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Si1

Dickie Dyson plucks random arguments out of the air

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Swap rates are rising because 1. core inflation is climbing way faster than wages and 2. the Fed is threatening another rate hike.

Dyson fails hopelessly to consider the impact of rampant UK food and fuel inflation on disposable incomes and employment i.e. far fewer eligible borrowers around to take on the tombstone mortgages he so lovingly describes.

Sorry, Dick. You've run out of greater fools.

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My guess is that lots of new BTL investments just cover their costs even at current very low rates (I think that BTL purchases set a market floor for prices and that market floor 'prices in' this face washing business model, so the market house prices reflect it).

Hence if gilts yields and swap rates continue to rise and this feeds through into BTL mortgage rates then whilst it won't be a "catastrophe"  it will hit investors' wallets immediately as each wave of refinancing off 2-year fixes feeds it into the rate rises into the system.

Further, as previously argued at length, at very low rates very small changes in rates are large when expressed in percentage terms (i.e. from 2% to 2.5% is a 25% increase). On interest-only mortgages the percentage rise in the rate (as opposed to the basis point change) is what feeds through to an investors costs. If the rate moves by 25% then the mortgage interest expense moves by 25%, taking a corresponding bite out of the so-called "profits" of the so-called "property business" (h/t ITTOIA 2005).

Tricky Dickie Dyson knows this too I'd guess. It's a shame he doesn't report it.

Edited by Bland Unsight

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Average FTB earns 40K , maybe as a household ...

Notice in his idea that we can just extend mortgage's for up to 40 years he just notes how much more someone can borrow, ignores how much they will pay back extra or spreading mortgage out for longer..

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FTBs are getting older - that's the only reason their average salaries are going up. Admittedly, retirement is getting further away as well, but a 40 year mortgage for for a 40+ year old FTB is going to be problematic.

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^ telegraph link

Quote

Loan terms are already getting longer, as the graph below shows. But in Britain mortgage terms remain very short compared with, say, some Scandinavian countries.

Typically he fails to give any detail.

Apparently in Sweden their average in 2013 was 140 years so something for British buyers to look forward to.  Mind you why Britain should be setting a target against a hideous extreme is of course crazy but only to be expected these days.

See - no need to be a doom monger or to be panic stricken - there's plenty of scope ahead.

Quote

 

https://www.thelocal.se/20160324/sweden-limits-mortgage-loans-to-105-years

Swedish regulators calculated in 2013 that the average mortgage term was around 140 years.

 

 

Edited by billybong

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The Swedish model is effectively io mortgages up to 75% LTV, I believe. They're not 100 year+ mortgages, they're just paid off when the house is sold or passed on. I do believe, please correct me.

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14 minutes ago, Si1 said:

The Swedish model is effectively io mortgages up to 75% LTV, I believe. They're not 100 year+ mortgages, they're just paid off when the house is sold or passed on. I do believe, please correct me.

"thelocal" link above seems to  suggest that the average mortgage term was 140 years - in 2013 - and less than 33% of mortgages were interest only.

Edited by billybong

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3 minutes ago, billybong said:

"thelocal" link above seems to  suggest that the average mortgage term was 140 years - in 2013 - and only about 30% were interest only.

The point is that a mortgage whose repayment term is equivalent to a 140 year term is effectively an IO mortgage without a repayment vehicle, such is the glacial rate of repayment. Digging into the details of these never says they are actually 140 year terms, just equivalent to if the person lived that long, which they obviously won't.

Edited by Si1

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19 minutes ago, Si1 said:

The point is that a mortgage whose repayment term is equivalent to a 140 year term is effectively an IO mortgage without a repayment vehicle, such is the glacial rate of repayment. Digging into the details of these never says they are actually 140 year terms, just equivalent to if the person lived that long, which they obviously won't.

Nevertheless even if the capital repayments are slow to glacial more than 66% of them aren't officially interest only contracts - according to the article.  That's the point - the term is long and the repayments are slow so that a bigger mortgage can be taken out.  The other point being it's all in comparison to the length of British mortgage terms that Dyson was referring to.

Many articles never give the details - if there's a link? giving definite information to dig into then they're always helpful.  The article I posted does seem to suggest that they actually were on average 140 year terms and the liability was effectively being passed on to the inheritors sometimes grandchildren who were then often obliged to sell.  That's one of the reasons why they were trying to make the maximum term 105 years - according to the link.

Edited by billybong

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The article seems to mix opinion and fact. One or two factual statements include that there is a greater statutory minimum level of repayment that is required, setting the new limit to 105 years. Further it doesn't state the mortgages are inherited, it says that the inheritors of the property are obliged to pay it off when inheriting. One assumes this is either by selling the house or taking out a new mortgage. Since the mortgage has no way of ever going to term then I'd say it's not got a term on it.

 

This next link further suggests that it is the repayment rate, not the effective resultant term, that is set in the mortgage contract.

 

http://www.scancomark.com/Market/New-Swedish-approach-to-mortgage-financing-140-years-to-pay-off-the-mortgages-124907032013

 

(And incidentally I suspect we're arguing over semantics - even if there is a contractual term [which I don't believe] then it's still practically an io mortgage, even if I got the details wrong. People's front of Judea and all that :)

Edited by Si1

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20 minutes ago, Si1 said:

The article seems to mix opinion and fact. One or two factual statements include that there is a greater statutory minimum level of repayment that is required, setting the new limit to 105 years. Further it doesn't state the mortgages are inherited, it says that the inheritors of the property are obliged to pay it off when inheriting. One assumes this is either by selling the house or taking out a new mortgage. Since the mortgage has no way of ever going to term then I'd say it's not got a term on it.

 

This next link further suggests that it is the repayment rate, not the effective resultant term, that is set in the mortgage contract.

 

http://www.scancomark.com/Market/New-Swedish-approach-to-mortgage-financing-140-years-to-pay-off-the-mortgages-124907032013

 

(And incidentally I suspect we're arguing over semantics - even if there is a contractual term [which I don't believe] then it's still practically an io mortgage, even if I got the details wrong. People's front of Judea and all that :)

So like British mortgages they usually don't go the full term - but it seems that Dyson's article is correct in that some Scandanavian countries have far longer (effective) mortgage terms than in Britain on average but he failed to say by how much.  It seems that Sweden's mortgages could now be a maximum of 105 years and were maybe even an average of effectively 140 years in 2013.  In any event massively more than in Britain and by maybe upto say nearly 5 times as much in effective average terms.   Maybe if they're mostly effective io mortgages Sweden's mortgage market is even more extreme.

They're very naughty boys. 

Edited by billybong

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5 minutes ago, billybong said:

So like British mortgages they usually don't go the full term - but it seems that Dyson's article is correct in that some Scandanavian countries have far longer (effective) mortgage terms than in Britain on average but he failed to say by how much.  It seems that Sweden's mortgages could now be a maximum of 105 years and were maybe even an average of effectively 140 years in 2013.  In any event massively more than in Britain and by maybe upto say nearly 5 times as much in effective average terms.   Maybe if they're mostly effective io mortgages Sweden's mortgage market is even more extreme.

They're very naughty boys. 

Well yes. And our mortgages aren't going in that direction because AFAIK our regulators are reducing availability of io mortgages, going in the opposite direction to dyson's absurd irrelevant desperate comparison.

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3 minutes ago, Si1 said:

Well yes. And our mortgages aren't going in that direction because AFAIK our regulators are reducing availability of io mortgages, going in the opposite direction to dyson's absurd irrelevant desperate comparison.

It's to be hoped our mortgages do retract and indeed that Dyson's crazy comparison isn't ever seriously considered by British policy makers.

By the way - thanks for the link.

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