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Realistbear

Nationwide's Confidence Index Is Down Sharply

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http://business.scotsman.com/finance.cfm?id=219442006

"There are doubts that this recovery can continue against a more subdued economic backdrop and stretched affordability, with borrowers becoming nervous about employment prospects.
The Nationwide's confidence index published last week showed consumers' cheeriness down sharply compared with a year ago.
It would seem, though, that lenders are more confident and intent on cashing in
while they can"
.

The way I read this is that confidence in the housing market has eroded "sharply" and that the VIs are scrambling to get what business that remains by undercutting the competition. Desparate measures for desperate times? Look how desperate the words coming from Hilary at Barclay's :

"Hilary McVitty, head of PR for its parent, Barclays UK Banking, said: "We have come back into the mortgage market with a vengeance and are
determined to claw back our share
."

How are the VIs keeping mortgage rates down? At the expense of pensions it seems:

"But it is the crisis in the pensions world that has rung out the good news for borrowers. Pension funds are injecting vast quantities of cash into the gilts market, pushing down the price of long-term interest rates. This makes it cheaper for banks to match their fixed mortgages with wholesale money market instruments, known as swaps.
Longer-term swap rates are currently lower than shorter-term instruments
, opening the door to cheap 10-year deals. Two-year swaps are 4.68%, with 10-year deals at 4.6% and 25-year money available for 4.3%."

By expanding the length of the fixed rate they think they are propping up a market where confidence is eroding? Could there be a catch--of course there is:

"However, all these mortgages have
early repayment penalties
. Mortgage broker David Hollingworth argues: "They have to push these rates right down to make them competitive, because borrowers are nervous about tying themselves into any mortgage for 10 years, in case their circumstances change."

And what "circumstances" might these be? A worsening employment picture and the possibility that the borrower will be out of a job?Desperate times for the VIs indeed. Try as they might there has NEVER been a soft landing following a sharp run up and there has NEVER been a run up in house prices as sharp as this last bubble.

HPC 2006.

PS for the economists on HPC.co.uk: we all know that inverted yield curves usually spell financial trouble--looks like we have that situation according to the article quoted above.

Edited by Realistbear

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"But it is the crisis in the pensions world that has rung out the good news for borrowers. Pension funds are injecting vast quantities of cash into the gilts market, pushing down the price of long-term interest rates. This makes it cheaper for banks to match their fixed mortgages with wholesale money market instruments, known as swaps.

Longer-term swap rates are currently lower than shorter-term instruments, opening the door to cheap 10-year deals. Two-year swaps are 4.68%, with 10-year deals at 4.6% and 25-year money available for 4.3%."

But this is obvious to anyone who thinks about it. As pensions come up to being paid pension funds move from risk investments into gilts.

The babyboomers are about to start retiring. Their entire pension fund needs to become save. The pensions crisis has nothing to do with this move to gilts. The age of the pensiob fund members is the only thing that is pushing the rise in gilts.

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But this is obvious to anyone who thinks about it. As pensions come up to being paid pension funds move from risk investments into gilts.

The babyboomers are about to start retiring. Their entire pension fund needs to become save. The pensions crisis has nothing to do with this move to gilts. The age of the pensiob fund members is the only thing that is pushing the rise in gilts.

But surely you are missing the point? Which is banks may be able to start lending money relativey safely at lower IRs for longer periods at fixed rates.

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But surely you are missing the point? Which is banks may be able to start lending money relativey safely at lower IRs for longer periods at fixed rates.

No, firstly because the terms and conditions of these deals contain terms relating to the amount of risk accepted. The odd default is acceptable but if you look at the last return for one of the sub-prime lenders they had to issue a warning where they were about to become responsible for any additional defaults on one particular scheme.

Secondly, at the moment residential property is seen (as it was in 1988-90) as a risk free loan. As prices drop (and its hard to see how they will not) residential loans will become risky again. As this occurs pensions fund won't want risky investments in their portfolio and supply of loans will dry up. When that occurs mortgage supply will drop like a stone (1993-5 were years when getting a mortgage was near enough impossible).

As I simple example in 1995 I could hardly get a 1.5x joint income loan from any bank (oh and we had no bad debts so rating wasn't an issue). The only people interested where my own bank and the Alliance and Leicester. 3 years later when we moved (renting the house out by the way) everyone wanted to lend to us even though my new income was £10,000 less than my previous income).

Edited by eek

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  • 301 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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