Jump to content
House Price Crash Forum
Sign in to follow this  
Bruce Banner

In Words Of One Syllable.

Recommended Posts

.....And, to maintain high prices and remain competitive we have to have a massive sterling bust; or....

Share this post


Link to post
Share on other sites

Hi Bruce,

I agree to a certain extend but if prices get too high how will they then 'explore' a greater extent of the market?...High prices means that those with reasonably high salaries can afford them BUT these are only a small percentage of the market and once the banks have their custom how do they grow their business?...They (the banks) do not want to stay 'stagnant' with these borrowers for the next 25-30 years, if given the opportunity they want those on a lower level salary.....MMR has in fact compounded this issue making it even more difficult for those on the lower level salaries to get a mortgage, and so at some stage the banks will want the prices to drop to a lower level.

p.s...I have just realised my reply isn't in words of one syllable :-)))

Share this post


Link to post
Share on other sites

Maybe I'm looking at this too simply (I am a simple man), but surely profit is also based on volume of sales? Smaller profits, but more sales can mean greater profits than large profits from a small number of sales - plus you have more stability with a higher customer base that are servicing smaller mortgages.

Would lenders lose if prices fell based on current lending? Again, forgive my simple outlook, but surely a default on a mortgage doesn't mean the lender needs to recoup 100% of the total value of the property, since they've had repayments + interest already paid back to them over a certain amount of time, plus they're usually lending (thanks to H2B) normally no more than 80% of the overall value? Again, I may be misunderstanding something fundamental here.

Share this post


Link to post
Share on other sites

Hi Bruce,

I agree to a certain extend but if prices get too high how will they then 'explore' a greater extent of the market?...High prices means that those with reasonably high salaries can afford them BUT these are only a small percentage of the market and once the banks have their custom how do they grow their business?...They (the banks) do not want to stay 'stagnant' with these borrowers for the next 25-30 years, if given the opportunity they want those on a lower level salary.....MMR has in fact compounded this issue making it even more difficult for those on the lower level salaries to get a mortgage, and so at some stage the banks will want the prices to drop to a lower level.

p.s...I have just realised my reply isn't in words of one syllable :-)))

Naa, they will just change the lending criteria! Got to keep the party going...

And in words of one syllable.....

Banks will lend as much as they can! This place is ffff.....!

Share this post


Link to post
Share on other sites

Maybe I'm looking at this too simply (I am a simple man), but surely profit is also based on volume of sales? Smaller profits, but more sales can mean greater profits than large profits from a small number of sales - plus you have more stability with a higher customer base that are servicing smaller mortgages.

Would lenders lose if prices fell based on current lending? Again, forgive my simple outlook, but surely a default on a mortgage doesn't mean the lender needs to recoup 100% of the total value of the property, since they've had repayments + interest already paid back to them over a certain amount of time, plus they're usually lending (thanks to H2B) normally no more than 80% of the overall value? Again, I may be misunderstanding something fundamental here.

Thats the way i see ,i dont know if it`s right though ,perhaps theres not enough pips squeaking yet

Share this post


Link to post
Share on other sites

Errr.....the banks went bust.

Their losses exceeded their capital & ability to fund themselves (ex state support)

Share this post


Link to post
Share on other sites

Errr.....the banks went bust.

Their losses exceeded their capital & ability to fund themselves (ex state support)

And LIAR BALANCE SHEETS

Share this post


Link to post
Share on other sites

Aren't the banks always technically insolvent? The banking system is always at risk if prices collapse as the losses suddenly become real and new credit creation would reveal the fraud.

It's no surprise that prices in the UK haven't corrected, even without a correction RBS and HBOS needed rescuing by the taxpayer, NR, Bradford Bingley etc... all failed.

The UK banking system I fear is not in a position to survive a market correction, this it's extend and pretend for as long as we can and if you are a politician the clear hope is that someone else will be in power when this finally blows up.

Share this post


Link to post
Share on other sites

Hi Bruce,

I agree to a certain extend but if prices get too high how will they then 'explore' a greater extent of the market?...High prices means that those with reasonably high salaries can afford them BUT these are only a small percentage of the market and once the banks have their custom how do they grow their business?...They (the banks) do not want to stay 'stagnant' with these borrowers for the next 25-30 years, if given the opportunity they want those on a lower level salary.....MMR has in fact compounded this issue making it even more difficult for those on the lower level salaries to get a mortgage, and so at some stage the banks will want the prices to drop to a lower level.

p.s...I have just realised my reply isn't in words of one syllable :-)))

As said on here many times, there are many more renters and mortgage free homeowners than mortgaged homeowners, the first two groups don`t really earn for the banks (BTL tenant maybe pays landlords mortgage though) so a crash would mean many more people looking for a loan to buy maybe? I think the problem they have is that once it starts to unravel they can`t control it, people would be looking for average houses to keep dropping in price, so they (PTB) prefer to keep up the extend and pretend act while many in the public want to buy into the "Prices are fixed" mantra. The banks must be nearly "fixed" though, with QE and everything else, maybe they were waiting for this election to just pull the pin and say "F*uck it"?

Share this post


Link to post
Share on other sites

Aren't the banks always technically insolvent? The banking system is always at risk if prices collapse as the losses suddenly become real and new credit creation would reveal the fraud.

It's no surprise that prices in the UK haven't corrected, even without a correction RBS and HBOS needed rescuing by the taxpayer, NR, Bradford Bingley etc... all failed.

The UK banking system I fear is not in a position to survive a market correction, this it's extend and pretend for as long as we can and if you are a politician the clear hope is that someone else will be in power when this finally blows up.

No. Being insolvent means being unable to pay your commitments as they fall due.

The banks balance sheets should always be showing a surplus of assets and shareholder funds. In order to do this, in 2008, they simply lied about the value of the financial assets they held.

In reality, nobody wanted them...hence the bail outs at the time, with the CBs and Governments buying the assets but with a "haircut"...been a while since I heard that term.

Share this post


Link to post
Share on other sites

Banks would be bust if house price on their books is less than they lent out on it, so they strive to keep price high.

Not true in my view - assuming the underlying mortgage lenders kept paying the interest and repayments when they fell due there would be no problem for the bank.

They would continue to carry the debt at fair value as it was "performing" - the only time a loan has to be marked down to the value of the underlying security is when it has ceased to perform and then the bank has to look at the net realisable value of the security (ie. the house).

The real dud mortgages from the 2000-2007 boom are mostly in the run-off vehicles set up to accommodate Northern Rock and the like. Most new Lending will have been at 75% ltv, or supported by HTB in the case OO mortgages. BTL is rarely lent at more than 75% LTV and often with the benefit of a second charge on the landlords property.

The thing that scares politicians about a HPC is the fact that it would suppress credit growth and consumer confidence - probably creating a recession even if it didn't cause one.

Share this post


Link to post
Share on other sites

Not true in my view - assuming the underlying mortgage lenders kept paying the interest and repayments when they fell due there would be no problem for the bank.

They would continue to carry the debt at fair value as it was "performing" - the only time a loan has to be marked down to the value of the underlying security is when it has ceased to perform and then the bank has to look at the net realisable value of the security (ie. the house).

The real dud mortgages from the 2000-2007 boom are mostly in the run-off vehicles set up to accommodate Northern Rock and the like. Most new Lending will have been at 75% ltv, or supported by HTB in the case OO mortgages. BTL is rarely lent at more than 75% LTV and often with the benefit of a second charge on the landlords property.

The thing that scares politicians about a HPC is the fact that it would suppress credit growth and consumer confidence - probably creating a recession even if it didn't cause one.

If prices fall heavily, I suspect that many debtors may try to get out of repaying more than their house is worth and attempt to hand the keys back and walk away, American style.

In the event of heavy falls, the banks may be forced to revalue their balance sheets.

Share this post


Link to post
Share on other sites

If prices fall heavily, I suspect that many debtors may try to get out of repaying more than their house is worth and attempt to hand the keys back and walk away, American style.

In the event of heavy falls, the banks may be forced to revalue their balance sheets.

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb090203.pdf

The above paper makes interesting reading for this discussion. On page 113 there is a discussion of the historic interaction between negative equity and mortgage default. Surprisingly perhaps there is no relationship between the two.

This may be due to the fact that in the UK "Jingle Mail" is not an option. The bank will still chase you for the money even if you've given them the keys back.

Edited by Exiled Canadian

Share this post


Link to post
Share on other sites

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb090203.pdf

The above paper makes interesting reading for this discussion. On page 113 there is a discussion of the historic interaction between negative equity and mortgage default. Surprisingly perhaps there is no relationship between the two.

This may be due to the fact that in the UK "Jingle Mail" is not an option. The bank will still chase you for the money even if you've given them the keys back.

Some might prefer to let the bank repossess and then file for bankruptcy, wait 12 months and get an automatic discharge, job jobbed.

Share this post


Link to post
Share on other sites
Some might prefer to let the bank repossess and then file for bankruptcy, wait 12 months and get an automatic discharge, job jobbed.

Wouldn't you lose whatever equity you had on the property though, if you just handed the keys in? So it's still a heavy net loss to the "jingle mailer" - or do they somehow get back whatever they paid into the property (on result of sale)?

Share this post


Link to post
Share on other sites

Wouldn't you lose whatever equity you had on the property though, if you just handed the keys in? So it's still a heavy net loss to the "jingle mailer" - or do they somehow get back whatever they paid into the property (on result of sale)?

It would only work in cases of negative equity.

Share this post


Link to post
Share on other sites

Some might prefer to let the bank repossess and then file for bankruptcy, wait 12 months and get an automatic discharge, job jobbed.

If you look at the report there's a chart that shows the quarterly repossession rate through the 1990's (last time there was serious and prolonged negative equity). During his period at the peak of repossessions only 0.2% of mortgage borrowers were repossessed (that's 2 in 1000) in the "worst" three month period. The historical evidence suggests that people are unlikely to try jingle mail in their droves; but it could be different this time.

Share this post


Link to post
Share on other sites

If you look at the report there's a chart that shows the quarterly repossession rate through the 1990's (last time there was serious and prolonged negative equity). During his period at the peak of repossessions only 0.2% of mortgage borrowers were repossessed (that's 2 in 1000) in the "worst" three month period. The historical evidence suggests that people are unlikely to try jingle mail in their droves; but it could be different this time.

Word.

Ding-Dong. HPC.

The majority own outright.

Some owners will sell for less and less and less, bringing all wider values crashing down; as in early 90s, as in stopped HPC 2008-2010.

Banks will make big money with volumes of new mortgages.

The older owner side will silently endure the HPC. They're not stress testing for no reason, and I estimate can handle 75% HPC if half of the other bad stuff in the stress tests (massive stock market falls / massive inflation / base rate upto 4.2% / big jump in unemployment) doesn't occur.

The Bank of England tested the lenders' resilience to a 35% fall in house prices, and a 30% drop in the value of the pound, among other factors.

Five major banks passed the test.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   69 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.