-cert)

The lie is the pretence that it is somehow OK to offer people money to buy in a "market" -- but - in the very act of effectively subsidising/underwriting the "market" -- it is no longer a "market".

This process is thus a LIE.

It is a pure piece of price/market fixing.

It is scandalous.

Edited January 20, 2012 by eric pebble

[tkane]

So as long as house prices fall only 10% in the next 5 years everything will be hunky dory...

No they can withstand a 20% fall before the council is on the hook:

Over the five year period, the following would need to happen for the costs to the council to exceed the interest income:

· Defaults to be ten times higher than the 2010 level indicated by CML; AND

· Property prices to drop 10% from the level at the time the mortgage is approved

My 20% figure includes the 10% equity.

[AC44]

Congrats for putting pressure on the council.

I would focus on:

-The assumption that the repossession rate is 0.3%. Surely they should take into account the 14% which is behind fees otherwise they should be liable tor the damages in the future.

-The assumption that house prices will not fall beyond 10%. Have they examined/compared what happened in this area (not the national figures) in previous recessions?

-FOI request on the councillors interests/properties. Surely this is relevant to the decision they made since the FTB could be buying their properties.

Not sure if it is possible to claim financial damages against the councillors property. Is that possible? If yes, then you can try and suspect they will think hard and examine all options again..

Anyhow, the goverment is trying to keep this market up at any cost . It is bad seeing such a subjective approach, after so many years of hearing about Free markets...

[Dorkins]

No they can withstand a 20% fall before the council is on the hook:

Over the five year period, the following would need to happen for the costs to the council to exceed the interest income:

· Defaults to be ten times higher than the 2010 level indicated by CML; AND

· Property prices to drop 10% from the level at the time the mortgage is approved

My 20% figure includes the 10% equity.

Actually, I'm not sure that 20% figure is right. How do you know the council hasn't already taken the reduction in principal through repayments into account? They themselves say they can withstand a drop of up to 10%, not 20%.

Edited January 20, 2012 by Dorkins

[tkane]

Actually, I'm not sure that 20% figure is right. How do you know the council hasn't already taken the reduction in principal through repayments into account? They themselves say they can withstand a drop of up to 10%, not 20%.

Because they haven't, as per their own calculations:

· Property valued at £100k, mortgaged at £95k ...;

· If the property was sold for £90k the bank would request £5k from the Council. In this case the value of the property would need to have fallen by 10% from the original valuation.

[leicestersq]

No they can withstand a 20% fall before the council is on the hook:

Over the five year period, the following would need to happen for the costs to the council to exceed the interest income:

· Defaults to be ten times higher than the 2010 level indicated by CML; AND

· Property prices to drop 10% from the level at the time the mortgage is approved

My 20% figure includes the 10% equity.

tkane,

well you have to agree the council are exposed to losses here. But what do they gain if all goes well? Because the best that can happen is that one set of buyers will outbid another set, there wont be anymore housed, just the same number housed at a higher price. How is that best outcome in the interest of council tax payers?

[Sir Harold m]

In fairness to them, that's a good reply.

They've at least read your letter and answered the points.

..... doesn't make them right.

Errmmm, I got my reply yesterday. I'll post it later when Im at home.

It is virtually word for word identical to that one so Im not sure how well theyve read the complaints.

[Lennon]

<snip>

Because the best that can happen is that one set of buyers will outbid another set, there wont be anymore housed, just the same number housed at a higher price. How is that best outcome in the interest of council tax payers?

Unfortunately because in the main, council tax payers are home-owners, so although it isn't in there best interests, they percieve it as being in there best interests.

[Sir Harold m]

No they can withstand a 20% fall before the council is on the hook:

Over the five year period, the following would need to happen for the costs to the council to exceed the interest income:

· Defaults to be ten times higher than the 2010 level indicated by CML; AND

· Property prices to drop 10% from the level at the time the mortgage is approved

My 20% figure includes the 10% equity.

Have you also included the cost of funding that the council incurrs?

The interest the council receives must also be offset with their cost of funding before you can deduct any 'benefit' from their risk taking.

If the council fund at 3% then they have to earn 3% to break even before any risk is even accounted for.

[tkane]

tkane,

well you have to agree the council are exposed to losses here. But what do they gain if all goes well? Because the best that can happen is that one set of buyers will outbid another set, there wont be anymore housed, just the same number housed at a higher price. How is that best outcome in the interest of council tax payers?

How are prices going to rise based on 1 scheme against a backdrop of rising unemployment and falling demand for goods and services (i.e falling GDP)?

You say yourself there won't be any more people housed. EXACTLY! Renters will now be homewoners. I.e less BTL.]

I personally think the council is right to be confident about not being exposed to any major losses, as I don't see prices going down 20% nominally over 5 years.

[tkane]

Have you also included the cost of funding that the council incurrs?

The interest the council receives must also be offset with their cost of funding before you can deduct any 'benefit' from their risk taking.

If the council fund at 3% then they have to earn 3% to break even before any risk is even accounted for.

I doubt councils are going to "borrow" from creditors as they have their own interest free funding from council tax payers. Some councils have huge investment funds as came to light during the Icelandic crisis.

[Sir Harold m]

Because they haven't, as per their own calculations:

· Property valued at £100k, mortgaged at £95k ...;

· If the property was sold for £90k the bank would request £5k from the Council. In this case the value of the property would need to have fallen by 10% from the original valuation.

So, if this is no risk or negligible risk to the council, why would it be a bigger risk to the lender?

It is a big risk and its why the lender wont take it.

The old saying that "if you dont know who the fool is in the game the its probably you" aptly describes this shower of shite we call a council. The next time my kid's school wants books or equipment I'll be so pleased to hear them say 2sorry, we've spunked the cash on subsidsing the risks the banks were too reluctant to take"

Im planning to stand for the council in Peterborough this year. I think no matter how unpopular I am I will make this issue the whole focus of my campaign. They have no right to gamble with my money especially as the winners if they are right ebnd up being someone else.

It is the most stupid con trick anyone has ever fallen for.