Carney Speech Live Tonight 9Pm

[zugzwang]

Maybe price-to-income can rise a bit more with interest rates at 0.5% and HtB, but not much. Real incomes are down substantially (15%?) on 2007, of course, so the previous peak of 5.82 is surely out of reach.

Price to earnings ratio: key facts

The regulators are primarily concerned about how incomes compare with mortgage sizes, fearing borrowers overstretch themselves. But it is useful to consider house prices against incomes to understand where the market it is today. These figures, based on Halifax data and published by the Telegraph last week, compare house prices to wages. It is also seen as a key measure of value for the property market.

– It has risen from 4.73 to 4.96 so far this year alone, according to Halifax;

– The long-term average is 4.1;

– Its highest recorded level was 5.82 in April 2007;

– The peak before the 1989 boom turned to bust was 4.97;

– It remained constantly over 5 between March 2004 and July 2008;

[Pytyr]

Maybe price-to-income can rise a bit more with interest rates at 0.5% and HtB, but not much. Real incomes are down substantially (15%?) on 2007, of course, so the previous peak of 5.82 is surely out of reach.

Price to earnings ratio: key facts

The regulators are primarily concerned about how incomes compare with mortgage sizes, fearing borrowers overstretch themselves. But it is useful to consider house prices against incomes to understand where the market it is today. These figures, based on Halifax data and published by the Telegraph last week, compare house prices to wages. It is also seen as a key measure of value for the property market.

– It has risen from 4.73 to 4.96 so far this year alone, according to Halifax;

– The long-term average is 4.1;

– Its highest recorded level was 5.82 in April 2007;

– The peak before the 1989 boom turned to bust was 4.97;

– It remained constantly over 5 between March 2004 and July 2008;

That long term average looks a bit fishy to me. I know the data set is different but the nationwide FTB earning/HP ratio average is 3.4 going back to 1983. However, before 2003 (and we know what happened during 2003) it was never over 4 (peak was 3.9 in 1989) and the average from 1983 to 2003 was 2.8. Peak post 2003 was 5.4 up to Q3 2007 (that legendary quarter!)

http://www.nationwide.co.uk/about/house-price-index/download-data#xtab:affordability-benchmarks

FTB HP Earning ratio

I think your info is from the telegraph story and is suspect their maths is a bit off, makes things look not so bad if we're still only that much above the average, if the avereage is more like 3 then it's possibly a more realistic figure. Any idea where they got their figures from?

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10897516/How-new-mortgage-limits-could-work-and-the-impact-on-house-prices.html

[FreeTrader]

That long term average looks a bit fishy to me. I know the data set is different but the nationwide FTB earning/HP ratio average is 3.4 going back to 1983. However, before 2003 (and we know what happened during 2003) it was never over 4 (peak was 3.9 in 1989) and the average from 1983 to 2003 was 2.8. Peak post 2003 was 5.4 up to Q3 2007 (that legendary quarter!)

http://www.nationwide.co.uk/about/house-price-index/download-data#xtab:affordability-benchmarks

FTB HP Earning ratio

I think your info is from the telegraph story and is suspect their maths is a bit off, makes things look not so bad if we're still only that much above the average, if the avereage is more like 3 then it's possibly a more realistic figure. Any idea where they got their figures from?

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10897516/How-new-mortgage-limits-could-work-and-the-impact-on-house-prices.html

To be fair on the Telegraph, the numbers are as reported: the current Halifax P/E ratio is 4.96 and the mean of the series is 4.09. The median is 3.79.

They made a small error with the maximum: it was 5.83 in July 2007.

[Pytyr]

Fair enough, FT. My bad for being suspicious of Telegraph staff and house price maths! I suspect the number would be considerably less if you didn't include the 2003 onwards ramp up, the median shows that.

[Democorruptcy]

That long term average looks a bit fishy to me. I know the data set is different but the nationwide FTB earning/HP ratio average is 3.4 going back to 1983. However, before 2003 (and we know what happened during 2003) it was never over 4 (peak was 3.9 in 1989) and the average from 1983 to 2003 was 2.8. Peak post 2003 was 5.4 up to Q3 2007 (that legendary quarter!)

http://www.nationwide.co.uk/about/house-price-index/download-data#xtab:affordability-benchmarks

FTB HP Earning ratio

I think your info is from the telegraph story and is suspect their maths is a bit off, makes things look not so bad if we're still only that much above the average, if the avereage is more like 3 then it's possibly a more realistic figure. Any idea where they got their figures from?

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10897516/How-new-mortgage-limits-could-work-and-the-impact-on-house-prices.html

If you are going that far back surely you have to take into consideration that mortgages would be based on single income not joint income? The move from main income, to 3x main + 1x 2nd, 2.5x joint, up to 4.5x joint totally masks how houses look affordable on lending multiples but it's only because it's now expected to be based on two incomes. 4.3x joint incomes of £25k and £15k is £172k which is practically 7x the main income. The CML state whatever income is put on the mortgage application, which will now be a lot more joint incomes than 30 years ago.

[zugzwang]

If you are going that far back surely you have to take into consideration that mortgages would be based on single income not joint income? The move from main income, to 3x main + 1x 2nd, 2.5x joint, up to 4.5x joint totally masks how houses look affordable on lending multiples but it's only because it's now expected to be based on two incomes. 4.3x joint incomes of £25k and £15k is £172k which is practically 7x the main income. The CML state whatever income is put on the mortgage application, which will now be a lot more joint incomes than 30 years ago.

Sorry, I'd meant to make that distinction myself. Clearly the 2007/8 peak required a double income and liar loans to sustain. Osborne's bubble is the same but with ZIRP and FLS/HtB subsidies taking the place of liar loans. Looking at those metrics and taking into account cost of living increases we must be close a top again, the last puffs of upward momentum being driven by foreign speculators and 'greater fool' copycat activity.

[Venger]

I don't get your position on this at all, frederico.

It doesn't matter whether they WILL increase rates earlier, Carney's words have led to the EXPECTATION that they will increase rates earlier. Consequently market rates have increased in response.

My view is some opportunities and weaknesses were evident in 2012 (housing). I missed out on a small house (smallest/ugliest-but no falling down) in one of the prime spots I want to buy in, in late 2012. Inheritor keenly priced it to sell, vs other houses, and began cutting asking price aggressively from late 2011. Until by mid 2012 it began to attract my interest. Family view wasn't sweet on it because of it being so 70s inside with turquoise carpets - my own fault for letting them influence me. Seller then surprises me by accepting an offer 12% less than new slashed asking price (I find out in 2013 what it sells for). So it went for 30% less than original asking price.

Then came HTB in March 2013, and announcement of HTB2 to follow, and from that point onwards prices firmed up and also altered owner/buyer expectations - I think it saw a big push of savers into property again too, including investment property/BTL. Owner could put it on market today at £100,000 more in same condition as 2011 and get viewings and easily likely see buyer paying asking price or £80K more than late 2012. Well perhaps not today, as maybe weakness is coming back. Anytime before MMR let's say.

So just another proof that markets can almost immediately react to what's said - given a view of future policies / decisions - imo - even if policy/Gov money down side is actually limited. I'm not sure how but just believe HTB1+2 whipped up second-hype into property - a view that Gov will support house prices, reinforced by how they all seem to talk about 2007 prices as being a fair-value target.

Sterling's appreciation is an unintended consequence of foreign speculators buying into the London housing bubble. Osborne is the chief architect of said policy.

That part of his speech jumped out at me.

8:09 (re how we rebalance/future) "excessive reliance on consumption or non tradable sector such as housing, all financed by borrowing abroad and an overvalued exchange rate, could prove only temporarily satisfying." He also mentioned 10% sterling rise since a while ago. Also said market expect "only" 2.something% by x-date.

[cybernoid]

But on the surface he seems to be saying sensible things. Maybe moving in a better direction at last?

The fact he identifies the situation as a problem and talks at least some sense puts him in a different league to labour who got us here in the first place.

Cautiously optimistic. But, more pragmatically, who else are you going to vote for? A vote for labour is plainly ridiculous, and no other party stands a realistic chance of power.

When labour set the bar so low it only takes a couple of sensible sentences to give us hope, what a shower.

[Venger]

Anything in this? From MSE Mortgage forum (where for the longest time in my memory, when dipping in occasionally, buyer threads only have ever been buyers concerned they might not get the biggest mortgage they need to meet sellers asking prices (the victims so many love to apologise and find excuses for)

http://forums.moneysavingexpert.com/showthread.php?t=4994283

OP: Got a mortgage quote in mid-May for a five year fixed term at 3.34%. Loads of stuff has happened in my life recently, so didn't have a chance to phone the Mortgage Adviser back to tell him I'd like to proceed until today. So phoned up only to be told that the rate went up to 3.64%(!!!) today

I suppose it is Friday 13th, but really, a 0.3% increase overnight???

--

Reply: Market reaction to Mark Carney's comments last night.

Also a thread where he's coming up to exchange in London and now getting cold feet, thinking he'll be stuck in an over-priced 1 bed flat just as the crash comes in.

[interestrateripoff]

Trying to scare more people into fixed rate mortgages which makes moving interest rates in some respects pointless?

And then there's the impact on govt borrowing....

[Venger]

Trying to scare more people into fixed rate mortgages which makes moving interest rates in some respects pointless?

And then there's the impact on govt borrowing....

Even without any base rate rises, the cost of money is getting more expensive, which should manifest itself in higher mortgage rate deals.

I won't be listening to any more excuses and sympathy giving for or from those who don't understand this.

6th May 2014

Sylvia Waycot, editor of Moneyfacts.co.uk, said: “It is a very different mortgage market to four months ago when the government withdrew its controversial FLS, thereby cutting access to cheap money.

“Banks are facing scrutiny over balance sheets via stress tests and capital holding requirements, plus there are increased costs of regulation and processes such as MMR.

“Don’t make the mistake of thinking that we need a change to base rate to increase the cost of mortgages, as prices are creeping upwards now. So if fixed rates are your preference, now is the time to fix.”

[frederico]

I don't get your position on this at all, frederico.

It doesn't matter whether they WILL increase rates earlier, Carney's words have led to the EXPECTATION that they will increase rates earlier. Consequently market rates have increased in response.

Fair enough, maybe true, however, my position is that it won't change the fundamentals, if anything it will make things worse more quickly.

I still think its all a bluff, or anticipation of something I don't know about.

My reasoning is , unemployment is supposedly low, inflation is supposedly low, why put rates up, unless for some reason you are anticipating inflation due to increased demand (I'm talking about the real economy, not the housing market here). I don't see anything that is going to result in money swashing about, unless wages rise substantially and that isn't going to happen.

Of course they could be thinking about the housing market overheating (first time for everything).

But they would destroy what is left of the real economy.

They know time is running out on something. My bet is govt. borrowing.

[wonderpup]

Sterling's appreciation is an unintended consequence of foreign speculators buying into the London housing bubble. Osborne is the chief architect of said policy.

Yes- Help to buy is not the innocent leg up to poorer would be home buyers it's claimed to be- it's a ringing declaration that the UK government stands behind the housing market and will throw as many taxpayers under the bus as it takes to keep that market from crashing.

[FreeTrader]

Lenders pull the plug on cheap home loans after Bank governor warns interest rates could be on rise by the end of the year

Lenders are pulling their cheapest mortgage deals because they are being snapped up by homeowners panicking that rates may be about to rise.

The cheapest home loans have been disappearing since Bank of England governor Mark Carney warned last week that interest rates may rise later this year.

[…]

So great is the sudden demand for bargain deals that many lenders are having to withdraw their cheapest rates. On Friday, Yorkshire Building Society increased the cost of a range of its mortgages.

And yesterday, the cheapest two-year rate on the market, offered by West Bromwich building society, was withdrawn.

This was quickly followed by an increase in the cost of two-year fixed deals at Newcastle building society.

http://www.dailymail.co.uk/news/article-2659632/Lenders-pull-plug-cheap-home-loans-Bank-governor-warns-rates-rise-end-year.html

[rantnrave]

Seems that Carney's talk is having the desired effect - the talk of raising IRs is having an impact without them actually having to be raised.

[rantnrave]

Let me guess - savings rates are rising by an equal amount??

[cybernoid]

Seems that Carney's talk is having the desired effect - the talk of raising IRs is having an impact without them actually having to be raised.

And if the effect is the same, what does it matter if base rates don't rise? From an affordable housing perspective.

The cost of borrowing can rise without a move in base rates, we get what we want either way.

[Bruce Banner]

And if the effect is the same, what does it matter if base rates don't rise? From an affordable housing perspective.

The cost of borrowing can rise without a move in base rates, we get what we want either way.

Yes, in the present situation, base rate seems to be effectively decoupled from the actual rate charged on borrowing and that paid on savings.

[TheCountOfNowhere]

"Lenders are pulling their cheapest mortgage deals because they are being snapped up by homeowners panicking that rates may be about to rise."

So their game was to try AND panic people into buying even more so than before.

The tories and the Boe are a disgrace.

[Bland Unsight]

2 yr gilt yield was up a little Friday and yesterday. Marginally up today. Up almost 20 basis points since Carney's suggestion on Thursday that the base rate may move sooner than the market expects. 2 year gilt yields now more than 80 basis points above the lows of Summer 2012. Will be interesting to see how much the 2 year fixes are up in the next Bank of England Bankstats release. They finally appear to have stopped falling. The latest prints are 30-Apr-14 2.54 31-May-14 2.56 Can't be bothered to update this graph:

but you can see that they look to have bottomed out at about 2.3% are are now set to rise on a sustained basis. Picking up on BB's point, absent the Funding for Lending collateral swap, every reason to believe that the banks' funding costs will be materially above the 2 year gilt rate. If 2 year gilt yields move up or just hold at these new higher levels as the effect of FLS on 2-year fixes unwinds, we really could be off to the races on mortgage rates.

[FreeTrader]

2 yr gilt yield was up a little Friday and yesterday. Marginally up today. Up almost 20 basis points since Carney's suggestion on Thursday that the base rate may move sooner than the market expects. 2 year gilt yields now more than 80 basis points above the lows of Summer 2012. Will be interesting to see how much the 2 year fixes are up in the next Bank of England Bankstats release. They finally appear to have stopped falling. The latest prints are 30-Apr-14 2.54 31-May-14 2.56 Can't be bothered to update this graph:

but you can see that they look to have bottomed out at about 2.3% are are now set to rise on a sustained basis. Picking up on BB's point, absent the Funding for Lending collateral swap, every reason to believe that the banks' funding costs will be materially above the 2 year gilt rate. If 2 year gilt yields move up or just hold at these new higher levels as the effect of FLS on 2-year fixes unwinds, we really could be off to the races on mortgage rates.

The biggest influence on fixed mortgage rates is swap rates, but your basic point still stands - the two year swap rate rose 15 bps on Friday after Carney's speech and another 3 bps yesterday (I haven't got the figure for today, but it likely increased again).

Mortgage brokers are now talking of an average 0.25% rise in fixed rates in the next two or three weeks.

This is the latest chart:

[Venger]

Let me guess - savings rates are rising by an equal amount??

0% is a good return vs the losses coming for house price, and perhaps other investments.

As that money Agony Aunt on R4 said today, inflation is low, so savings rates never going to be up there anyway.

She was quite good as she gave short shrift to the big debtors (x15 income mortgage), suggesting they'll have to sell and... even rent. You could hear it hanging in the air, in a silence from the presenter, and feel the confusion in the minds of much of the listening audience from this advice... "But they're home-owners."

And from my point of view, just about all my other market participant competitors have to endure same rates. Including the ones telling her they saved for retirement. Others have been chasing risky yield into the market, inc BTL, which all looks topped out. Perhaps they'll look to cash in and bring their their hyperinflated valued houses, and decide to accept a "less than it's worth at peak" post-MMR offer.

Good info ex nihilo.

[Bland Unsight]

The biggest influence on fixed mortgage rates is swap rates, but your basic point still stands - the two year swap rate rose 15 bps on Friday after Carney's speech and another 3 bps yesterday (I haven't got the figure for today, but it likely increased again).

...

I guess that what you are saying about swap rates makes sense, and I'm always happy to learn something!

Swap rates turned the corner April 2013 - over a year ago - and about a year before fix rates turned the corner, and with the benefit of hindsight about a year after the 2-year started moving off what presently appears to have been its bottom back in July 2012 (Bloomberg chart)

Source: Bank of England Trends in Lending April 2014

Is it just me, or are other people starting to get the feeling that Carney is inclined to let mortgage rates rise and 'shake the tree' a little bit? Reading between the lines guided largely by a desire to see what a I want to see I'm also willing to entertain the notion that there has been a back and forward between Osborne and his politicos and Carney and his technocrats with respect to letting the present bubble run unchecked to the General Election or not, and that the decision has been taken to move against the bubble now. I really think that we may be into the next leg down.

[Bland Unsight]

...

This is the latest chart:

...

I do love that anaemic but persistent trend in the SVRs - back to 6% by 2031 no doubt, just in time for the largest cohort of dodgy as hell 2006 vintage self-cert interest only mortgages coming to the end of their term. About the same time that on present patterns of FTBer age the first cohorts who began their working lives with £50k of student loan debt and a zero hours contract will be looking to buy houses.

<KevinKeeganRant> I'd love it if all those BTL morons who incapacitated the economy with ludicrous mortgage borrowing had to watch house prices fall for ten years and then fall some more </KevinKeeganRant>

[winkie]

http://www.swap-rates.com/UKSwap_extended.html