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spyguy

Middle-Class Cash Crisis

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Here's the blog post.

http://ftalphaville.ft.com/marketslive/2014-11-06/

The relevant comments are made by a posted called 'Flâneur'

I've heard + seen similar. Its good to see its not just me:

Flâneur

First things first. I am hearing of a notable upswing in commercial property transactions lately. This of course is a key indicator of stress in the Tory Burgher constituency. Private pension funds have been drained of withdrawable cash. So the holders are now trying to get cash by borrowing against properties held in pensions. This results in the property being 'sold'. Payments must then be made into the pension fund to service the mortgage on a regular basis. Its a short term fix.....

Flâneur

There is a serious cash-flow problem in the middle classes. Commercial property is being liquidated to fund lifestyles as 1) new pension regs arent in yet and 2) professional businesses are not back to pre-2008 turnover levels. Thats the first part of DPL.... the prefessions are getting squeezed badly and liquidating down.

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Flâneur

Le Crunch part deux - BBC R4 yesterday had a phone-in about mortgages. Without exception (the ones I heard) were owner occupiers on Interest Only mortgages, now trapped and unable to change lenders. IIRC almost 50% of mortgages between 2000-08 were interest only. That means that for over a decade some people havent even been paying their mortgages down. There is big, big trouble brewing here.

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Flâneur

That means that for over a decade some people havent even been paying their mortgages down. There is big, big trouble brewing here.

The policy makers are going to allow the tenants(...) to continue paying interest (rent) for ever. Either on a payment basis at current rates or on a Zero payment roll up basis on higher rates.

You couldn't make it up. Slaves.

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and yet mortgage repayments are close to their lowest as a % of incomes in our lifetimes, typically when we see the lows in long term property cycles.

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Flâneur

Le Crunch part deux - BBC R4 yesterday had a phone-in about mortgages. Without exception (the ones I heard) were owner occupiers on Interest Only now trapped and unable to change lenders. IIRC almost 50% of mortgages between 2000-08 were interest only. That means that for over a decade some people havent even been paying their mortgages down. There is big, big trouble brewing here.

Plenty are trapped......in many cases it was a choice they made themselves, play and spend today, tomorrow never comes....a high price to pay for money, been gone spent and enjoyed yesterday.....when stuck unable to move you have to pay the rate they ask from you....you can't tell people, it is up to them how they choose to live their lives.....unless of course a major crises happened such as health or loss of job..... far too many cases they chose to IO re-mortgage to collect more debt and spend on nice things than pay their debts down.....the lenders make the most from types like that, easy money for them. ;)

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and yet mortgage repayments are close to their lowest as a % of incomes in our lifetimes, typically when we see the lows in long term property cycles.

You need to qualify that with the fact we've had unprecedented CB activity to suppress lending rates.

If the CB's had followed their normal MO's then base rates would be RPI+ 200BP and mortgage rates would be some 200 BP north of there ie not 3%.

One of the problems of looking at charts in isolation viz a long term trade.

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Flâneur

First things first. I am hearing of a notable upswing in commercial property transactions lately. This of course is a key indicator of stress in the Tory Burgher constituency. Private pension funds have been drained of withdrawable cash. So the holders are now trying to get cash by borrowing against properties held in pensions. This results in the property being 'sold'. Payments must then be made into the pension fund to service the mortgage on a regular basis. Its a short term fix.....

Flâneur

There is a serious cash-flow problem in the middle classes. Commercial property is being liquidated to fund lifestyles as 1) new pension regs arent in yet and 2) professional businesses are not back to pre-2008 turnover levels. Thats the first part of DPL.... the prefessions are getting squeezed badly and liquidating down.

Here in the Midlands,there are plenty of people who purchased CRE thirty years ago for next to nothing and are now selling into markets where 20% of shops are empty.It's going to be a struggle but they'll no doubt get a bite somewhere above their buy price.There's a second class who bought into the dream in the early milenium when city centre CRE still had a future who paid a full price.

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Unless there's more than one Flaneur[1], that's a seasoned investor and professional investment writer.

[1] which is of course entirely possible. Imposters like a good name.

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We've always saved and lived within our means (smaller house, less flashy cars than our "peers").

I've lost count of the times "schoolgate" acquaintances have made mildly disparaging comments regarding our lifestyle, the obviously implication being that we must be somewhat less financially successful (which we may be, but who cares?).

This appears to have stopped, being replaced with worried enquiries as to if we are "concerned about our debt". Mrs EC and I try to limit our response to rueful smiles, although I sometimes make a comment about interest rates having only one way to go from here.......

We've also noticed a distinct decrease in the number of flash second cars (Range Rover Evoque seems to be the standard here), some of which seem to have disappeared overnight, and the number of 4/5 bed family homes on the market is rising rapidly (and they're not shifting).

I do think that the squeeze is coming on. I guess that the bank of MEW is shut as values round here haven't really moved in the last 3 years.

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The policy makers are going to allow the tenants(...) to continue paying interest (rent) for ever. Either on a payment basis at current rates or on a Zero payment roll up basis on higher rates.

You couldn't make it up. Slaves.

Ray Boulger MoneyBox last weekend.

Mortgage For Life.

Satandander.

Others to follow.

Bastards will not let go.

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We've always saved and lived within our means (smaller house, less flashy cars than our "peers").

I've lost count of the times "schoolgate" acquaintances have made mildly disparaging comments regarding our lifestyle, the obviously implication being that we must be somewhat less financially successful (which we may be, but who cares?).

This appears to have stopped, being replaced with worried enquiries as to if we are "concerned about our debt". Mrs EC and I try to limit our response to rueful smiles, although I sometimes make a comment about interest rates having only one way to go from here.......

We've also noticed a distinct decrease in the number of flash second cars (Range Rover Evoque seems to be the standard here), some of which seem to have disappeared overnight, and the number of 4/5 bed family homes on the market is rising rapidly (and they're not shifting).

I do think that the squeeze is coming on. I guess that the bank of MEW is shut as values round here haven't really moved in the last 3 years.

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We've also noticed a distinct decrease in the number of flash second cars (Range Rover Evoque seems to be the standard here), some of which seem to have disappeared overnight, and the number of 4/5 bed family homes on the market is rising rapidly (and they're not shifting).

I do think that the squeeze is coming on. I guess that the bank of MEW is shut as values round here haven't really moved in the last 3 years.

Good; time for the nominal low 'new HPI cycle to come' home-owners at the mid-high end to learn something about the world.

Delusional fools.

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You need to qualify that with the fact we've had unprecedented CB activity to suppress lending rates.

If the CB's had followed their normal MO's then base rates would be RPI+ 200BP and mortgage rates would be some 200 BP north of there ie not 3%.

One of the problems of looking at charts in isolation viz a long term trade.

Those against QE usually claim it doesn't work. That aside even if it has worked, it's debateable the extent to which it has lowered rates.

I'm not sure why you say if CBs had followed their normal MO base rates would be RPI + 200bp et al. Even Taylor says he 'made up' his 4% equilibrium rate. That's certainly not borne out by where we are in terms of employment/slack. We're at the point where 'normally' we'd have at least several more years or rates rises, a strengthening economy and years of real wage rises pushing up house prices.

Irrespective of ifs and maybees, the fact of the matter is that houses have rarely been as affordable in terms of mortgage payments. i.e. actual cash spent. The rest is supposition.

This isn't new by the way, people make the same claims coming out of every recession and into a new credit cycle.

Edited by R K

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Those against QE usually claim it doesn't work. That aside even if it has worked, it's debateable the extent to which it has lowered rates.

I'm not sure why you say if CBs had followed their normal MO base rates would be RPI + 200bp et al. Even Taylor says he 'made up' his 4% equilibrium rate. That's certainly not borne out by where we are in terms of employment/slack. We're at the point where 'normally' we'd have at least several more years or rates rises, a strengthening economy and years of real wage rises pushing up house prices.

Irrespective of ifs and maybees, the fact of the matter is that houses have rarely been as affordable in terms of mortgage payments. i.e. actual cash spent. The rest is supposition.

This isn't new by the way, people make the same claims coming out of every recession and into a new credit cycle.

Affordable only because Red George has been prepared to borrow £120-140bn every year to hold up the economy and directly subsidise the housing market.

New credit cycle? Household debt is 150% of GDP once again which suggests the next recession isn't far away. Middle of next year is my guess.

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Affordable only because Red George has been prepared to borrow £120-140bn every year to hold up the economy and directly subsidise the housing market.

New credit cycle? Household debt is 150% of GDP once again which suggests the next recession isn't far away. Middle of next year is my guess.

One minute govt borrowing is bankrupting the country and going to lead to the markets forcing rates up and the next minute govt borrowing is what's keeping rates low. Which is it?

Household debt hasn't come down as far as in the US precisely because Osborne didn't spend enough to enable private sector deleveraging which in turn has lowered tax receipts etc etc. There's nothing at all surprising about that.

If this credit cycle = 2 x business cycles again, and since we're still in the 1st business cycle and haven't even started raising rates or seeing an end to falling unemployment then it's no surprise your message of doom has been completely wrong for so long.

We look closer to '94 than 2007.

Edited by R K

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Fill your boots '94 new hpi/credit-cycle.

Perhaps some will learn what they are truly up against in this market - people expecting and wanting more HPI - as the offer every excuse going for the very people who outbid them, or those holding the overvalued assets.

Forever HPI, and to be honest, many people have brought it upon themselves with all the excuses for other market participants.

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Those against QE usually claim it doesn't work. That aside even if it has worked, it's debateable the extent to which it has lowered rates.

I'm not sure why you say if CBs had followed their normal MO base rates would be RPI + 200bp et al. Even Taylor says he 'made up' his 4% equilibrium rate. That's certainly not borne out by where we are in terms of employment/slack. We're at the point where 'normally' we'd have at least several more years or rates rises, a strengthening economy and years of real wage rises pushing up house prices.

Irrespective of ifs and maybees, the fact of the matter is that houses have rarely been as affordable in terms of mortgage payments. i.e. actual cash spent. The rest is supposition.

This isn't new by the way, people make the same claims coming out of every recession and into a new credit cycle.

Who mentioned QE alone?Try ZIRP/HTB1/HTB2/FLS and that's just for the UK.Let's remember that there's still £375 fo promises sat in a darkened room at the BoE.

Back in the old days,CB's used to be lenders of last resort,

'Penalty rate and collateral requirement

Flannery [21] and others mention that the Fed has neither asked for good collateral nor charged rates above the market in recent years.[12]'

I agree with you that repayments are at record lows but absent the continued generosity of tax payers and those buying sterling and I'm not so sure things would be as easy.If it was such a sure thing you'd be ponying up and you're clearly not.

Edited by Sancho Panza

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I'm seeing signs of this in my area. All just my personal observations from a fairly rural area.

Many people I'm acquainted with in my area who have higher wage jobs and used to buy food frequently at m&s and other major food retailers are now going to budget retailers. They're also buying cheaper clothing and generally cutting back. Some have lost well paying jobs and now have lower pay so going through adjustment.

Houses over £200k here in D&G are definitely harder to sell. Many have been on the market for years, over 5 in some cases. I have seen smallish reductions a lot but many just sit there waiting for that magic buyer. Some will not need to sell......yet!

Houses under £200k are struggling also but there is more chance that someone has the funding. But still there are not enough buyers here with that kind of money.

Under 100k have the best chance of selling here as many are bought then you see them up for rent.

Inherited houses from all brackets get put on the market then a lot are put up for rent when they don't get a buyer.

Transaction volumes here are a third of what they were pre 2008 (Someone I know well provides a service for solicitors in D&G which is related to conveyancing).

I've thought for a while that the UK was in a downward spiral and that the majority of the population would gradually experience lower living standards and a lack of social mobility.

Nothing has made me change my mind on that.

I thought house prices would have fallen a lot by now here! It can't go on forever with these crazy high house prices, can it?

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I agree with all that - 'middle class' friends back in the UK are always commenting on how 'lucky' we are in our lifestyle in HK. Well, no, it's that your own costs have been increasing year on year with no payrises and tax increases, and a big part of that is the huge mortgages you lot took on in the past decade, whereas we've dodged that bullet by moving overseas to follow work and pay increases.

I have several very good friends who I half expect to need financial help in the next five years. Not sure what I'll do if they ask me.

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I really think it might be the case that bank staff looked at them a bit funny when they took their loans out. It's clear to me that bank staff looking at people a bit funny could clearly make them sign up to things they can't afford and that's a form of egregious mis-selling..

Therefore, given the news the over-indebted are struggling, I think urgent action is needed to make taxpayer funded banks pay compensation to anyone that was looked at a bit funny. In fact I think we need call centres, stuffed full of youths who'd otherwise be unemployed, to call people up and ask them if they were ever looked at a bit funny by bank staff to make sure they claim this compensation.

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