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The next financial crisis may be coming soon - FT


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I honestly can't remember such an economic disaster in my lifetime - and I've lived through a few! It will impact the banks. 

I was speaking to a BoE bod the other day and they were telling me mortgage repayments were relatively low so not much to worry about there - but they are looking in the rear view mirror. The data is weeks if not months out of data and a short/sharp deterioration will push the banks to the brink - and I believe we are now in exactly that crisis position. 

A well timed piece from the FT: https://www.ft.com/content/c95e5a72-8322-4cfc-b36a-69e8998aea01

Then I see headlines on WW2 levels of debt, the worst business conditions since WW2 - I can believe it! 

 

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I was speaking to a BoE bod the other day and they were telling me mortgage repayments were relatively low so not much to worry about there - but they are looking in the rear view mirror.

 

Correct. However, I think that the mortgage defaults will not be the main source of credit concerns in this environment - more likely corporate and personal finance.

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Correct. However, I think that the mortgage defaults will not be the main source of credit concerns in this environment - more likely corporate and personal finance.

Transaction volumes have been low for ages. A large % dont have a mortgage anyway and a further large % of those that do dont have a lot left.

Not everyone of course - some people have stretched themselves recently but its wrong to assume everyone is impacted by a shift in rates from 1.6% to 3%.

 

Commercial property i think will be the big bang if there is one.

British land are carrying the offices around Liverpool St station in their books at £1.6billion. Leveraged against of course. Good luck with this wfh.

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Commercial property i think will be the big bang if there is one.

British land are carrying the offices around Liverpool St station in their books at £1.6billion. Leveraged against of course. Good luck with this wfh.

Indeed - no one wants to be in commercial property at the moment. I work for a pretty large organisation and it is unlikely we are ever going back to the office in the numbers we did.

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1 hour ago, captainb said:

Transaction volumes have been low for ages. A large % dont have a mortgage anyway and a further large % of those that do dont have a lot left.

There's at least £1.5tn of outstanding mortgage debt secured on residential property in the UK, once you take out the mortgage-free and almost-mortgage-free it's probably reasonable to assume that 80% of that debt is concentrated on about 20% of the stock which would be £1.2tn secured on 7m properties or about £170k per property. In a country where £25k is a decent full time wage that is a lot of concentrated leverage.

Edited by Dorkins
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Indeed - no one wants to be in commercial property at the moment. I work for a pretty large organisation and it is unlikely we are ever going back to the office in the numbers we did.

Makes sense....what can offices do for you, what can be done in an office that can't be done elsewhere?

 

A place of storage? A place of manufacturer? A place to sleep and eat? A place to party?;)

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There's at least £1.5tn of outstanding mortgage debt secured on residential property in the UK, once you take out the mortgage-free and almost-mortgage-free it's probably reasonable to assume that 80% of that debt is concentrated on about 20% of the stock which would be £1.2tn secured on 7m properties or about £170k per property. In a country where £25k is a decent full time wage that is a lot of concentrated leverage.

The average mortgage debt in the UK is £138k against 10.2million properties. 

But one person on £25k wouldn't get a £140k mortgage if it was the full amount, let alone what for most people is a part pay - decent wage or not.

As much as people on minimum hour contracts, minimum wage etc is tragic they are not relevant for a mortgage - so need to be taken out from the stats. As do the part time workers. 

The key stat is average multiple against debt. To be fair the BoE limits in most cases to 4.5x will have helped. Without it banks IMHO would have gone up to 6x to compete with themselves. 

 

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I honestly can't remember such an economic disaster in my lifetime - and I've lived through a few! It will impact the banks.   I was speaking to a BoE bod the other day and they were telling me mortgage repayments were relatively low so not much to worry about there - but they are looking in the rear view mirror. The data is weeks if not months out of data and a short/sharp deterioration will push the banks to the brink - and I believe we are now in exactly that crisis position. 

As I said on another thread it will no doubt IMPACT the banks (as in, they make less profit) but I can't see this being the trigger for mass banking collapses a la 2008.

For me the big negative impacts of COVID19 will be:

- Mass unemployment, including complete destruction of a number of industries

- Mass mental health problems, not just from the unemployed but the employed who are cooped up working from home, and have all fun cancelled until 2022

- Huge government bailout costs needing to be recouped somehow from cuts and taxes

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Property in UK has become the alternative way of making money for most of the folks.

Wages being so low, there is absolutely no chance of saving any money via the working route. Half the country is flipping property to make up for this, buying and selling a few years later for hundreds of thousands pounds more. These are the people who cannot save even a hundred quid a month but expect some random poor soul to hand over extra cash for their house for no reason other than having lived in it for a few years.

It is madness and a massive correction is inevitable.

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Property in UK has become the alternative way of making money for most of the folks.

Wages being so low, there is absolutely no chance of saving any money via the working route. Half the country is flipping property to make up for this, buying and selling a few years later for hundreds of thousands pounds more. These are the people who cannot save even a hundred quid a month but expect some random poor soul to hand over extra cash for their house for no reason other than having lived in it for a few years.

It is madness and a massive correction is inevitable.

Except it doesn't even make money for them, except for the downsizers and inheritors, because all the profit is just ploughed into their next house.  HPI feels like it's making people rich, but for most people it's just leading to them piling more and more money on the same roulette number.

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58 minutes ago, captainb said:

The average mortgage debt in the UK is £138k against 10.2million properties. 

But one person on £25k wouldn't get a £140k mortgage if it was the full amount, let alone what for most people is a part pay - decent wage or not.

As much as people on minimum hour contracts, minimum wage etc is tragic they are not relevant for a mortgage - so need to be taken out from the stats. As do the part time workers. 

The key stat is average multiple against debt. To be fair the BoE limits in most cases to 4.5x will have helped. Without it banks IMHO would have gone up to 6x to compete with themselves. 

 

I don't think average multiple against debt is the key stat, that completely misses out the structure within the debt going from risky borrowers with low equity and high debt:income multiples down to people who have almost paid the debt off. It is the former who are going to go pop first and cause carnage in the debt markets, not the average Trevors in the middle.

Even the fact that the average debt is £140k is pretty astonishing, that's almost 6x the average full time wage for an aggregated number that includes a load of people who have paid off half or three quarters of their mortgage principal. That means for the people who are 0-50% of the way through their mortgage principal the numbers must be very aggressive for the average to come out so high.

Edited by Dorkins
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I don't think average multiple against debt is the key stat, that completely misses out the structure within the debt going from risky borrowers with low equity and high debt:income multiples down to people who have almost paid the debt off. It is the former who are going to go pop first and cause carnage in the debt markets, not the average Trevors in the middle.

Even the fact that the average debt is £140k is pretty astonishing, that's almost 6x the average full time wage for an aggregated number that includes a load of people who have paid off half or three quarters of their mortgage.

The average full time wage isn't the average wage for someone with a mortgage. 

Average full time is 36k; in there lots on minimum wage which unless they change roles will almost certainly always rent and distort the picture. Unless of course again they purchase with a partner which is another factor in mortgage affordability. 

Agreed though if rates shoot upto 6% then yes major issues I just can't see that happening. Big news in mortgage world today was on a 75% ltv the 5 year fix is now at 2.1% rather than 1.95%. It's crazy stuff. 60% LTV have got even lower

 

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I honestly can't remember such an economic disaster in my lifetime - and I've lived through a few! It will impact the banks. 

I was speaking to a BoE bod the other day and they were telling me mortgage repayments were relatively low so not much to worry about there - but they are looking in the rear view mirror. The data is weeks if not months out of data and a short/sharp deterioration will push the banks to the brink - and I believe we are now in exactly that crisis position. 

A well timed piece from the FT: https://www.ft.com/content/c95e5a72-8322-4cfc-b36a-69e8998aea01

Then I see headlines on WW2 levels of debt, the worst business conditions since WW2 - I can believe it! 

 

Fits in with my Credit Crunch Cometh thread.

They refused to take the pain in 2008 now it is a total disaster

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Indeed - no one wants to be in commercial property at the moment. I work for a pretty large organisation and it is unlikely we are ever going back to the office in the numbers we did.

Wasn't there a time a while back after S24 BTLers were raving get into commercial property? LOL

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I don't think average multiple against debt is the key stat, that completely misses out the structure within the debt going from risky borrowers with low equity and high debt:income multiples down to people who have almost paid the debt off. It is the former who are going to go pop first and cause carnage in the debt markets, not the average Trevors in the middle.

Even the fact that the average debt is £140k is pretty astonishing, that's almost 6x the average full time wage for an aggregated number that includes a load of people who have paid off half or three quarters of their mortgage principal. That means for the people who are 0-50% of the way through their mortgage principal the numbers must be very aggressive for the average to come out so high.

Median full-time wage is £30.5k, so actually about 4.5x, and at current interest rates that is pretty affordable. On a joint salary of a modest £50k, it is easy. The repayments would only be about £660 pcm, which is cheap compared to the rent.

The struggle is getting a deposit.

 

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Median full-time wage is £30.5k, so actually about 4.5x, and at current interest rates that is pretty affordable. On a joint salary of a modest £50k, it is easy. The repayments would only be about £660 pcm, which is cheap compared to the rent.

The struggle is getting a deposit.

 

Of course the average active mortgage looks easy to service because it is being averaged out across all the people who have paid off most of their mortgage principal. My point is that if the average active mortgage is already such a high number then the above-average ones pulling that number up must be very high indeed and it is these that will pop when under stress.

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1 hour ago, Dorkins said:

Of course the average active mortgage looks easy to service because it is being averaged out across all the people who have paid off most of their mortgage principal. My point is that if the average active mortgage is already such a high number then the above-average ones pulling that number up must be very high indeed and it is these that will pop when under stress.

But the average high mortgage isn't being serviced by the average person.

The stats given so far in this thread are median wages. They are highly relevant for what they are meant for but are heavily distorted by those working part time and minimum wage. Vast majority of which won't have mortgages thus is a bad stat to take at face value. 

Yes mortgages of £400k+ exist. But they aren't been serviced by someone on a median wage. The max realistically would be 4.5x salary assuming no capital paid. Stress for high earners depends on level of savings, shares held, how far they have actually pushed themselves etc. They also tend to have more room.. Hmmm. Can't cover the mortgage guess no skiing this year or new kitchen amelia. Maybe sell a couple of funds? 

Sadly those under most financial stress in this situation are likely to be bar staff and shop assistants renting space in a HMO. Not those with a high mortgage and an investment portfolio 

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Property in UK has become the alternative way of making money for most of the folks.

Wages being so low, there is absolutely no chance of saving any money via the working route. Half the country is flipping property to make up for this, buying and selling a few years later for hundreds of thousands pounds more. These are the people who cannot save even a hundred quid a month but expect some random poor soul to hand over extra cash for their house for no reason other than having lived in it for a few years.

It is madness and a massive correction is inevitable.

Unlikely that many ordinary people are actually banking "hundreds of thousands" from property, half the country would have stopped working long ago and furlough wouldn`t have been needed if that was the case, the trick is to keep people on the debt treadmill  for 20 or 30 years and then when they finally sell before going into a care home or downsizing someone else takes their place on the debt wheel at a higher stake. Some smart punters will have bought and sold at the right time and downsized at the right time and banked a big wedge but the average muppet just borrowed more for a bigger house or bought a couple of BTL`s with any money they made or could leverage off their property :lol: Unfortunately for them Covid might just have laid the card that blows their deck of the table....

 

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  • 429 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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