zugzwang Posted January 19, 2014 Share Posted January 19, 2014 (edited) Legal & General CEO takes as stand against the Osborne/Carney bubble! By Kamal Ahmed 10:30PM GMT 18 Jan 2014 One of the leading players in the UK housing market has said that the Government should abandon its Help to Buy mortgage support scheme in London. Nigel Wilson, the chief executive of the insurance and investment giant, Legal & General, said that the scheme risked stoking a price bubble which would put homes out of the reach of all but the most affluent. In an interview with The Telegraph, Mr Wilson argued that house prices in London and the South East had reached "absurd" levels and said that the Government support scheme for mortgages for houses up to £600,000 was pushing up demand at a time when the supply of affordable housing was the problem. Last year, average house prices across Britain increased by 8.4pc, with the figure rising to 15pc in London. Inflation is running at 2pc and income growth at less than 1pc, meaning the "affordability index" for housing is rising. "Help to Buy turbo-charges an already rising market inside London – stopping it would be economically sensible and help prevent the North-South divide getting even wider," Mr Wilson said. "[The Government] should stop stoking up demand, there is already lots of demand and this will create a bubble for the future. There is a UK obsession with housing and our growth is excessively dependent on it." He said that young people were being encouraged into "over-leveraged" situations. L&G is a significant player in the housing market, buying the house builder Cala Homes in 2013 in a £210m deal from Lloyds. It also owns land across UK cities, which it is planning to develop for housing, and facilitates up to £20bn of mortgages. Investment in housing projects will come from L&G's investment arm, Legal & General Investment Managers, which has access to up to £15bn of funding to be used in the next decade. Mr Wilson said that one of the quickest routes to unlocking the housing market was to give older people the chance to downsize. He said the lack of options meant that retired people found it difficult to move to smaller houses, effectively blocking the release of family homes. L&G estimates that up to £1 trillion of equity is locked up in under-used homes owned by retired people and that up to 4.5m people want to move to more suitable accommodation. "Everybody talks about the first-time buyer, we need to be just as focused on the last-time buyer," Mr Wilson said. "There is a chronic shortage of choice for them. [unlocking] under-used housing and trapped equity is a big part of the solution to our housing problem." http://www.telegraph.co.uk/finance/economics/10582069/Call-to-scrap-Help-to-Buy-in-London-as-prices-become-absurd.html Edited January 19, 2014 by zugzwang Quote Link to comment Share on other sites More sharing options...
billybong Posted January 19, 2014 Share Posted January 19, 2014 It shouldn't need someone from L&G to have to spell out something like that. Not unless the people running the country are complete and utter crazy zombies. It's a no brainer. Quote Link to comment Share on other sites More sharing options...
Executive Sadman Posted January 19, 2014 Share Posted January 19, 2014 Is he on something? Why would he talk sense? Quote Link to comment Share on other sites More sharing options...
Bland Unsight Posted January 19, 2014 Share Posted January 19, 2014 Is he on something? Why would he talk sense? Insurance companies hold long positions and their profitability relies on those long positions showing reasonable investment returns. The money made from the underwriting (i.e. costs of claims vs income from premiums) is often trivial compared to the investment return made by investing the premiums over the period of time between when the premiums were received and when the claims were paid out. L&G seem to be sniffing around property. If UK property wasn't such a casino, it would offer a good home for their investments, but in order for it to make sense as an investment class, it would need to offer better yields, and in order to offer better yields you'd need to shake out all the speculative investment which is driving up the asset prices and extinguishing the yield. IMO insurers see things over a longer timescale than the investment banks, further the investment churn that provides the banks with fees doesn't help the insurers - so the insurers would rather see markets that were more rational and less like a rigged spread bet. Perhaps more importantly, they have skin in the game - in the sense that they have capital that they must invest and that they need to get both the return of and a return on. George Osborne has no such problem, which gives him much greater latitude to stoke a little credit boom and worry about the consequences later. Quote Link to comment Share on other sites More sharing options...
MARTINX9 Posted January 19, 2014 Share Posted January 19, 2014 No chance of this happening - because the Cabinet all have homes in central London. They could care not one jot - they have probably all made more than five times what they have earned from their ministerial salaries in house price inflation over the last couple of years. So even if they lose in May 2015 they will have made a pretty packet and lucrative jobs with JP Morgan and co will follow. Quote Link to comment Share on other sites More sharing options...
Venger Posted January 19, 2014 Share Posted January 19, 2014 No chance of this happening - because the Cabinet all have homes in central London. They could care not one jot - they have probably all made more than five times what they have earned from their ministerial salaries in house price inflation over the last couple of years. So even if they lose in May 2015 they will have made a pretty packet and lucrative jobs with JP Morgan and co will follow. One of them has a close family member who has just downsized, in fancy London, 'banking' a substantial sum. Their own real world trading concern... their are indications it is not performing as well as it perhaps did in the boom years. Why would they sell up if it's constant HPI without ever any HPC ahead? They've downsized, selling house for approx 14 million pounds, now in a house they bought for approx 9 or 10 million, and with their real world profit, they may care little now what their new home is worth in the future.... as it's back to a home again. For those who own and hold (for this x5 times profit), they would need to ensure there is never HPC, and the math is against them. One of them upsized in 2006 ish.) Also they can all upsize when a HPC comes, if they have jobs at investment bank after politics, and wealthy families too, against all the over overstretched housing-wealth chancers who will suffer more. "HPC, that's what you get for arguing against math, stupid b1tch." (Paraphrase of Simmons from Red vs Blue) Quote Link to comment Share on other sites More sharing options...
Venger Posted January 19, 2014 Share Posted January 19, 2014 Mr Wilson said that one of the quickest routes to unlocking the housing market was to give older people the chance to downsize. He said the lack of options meant that retired people found it difficult to move to smaller houses, effectively blocking the release of family homes. L&G estimates that up to £1 trillion of equity is locked up in under-used homes owned by retired people and that up to 4.5m people want to move to more suitable accommodation. "Everybody talks about the first-time buyer, we need to be just as focused on the last-time buyer," Mr Wilson said. This L&G guy has obviously not thought about the implications for imputed rent. It's very close to what I keep saying.. trillion of equity locked up in under-used home by retired people, their houses over-valued, blocking options for families. A lot of older owners would find it much easier to downsize, if we didn't have policies to support house prices, and got some HPC, for they'd be more inclined to get on the market and sell when their £300,000 - £850,000+ house is losing value, and set to lose more in months ahead. To bring rebalance. Them downsizing to the smaller homes, and families moving up to the family homes, at lower asking prices. Although a lot more good sheltered but independent accommodation for older people, which doesn't look awful, could be built cost effectively, in partial densification. Maybe L&G already has plans and solutions for their downsize. Quote Link to comment Share on other sites More sharing options...
Democorruptcy Posted January 19, 2014 Share Posted January 19, 2014 LG guy gets a mention in here: New report shows how average house prices in England and Wales have broken through the £1 million barrier in 43 different areas .... To further enhance stability, it emerged last week that the Bank of England might introduce longer fixed-rate mortgages — of 30 years or more — along the lines of the Japanese or American models. http://www.telegraph.co.uk/property/propertynews/10581814/The-43-areas-where-homes-cost-1-million.html Fuller version here BoE considers return of 30-year fixed rate mortgage to fight housing bubble Bank of England says "real risk of exposure to rising interest rates" could be removed by "locking in" mortgage rates http://www.telegraph.co.uk/finance/mark-carney/10575312/BoE-considers-return-of-30-year-fixed-rate-mortgage-to-fight-housing-bubble.html Quote Link to comment Share on other sites More sharing options...
Dweller Posted January 19, 2014 Share Posted January 19, 2014 LG guy gets a mention in here: Fuller version here Being somewhat slow and not very bright can someone explain how bringing in a 30 year fixed mortgage helps stop a housing bubble? Wouldn't this make property with seemingly unlimited potential to bubble just keep bubbling ? So would this be a 30 year fix at say 7% to safeguard lenders if interest rates drop again? I guess this is not about trying to help people buy is it, or stopping bubbles but must be about what makes MBS's or something look more appealing in the long term to investors, yes? As I say I know nothing about how any of this works, I sit here and try to learn something but most of it (not just Catflap ) ) is way way over my head. Quote Link to comment Share on other sites More sharing options...
TheCountOfNowhere Posted January 19, 2014 Share Posted January 19, 2014 The call should be to scrap the people who are behind this motion !!! Quote Link to comment Share on other sites More sharing options...
TheCountOfNowhere Posted January 19, 2014 Share Posted January 19, 2014 Sr. its not just London they are absurd. try 90% of the country! Quote Link to comment Share on other sites More sharing options...
zugzwang Posted January 19, 2014 Author Share Posted January 19, 2014 Being somewhat slow and not very bright can someone explain how bringing in a 30 year fixed mortgage helps stop a housing bubble? Wouldn't this make property with seemingly unlimited potential to bubble just keep bubbling ? So would this be a 30 year fix at say 7% to safeguard lenders if interest rates drop again? I guess this is not about trying to help people buy is it, or stopping bubbles but must be about what makes MBS's or something look more appealing in the long term to investors, yes? As I say I know nothing about how any of this works, I sit here and try to learn something but most of it (not just Catflap ) ) is way way over my head. 30yr fixes have long been the norm in the US, they certainly didn't stop the creation of a housing bubble over there since the banks just kept lowering the bar to qualification while using all manner of inducements (2yr teaser rates, zero down, negative amortisation etc.) to expand their shorter-term business. The alternative explanation for the introduction of 30yr fixes here is that UK house prices are once again bumping against the threshold of affordability even with 0% base rates, FLS and HtB and the only way for Osborne and Carney to continue to hold up the market is by extending lending terms (hence lowering monthly mortgage repayments). In effect, the backstairs reintroduction of the i/o mortgage. Quote Link to comment Share on other sites More sharing options...
R K Posted January 19, 2014 Share Posted January 19, 2014 (edited) Insurance companies hold long positions and their profitability relies on those long positions showing reasonable investment returns. The money made from the underwriting (i.e. costs of claims vs income from premiums) is often trivial compared to the investment return made by investing the premiums over the period of time between when the premiums were received and when the claims were paid out. L&G seem to be sniffing around property. If UK property wasn't such a casino, it would offer a good home for their investments, but in order for it to make sense as an investment class, it would need to offer better yields, and in order to offer better yields you'd need to shake out all the speculative investment which is driving up the asset prices and extinguishing the yield. IMO insurers see things over a longer timescale than the investment banks, further the investment churn that provides the banks with fees doesn't help the insurers - so the insurers would rather see markets that were more rational and less like a rigged spread bet. Perhaps more importantly, they have skin in the game - in the sense that they have capital that they must invest and that they need to get both the return of and a return on. George Osborne has no such problem, which gives him much greater latitude to stoke a little credit boom and worry about the consequences later. Good post. They're very much a VI positioning for their book. Which appears to be as a house builder, an investment house/bond provider, and their new 'innovative' equity-release products. They seem to be working both sides. Shame houses can't simply be a utility for people to buy or rent anymore - instead they have to provide a cut to the City of London. What a pallaver. "There is a chronic shortage of choice for them. [unlocking] under-used housing and trapped equity is a big part of the solution to our housing problem." L&G is now looking to enter the growing equity-release market, providing schemes that allow people to access funds linked to the value of their home. Some of the existing schemes have been criticised for charging high rates of interest. L&G is a significant player in the housing market, buying the house builder Cala Homes in 2013 in a £210m deal from Lloyds. It also owns land across UK cities, which it is planning to develop for housing, and facilitates up to £20bn of mortgages. Investment in housing projects will come from L&G’s investment arm, Legal & General Investment Managers, which has access to up to £15bn of funding to be used in the next decade. Edited January 19, 2014 by R K Quote Link to comment Share on other sites More sharing options...
Venger Posted January 19, 2014 Share Posted January 19, 2014 (edited) Trying to lock in values and not have them fall, would certainly suit the agenda of some people who don't think house prices in certain area are massively over-valued, when many others do think so. The asking prices in my area, for the limited inventory on market, turn my stomach as much as you look upon London house prices as being absurd. He talked about oldies in family homes, under-used housing, not downsizing, blocking things up for younger families from trading up. Velocity of new mortgages at lower prices for upsizers imo, is what he's mostly calling for. In a employment market where even many highly qualified senior young people have increased uncertainty about the security of their incomes/positions, going forwards. Where many are working without any opportunity of buying, given house prices are so high, and scary level of debt. He also said prices were absurd... that doesn't imply to me that he wants to get big-time get into equity release on such prices, unless it's at nicely punitive rates, for those who want to take the option, refusing to cut their cloth and downsize. They may have bent everything that can be reached to keep prices inflated, and try to make them go up even more, but something may have to give. And all positions to try and keep prices inflated, for older VIs, may make the crash even harder, or take everyone down with it. Edited January 19, 2014 by Venger Quote Link to comment Share on other sites More sharing options...
Dweller Posted January 19, 2014 Share Posted January 19, 2014 30yr fixes have long been the norm in the US, they certainly didn't stop the creation of a housing bubble over there since the banks just kept lowering the bar to qualification while using all manner of inducements (2yr teaser rates, zero down, negative amortisation etc.) to expand their shorter-term business. The alternative explanation for the introduction of 30yr fixes here is that UK house prices are once again bumping against the threshold of affordability even with 0% base rates, FLS and HtB and the only way for Osborne and Carney to continue to hold up the market is by extending lending terms (hence lowering monthly mortgage repayments). In effect, the backstairs reintroduction of the i/o mortgage. Thanks. So it is as I thought, this would do nothing to stop a bubble, indeed would be put in place in order to try to find ways to sustain the bubble by making taking a massive mortgage on an overpriced property more acceptable for some as a 30 year fix takes away the uncertainty of fluctuating interest rates on a property which could potentially drop 30 - 50% in value but at least in 30 years may have regained the price you paid for it give or take a few de-in-flationary spirals, booms and recessions etc etc... A 30 year fix just another form of trying to sustain current bubble rather than allow property to become affordable ... And sitting here reading and trying to learn, what I am kind of "getting" is that the money lenders not only don't need Mr & Mrs Average to invest their money in their Bank /Building Society (therefore offer interest rates that make that worth while) because what is happening now is all about the short term and the BIG BOYS playing futures etc for the benefit of the few, BIG BOYS who also do not need people buying homes either just a few suckers able to take on massive mortgages for 30 years in order to sustain the markets. Life does not seem to be about people any more, or homes, or jobs or anything really that once upon a time had "value" in very simplistic terms. Our lives appear to be more and more being lived at the mercy (or not) of the money lenders ...time surely for some sanity to enter in and start to turn some tables... Quote Link to comment Share on other sites More sharing options...
winkie Posted January 19, 2014 Share Posted January 19, 2014 Life does not seem to be about people any more, or homes, or jobs or anything really that once upon a time had "value" in very simplistic terms. Our lives appear to be more and more being lived at the mercy (or not) of the money lenders ...time surely for some sanity to enter in and start to turn some tables... Play them at their own game and move to where there are jobs, where there is value.....see how London would survive without the 'hard working people' to prop up unsustainable, overpriced, world investments.....money has now become far more important than society, people their jobs or working vibrant safe communities. Quote Link to comment Share on other sites More sharing options...
dances with sheeple Posted January 19, 2014 Share Posted January 19, 2014 Thanks. So it is as I thought, this would do nothing to stop a bubble, indeed would be put in place in order to try to find ways to sustain the bubble by making taking a massive mortgage on an overpriced property more acceptable for some as a 30 year fix takes away the uncertainty of fluctuating interest rates on a property which could potentially drop 30 - 50% in value but at least in 30 years may have regained the price you paid for it give or take a few de-in-flationary spirals, booms and recessions etc etc... A 30 year fix just another form of trying to sustain current bubble rather than allow property to become affordable ... And sitting here reading and trying to learn, what I am kind of "getting" is that the money lenders not only don't need Mr & Mrs Average to invest their money in their Bank /Building Society (therefore offer interest rates that make that worth while) because what is happening now is all about the short term and the BIG BOYS playing futures etc for the benefit of the few, BIG BOYS who also do not need people buying homes either just a few suckers able to take on massive mortgages for 30 years in order to sustain the markets. Life does not seem to be about people any more, or homes, or jobs or anything really that once upon a time had "value" in very simplistic terms. Our lives appear to be more and more being lived at the mercy (or not) of the money lenders ...time surely for some sanity to enter in and start to turn some tables... Lot less Big Boys than there used to be though? Newsnight the other night said something like "40 thousand less bankers at ..." can`t remember the bank. The system works best for the people at the top if the general public are heavily involved in mortgages, savings, credit cards and other "products", that is safe system safe skimming, Big Boys trading among themselves will lead to the system blowing up again. At the moment I think the money system is devouring itself with less and less small players taking part. Anyway, the trades of the Big Boys won`t stop Mr and Mrs Average from losing money on their property, and I don`t think the Tesco/Sainsburys graduate generation are even thinking about any kind of mortgage in enough numbers to keep it going. Those with big mortgage debt and who need property as a pension are going to take the big hit over the coming years. Quote Link to comment Share on other sites More sharing options...
zugzwang Posted January 19, 2014 Author Share Posted January 19, 2014 Lot less Big Boys than there used to be though? Newsnight the other night said something like "40 thousand less bankers at ..." can`t remember the bank. The system works best for the people at the top if the general public are heavily involved in mortgages, savings, credit cards and other "products", that is safe system safe skimming, Big Boys trading among themselves will lead to the system blowing up again. At the moment I think the money system is devouring itself with less and less small players taking part. Anyway, the trades of the Big Boys won`t stop Mr and Mrs Average from losing money on their property, and I don`t think the Tesco/Sainsburys graduate generation are even thinking about any kind of mortgage in enough numbers to keep it going. Those with big mortgage debt and who need property as a pension are going to take the big hit over the coming years. Increasing the mortgage term from 25 to 30 yrs adds around 9 per cent to the theoretical maximum that can be borrowed, everything else being equal. But the real scandal, thus far unreported in the UK, is that the Canadian govt has spent the past 2 years trying to undo Carney's handiwork at the BoC by shortening amortization terms from 35 to 30 and then latterly 25yrs, much to the annoyance of domestic mortgage brokers. Quote Link to comment Share on other sites More sharing options...
dances with sheeple Posted January 19, 2014 Share Posted January 19, 2014 Increasing the mortgage term from 25 to 30 yrs adds around 9 per cent to the theoretical maximum that can be borrowed, everything else being equal. But the real scandal, thus far unreported in the UK, is that the Canadian govt has spent the past 2 years trying to undo Carney's handiwork at the BoC by shortening amortization terms from 35 to 30 and then latterly 25yrs, much to the annoyance of domestic mortgage brokers. You still need people to take on the mortgage though? IMO this generation of potential buyers are not showing much sign of charging at the chum line? The Canadian borrowers are already on the chum line, in fact they have their head and half their a*rse stuck in the cage, no wonder they are wriggling like f*uck! Quote Link to comment Share on other sites More sharing options...
winkie Posted January 19, 2014 Share Posted January 19, 2014 You still need people to take on the mortgage though? IMO this generation of potential buyers are not showing much sign of charging at the chum line? The Canadian borrowers are already on the chum line, in fact they have their head and half their a*rse stuck in the cage, no wonder they are wriggling like f*uck! The lenders are in the business to lend money, they make their money from lending, they have an interest in the things they lend money for to carry on increasing in price.....more money for them, the longer it takes to pay for, more money for them, the more willing and able debtors they have the more money for them, the higher the prices will go the more money they make....they are the owners their rising asset until repaid in full or the debt is destroyed......they are not in the interest of destroying debt...... Quote Link to comment Share on other sites More sharing options...
Democorruptcy Posted January 19, 2014 Share Posted January 19, 2014 Being somewhat slow and not very bright can someone explain how bringing in a 30 year fixed mortgage helps stop a housing bubble? Can't you see the Daily Express already? Buy and your payment is fixed for 30 years but if renting your rent will keep going up. Quote Link to comment Share on other sites More sharing options...
dances with sheeple Posted January 19, 2014 Share Posted January 19, 2014 The lenders are in the business to lend money, they make their money from lending, they have an interest in the things they lend money for to carry on increasing in price.....more money for them, the longer it takes to pay for, more money for them, the more willing and able debtors they have the more money for them, the higher the prices will go the more money they make....they are the owners their rising asset until repaid in full or the debt is destroyed......they are not in the interest of destroying debt...... But they still can`t force people to take on the debt? Quote Link to comment Share on other sites More sharing options...
dances with sheeple Posted January 19, 2014 Share Posted January 19, 2014 Can't you see the Daily Express already? Buy and your payment is fixed for 30 years but if renting your rent will keep going up. Great, except the headlines are now saying that rent is going down, and everyone knows someone with an empty BTL hanging around? Quote Link to comment Share on other sites More sharing options...
winkie Posted January 19, 2014 Share Posted January 19, 2014 But they still can`t force people to take on the debt? Of course they can't......they could say payments 25% of net income for a term of up to two and a half lifetimes subject to interest rate adjustments and the value increasing annually......the amount irrelevant, the total amount payable irrelevant....but it is affordable today although highly unlikely to be repayable tomorrow. Quote Link to comment Share on other sites More sharing options...
Democorruptcy Posted January 19, 2014 Share Posted January 19, 2014 Great, except the headlines are now saying that rent is going down, and everyone knows someone with an empty BTL hanging around? 30 years or more is a long time. Even the UK should be able to manage a few years of wage rises in that time. Quote Link to comment Share on other sites More sharing options...
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