Nationwide Warns Of 'natural Correction' In House Prices

[slacker]

I can't discuss things with you. You live in a world of rainbows and unicorns, imo. Protect positions for those with extreme debt, and you protect values for outright owners, BTL, second home owners.. all the way up the market.

At no point have I said anything about protecting people with extreme debt or BLTs.

I have said I won't be celebrating a lot of people who have just bought losing every they have worked for.

I have said that getting and keeping a home should not be a gamble on timing.

I have said that even though you think you'll get your dream home after a 50% correction that:

1) You could still lose it later due to your timing not being as perfect as you think

2) A 50% correction in the market would not be a market you will be able to buy in to - unless you are all cash - you will not get the lending terms you are seeing today, IR will not be where they are today, the pound will not buy what it did yesterday post-50% correction

3) No government is going to allow a 50% correction, there is a precedent for socialising loses (with the banks in 2009), it would be very presentable for the government to socialise supporting mortgages further for 'hardworking families' given how easily they got away with it last time

[shindigger]

Surprised to see this in the Nationwide results report. It heads the 'Key Risks' section (my highlighting):

Dear Mr Javid.....etc etc

[shindigger]

6 years for me.

The prices have been sill since 2002.

Amen.

And even in 2002 nobody cared that their repayment "vehicle" endowment policy was also essentially dust.

[Venger]

At no point have I said anything about protecting people with extreme debt or BLTs.

I have said I won't be celebrating a lot of people who have just bought losing every they have worked for.

I have said that getting and keeping a home should not be a gamble on timing.

I have said that even though you think you'll get your dream home after a 50% correction that:

1) You could still lose it later due to your timing not being as perfect as you think

2) A 50% correction in the market would not be a market you will be able to buy in to - unless you are all cash - you will not get the lending terms you are seeing today, IR will not be where they are today, the pound will not buy what it did yesterday post-50% correction

3) No government is going to allow a 50% correction, there is a precedent for socialising loses (with the banks in 2009), it would be very presentable for the government to socialise supporting mortgages further for 'hardworking families' given how easily they got away with it last time

Shrill on.

Protect one position, and you protect them all (Values for outright owners of the mid-to-prime houses, second home-owners and much of the BTLers position).

Yeah I'm really fearful a 50% crash, and then purchase, would see me in loads more trouble than position I'm in now. And nice of you to suggest I'd/we'd probably MEW then for good times even if we bought at less ludicrous prices, or some geopolitical event like high oil prices means we'd be more stuffed than today. I'll buy when I'm ready, and safer than today - if I can buy at 50% off current values, even if there are still risk thereafter, even if house I buy is then repoed... "I WOULD ACCEPT THAT AS BEING FAIR." - (FFS)

3) I did a search the other day, of your posts, and I'm pretty sure I read you pushing that line before as well... "Gov won't let it happen" and "Homeowners are voters."

Edited May 28, 2014 by Venger

[shindigger]

Shrill on.

Protect one position, and you protect them all (Values for outright owners of the mid-to-prime houses, second home-owners and much of the BTLers position).

Yeah I'm really fearful a 50% crash, and then purchase, would see me in loads more trouble than position I'm in now. And nice of you to suggest I'd/we'd probably MEW then for good times even if we bought at less ludicrous prices, or some geopolitical event like high oil prices means we'd be more stuffed than today. I'll buy when I'm ready, and safer than today - if I can buy at 50% off current values, even if there are still risk thereafter, even if house I buy is then repoed... "I WOULD ACCEPT THAT AS BEING FAIR." - (FFS)

3) I did a search the other day, of your posts, and I'm pretty sure I read you pushing that line before as well... "Gov won't let it happen" and "Homeowners are voters."

You are Vincent Price and i claim my £5.

[Ash4781]

Surprised to see this in the Nationwide results report. It heads the 'Key Risks' section (my highlighting):

Thanks.

[Venger]

You are Vincent Price and i claim my £5.

However I saw Ian Ogilvy (rangey and handsome) in there. And "as Richard Marshall - he stood alone against the forces of devilish destruction."

So I prefer to think I have his role. I'm more = 'Return of The Saint'.

[Wurzel Of Highbridge]

All of this just shows you how easy it was for the government to manipulate prices up [htb, ffl] and now down [borrowing restrictions].

We are being played by those in power. It's times like this I wish the UK was in the Euro then the government wouldn't be able to manipulate people for political advantage to such a degree.

[The Masked Tulip]

I can see the Nationwide doing a Northern Rock or Co-Op in the future.

So, it is begining to sound like they have run out of baby boomers buying BTLs with their savings, run out of Mom & Pop putting down deposits and run out of first time buyers who want or can afford to buy even with the help of H2B?

[The Masked Tulip]

Here's the reason for that 'key risk' identification:

Amazing. Nationwide freely admits that it is lending into a housing bubble in London.

Good post. Very interesting. Yep, another Northern Rock or Co-Op down the line IMPO.

[The Masked Tulip]

House price inflation was the only thing keeping us from European style deflation, with the service sector buoyant and counterbalancing deflation in general shop prices. You can bet we will be in trouble if the one driver of UK inflation goes negative. Under that scenario interest rate rises will be off the table, but I suppose we shouldn't care if property has another down leg.

Don't tell the gold bugs.

[“Nasty Piece of work”]

I do suspect all those Clegg-esque divvs that put an offer in yesterday are rather windy bottomed, and withdrawing like buggery. I would not like to be waiting for my chain to complete.

[brunobald]

There is only a bubble in London and the South East - in most other areas prices are still below 2007 prices, seven years on.

The likelyhood therefore is that any dramatic falls will be limited to London/SE.

I don't know about that, house prices around my area (Central Scotland) are about 50% above what they should be for a functioning market. London is a proper bubble but that doesn't mean house prices up north haven't inflated out of reach or first time buyers too. Look what happened in Japan or even Ireland, the big citys took a pounding but so did the rest of the country, once sentiment changes it changes nationwide. Just look at some of the crap housing stock on offer, some of these places ONLY look attractive because they are perceived to go up in value when you buy them and nothing else. As soon as they represent a falling asset price it will look like the worn down worthless pile of bricks it is.

[Bland Unsight]

...

3) No government is going to allow a 50% correction, there is a precedent for socialising loses (with the banks in 2009), it would be very presentable for the government to socialise supporting mortgages further for 'hardworking families' given how easily they got away with it last time

I think that you are mistaken. What are we - six years down the line? It was never about the house prices - it was always about bank solvency. It's always been about readying the banks to take losses. As the High Street banks are essentially mortgage banks with some corrupt third rate corrupt investments banks glued on like a crap collage made with PVA glue and dried macaroni, where are those losses expected to come from? Also, it's too easy to exaggerate the size of the problem. Yes there is a lot of crappy lending out there, but only a relatively small proportion of the lending is truly crappy and only a small proportion of the housing stock is mortgaged.

Yes - the governments have stoked booms in the past, but show me where they've intervened in the bust solely in order to protect private households. An intervention focussed on banks which happens to help some leveraged asset holders is not a piece of evidence that the government can be relied on to intervened to help leveraged asset holders. In fact, when politically expedient any government can be relied upon to throw any politically weak and unimportant cohort under a bus with a smile on their faces, (ahem BTL?).

It seems to me impossible that BTL which was such a big part of the puzzle on the way up will not be part of the story on the way down. What you have is a group of speculators who can withdraw from the market if it moves against them. Let's say you're sitting on a BTL flat in the South East with is mortgaged at 75% LTV against a £200k. You've held it long enough to know that it is returning next to nothing on the rents vs costs side, the only angle is the capital appreciation. What do you do when a 20% market move pushes it close to negative equity? You sell. What does that do to prices? And so it goes all the way back to the beginning of this BTL crap, one cohort at a time.

The savvy BTLers think that they are safe because mortgage rates seem stuck down close to b*gger all and rents are holding up, but the thing that makes BTL 'work' is the leverage and that is the source of their downside risk. They are already dead. They just don't know it yet. As soon as a sizeable proportion of them start to work it out, we're off to the races again.

[Wurzel Of Highbridge]

Good post. Very interesting. Yep, another Northern Rock or Co-Op down the line IMPO.

Max Keiser was saying that RBS would require another bailout a few weeks back:

I can't find a reference to the Max video, but there are plenty of articles out there explaining how RBS has spent all of it's bailout money and has doubled down on executive bonuses. It's also been involved in lots of dodgy business and had massive fines.

http://www.heraldscotland.com/news/home-news/second-bailout-warning-in-rbs-damages-case.23854115

Second bailout warning in RBS damages case

Helen McArdle

NewsReporter

Wednesday 2 April 2014

A SCOTS businessman spearheading a potential multi-billion pound damages case against RBS has warned the scale of the scandal could tip the bank into a second bailout.

Neil Mitchell launched the RBS GRG Business Action Group yesterday to bring together hundreds of British businesses who believe they were wrongly forced into administration by the taxpayer-funded bank so it could profit from their assets.

[Wurzel Of Highbridge]

I think that you are mistaken. What are we - six years down the line? It was never about the house prices - it was always about bank solvency. It's always been about readying the banks to take losses. As the High Street banks are essentially mortgage banks with some corrupt third rate corrupt investments banks glued on like a crap collage made with PVA glue and dried macaroni, where are those losses expected to come from? Also, it's too easy to exaggerate the size of the problem. Yes there is a lot of crappy lending out there, but only a relatively small proportion of the lending is truly crappy and only a small proportion of the housing stock is mortgaged.

Yes - the governments have stoked booms in the past, but show me where they've intervened in the bust solely in order to protect private households. An intervention focussed on banks which happens to help some leveraged asset holders is not a piece of evidence that the government can be relied on to intervened to help leveraged asset holders. In fact, when politically expedient any government can be relied upon to throw any politically weak and unimportant cohort under a bus with a smile on their faces, (ahem BTL?).

It seems to me impossible that BTL which was such a big part of the puzzle on the way up will not be part of the story on the way down. What you have is a group of speculators who can withdraw from the market if it moves against them. Let's say you're sitting on a BTL flat in the South East with is mortgaged at 75% LTV against a £200k. You've held it long enough to know that it is returning next to nothing on the rents vs costs side, the only angle is the capital appreciation. What do you do when a 20% market move pushes it close to negative equity? You sell. What does that do to prices? And so it goes all the way back to the beginning of this BTL crap, one cohort at a time.

The savvy BTLers think that they are safe because mortgage rates seem stuck down close to b*gger all and rents are holding up, but the thing that makes BTL 'work' is the leverage and that is the source of their downside risk. They are already dead. They just don't know it yet. As soon as a sizeable proportion of them start to work it out, we're off to the races again.

Another suprising source of 'risk' for the BTL market is the insecure short term tenancies meaning that BTL properties are extremely liquid.

If landlords were tied into several year contracts that they couldn't break even if they woke up one morning and decided to flog YOUR HOME it would make BTL properties far less liquid.

[shindigger]

All of this just shows you how easy it was for the government to manipulate prices up [htb, ffl] and now down [borrowing restrictions].

We are being played by those in power. It's times like this I wish the UK was in the Euro then the government wouldn't be able to manipulate people for political advantage to such a degree.

Amen. Our trunks would be on the other side of the pool by now.

[shindigger]

Don't tell the gold bugs.

If we get "proper" deflation, gold will be the "go to" again. IMO.

It didn't soar in 2011 because if inflation fears did it?

[slacker]

I think that you are mistaken. What are we - six years down the line? It was never about the house prices - it was always about bank solvency. It's always been about readying the banks to take losses.

There are still dozens of mechanisms they can engage to scaffold the issue (30yr fixed, MIRAS, stampduty thresholds, negative IR, HTB3, IO, 110% LTV etc.)

Outside of London commute distance the rises have been modest - if at all. Flats in Manchester look cheap and are not selling even at those prices.

Locally a 20% drop on a price sees it sell that week (based on a survey of one as I've said before). Most under-40s don't have any long-term debt right now.

Mortgage Strategy had an article on government looking at how they could enable more borrowing to over-75s ...

I'm just not seeing where a 50% fall is coming from without some black-swan event. I can see a 10-20% correction now the market is slowing - and can see a buyer/seller stand-off. So much property is held by "not selling less than it's worth" and some of them I know have had a property listed for 8 years now and still won't move on it.

The Labour government socialised support for the most unpopular group of people in the country (when it comes to sympathy for losses) - why would a Tory or coalition not socialise support for 'hardworking families' who have large debt.

[Venger]

Another suprising source of 'risk' for the BTL market is the insecure short term tenancies meaning that BTL properties are extremely liquid.

If landlords were tied into several year contracts that they couldn't break even if they woke up one morning and decided to flog YOUR HOME it would make BTL properties far less liquid.

Means it's easier for lenders to repo and sell. And landlords need all the hassle of voids, risk of new tenants etc etc etc.

How to ... Buy to Let (BTL) in London.

24-05-2014

There are a lot of tenants for every property in London, but, as one agent told me "98% of them are rubbish". This highlights to me the importance of intense tenant referencing or ensuring that your lettings agent performs the necessary checks.

The further you move out of Zones 1 and 2, the more likely you are to be letting to LHA.

Look for private estates in the outer zones. Private properties sit closely to social housing in London and this seems to be the norm. Just be sure to walk the streets of the private estate to get a feel for how "safe" the area is.

Vanessa at http://www.propertytribes.com/how-to-buy-to-let-btl-in-london-t-11293.html

The Sh1t I Hate About Being A Landlord

..I hate having to chase rent, but a lot of the times it comes with the territory. Since being a Landlord, “professional debt collector” has been added to my CV.

Only in an ideal world will every tenant make rental payment on time every month. Unfortunately, I don’t live in Disney World and I don’t have hot sex with Jessica Rabit every night. Instead, I’m climbing up the arses off tenants that feel it appropriate not to pay rent.

..I haven’t had many tenants over the years because I’m still new in the game, but I’ve had a healthy mix of the good and the ugly. I’ve recently lost a really good tenant, and it genuinely made me recognise the importance of quality tenants. It’s tough to find decent tenants, but it’s even tougher when you’re trying to replace an excellent tenant because you already have high expectations.

The thing with the buy-to-let game is that it’s based on a partnership between the landlord and the tenant; if there’s a weak link in the chain then things can turn sour pretty quickly.

loads more, in full: http://www.propertyinvestmentproject.co.uk/blog/things-i-hate-about-being-a-landlord/

And I totally agree with ex nihilo de novo's position

[WageslaveX14]

I haven't posted for a while - quiet day at work, so here's a personal anecdotal.

Where I was renting in South London, asking prices literally went up by 50% last year. I had previously held off buying not very nice places at £625,000 due to a perceived lack of value on my part, which are now on the market for around £925,000. These places are in Tooting Bec, so not exactly prime London. I have to admit that I now wish I had bought a flat there in 2010-ish, which would have turned a £200k-ish profit by now, providing a very nice unearned, tax-free windfall. Prices were basically flat from 2009 to late 2012, but the past 18 months have just been crazy. 2-bed flats are now on the market for £6-700,000. However, I didn't buy, even in the face of family pressure. This still makes me feel a bit sick.

I can't see how these prices can be sustained - no investor would touch these, and I don't know who has that much money but who would also live there - it's actually not as bad an area as most people think, but it's not investment banker territory.

As a confession, I recently bought in the Outer Boroughs (would rather not say where). The commute takes roughly the same time (45 mins door to door versus 40 mins previously), but a place with the same space on the street in Tooting Bec where I had been renting would literally have cost at least £600-700k more. Prices had gone up in my new area by just under 20% in the 3 years before I bought (my place last sold in 2011), and I now expect to see a correction in prices where we are too (if it drops by less than 10%, I'll be content). I don't think I got a very good deal on the price, but I would be happy living there for the next 10 years.

Personal circumstances (sprog on the way very soon - wife wanted to nest) and the availability of a very cheap 5-year fixed rate offset, added to the fact that I have been expecting a crash for years and it still hasn't come, led me to buy. If my circumstances had been different, I might have held off for another year until after the election, but I'm now locked in. I should have stopped looking at HPC after exchange, but I still take a bit of ghoulish pleasure in it.

A crash needs to happen for the good of the country - if it hits me, then I will of course be very annoyed, but I can't see how the madness of the past 18 months in London can continue.

[Venger]

The Labour government socialised support for the most unpopular group of people in the country (when it comes to sympathy for losses) - why would a Tory or coalition not socialise support for 'hardworking families' who have large debt.

I've got a picture on my desk. My sister, myself on each side of John Major, when he was in Manchester. He was up in Manchester, after Manchester United's treble in 1999.

Keep asking yourself that question.

[Guest]

Perhaps as demand for rental properties slows, the new breed of landlords will have to choose between sub standard tennants, voids, or selling up and getting out of the game...

[crashmonitor]

Perhaps as demand for rental properties slows, the new breed of landlords will have to choose between sub standard tennants, voids, or selling up and getting out of the game...

As someone who could buy BTL I fail to understand the attraction. Beyond the tenants not paying and trashing the joint there is the depression factor of having to buy a house you would need a lobotomy to live in yourself. Sink council estates are hot favourites for BTL in Nottingham. Don't these people realise there are alternative investments.

[slacker]

Perhaps as demand for rental properties slows, the new breed of landlords will have to choose between sub standard tennants, voids, or selling up and getting out of the game...

While I'm 'shilling' - I'll bite on the BTL thing too.

If the scenario of a +30% correction happens, we get in to bank bail-in territory as the banks become insolvent and the IMF plan they trialled in Cyprus kicks-in (e.g. any deposit over £85K gets converted in to bank shares).

So we end up with a similar perversity to 2009, where all the smart people think the property should tank - but the opposite happens - a correction big enough to trigger a bail-in causes:

1) Cash to flood back in to bricks/mortar

2) Mortgages ramp to insane levels (15%+) to recover from solvency and price in risk from further falls

3) Savings rates go very negative against inflation

So even though on the face of it BTL is unprofitable - it could still be a safer option for preserving principal and hedging against the negative savings rates. Especially if FTSE tanking which it likely would in this situation.