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Lending To Individuals - January 2006

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Lending to individuals: January 2006

The increase in total net lending to individuals in January (£10.5 billion) was £0.7 billion stronger than the increase in December and £1.4 billion higher than the previous six month average. (Table A). The twelve-month growth rate remained unchanged, at 10.3%.

Within the total, the increase in net lending secured on dwellings (£9.2 billion) was higher than the increase in

December and £1.2 billion higher than the previous six month average (Table A). The twelve-month growth rate continued to rise, to 10.6% in January. The number of loans approved for house purchase (122,000) was the same as in December. Approvals for other purposes were 3,000 higher than in December, but those for remortgaging were 4,000 lower. (Table B ).

The increase in consumer credit (£1.3 billion) was higher than in December. Credit card lending increased by

£0.7 billion in January compared with a revised £0.2 billion increase in December, while the outturn of £0.6 billion of other loans and advances was £0.2 billion lower than in December (Table A). The annual growth rate of consumer credit continued to fall, to 8.7% in January.

If there's one statistic I would recommend HPCers keep their eyes on, it's the monthly net lending growth figure.

Bubble markets require an ever growing input of speculative funds. At first this liquidity produces large nominal gains in prices, but as time goes on, each subsequent injection of 'investment' produces diminishing gains. Eventually new funds are required simply to keep prices at a plateau, until finally the rate of liquidity growth starts to fall, leaving an increasingly unsupported market.

Note that over the past few months the rate of unsecured credit growth has begun to trend downwards, and consumer spending has been soft as a result. Meanwhile, even though secured lending growth has been extremely robust, house prices have only been able to tread water (and are probably falling).

The key moment will be when the rate of growth of secured lending starts to fall. That's when house prices will come under severe pressure.

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Agree. The continuing borrowing frenzy despite negative reports from the CBI and employment data seems incongruous. This may be due, in part, to the media blitz following upbeat housing reports from the VIs and the BBC. The intensity of the propaganda has been particularly strong recently to mask the crack appearing in Brown's "Miracle Economy." The VIs are doing their part by relaxing lending standards to an even greater degree with recent "news" that they are willing to fund up to 10 BTLs.

IMHO the market has hit the concrete ceiling due to affordability issues that has killed the FTB market and with high inflation in the economy (gas and electricity, council tax, petrol, etc.) there is little left in the pockets of house buyers to afford current prices let alone further increases. Unless, of course, Gordon "Miracle Economy" Brown lowers IR to keep the inflation fire burning a little while longer.

Edited by Realistbear

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Just to emphasise why this is the case, when a bull market begins there is a limited supply of shares, houses, or tulip bulbs. All the extra liquidity chases prices up rapidly.

Soon however the speculative fervour prompts new issues - in the tech boom it was Internet companies with barely more than a business plan, in the UK housing market it's tens of thousands of new build flats.

Soon new supply balances new investment, and prices plateau. Finally when the liquidity tap is turned off there is a huge overhang of supply, and the holders try to sell before everyone else does. Prices can collapse very rapidly.

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But the problem is that a bubble in easy money is worse than all other bubbles is because of compounding.

"Those who understand compound interest receive compound interest, those who are ignorant PAY compound interest."

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Just to emphasise why this is the case, when a bull market begins there is a limited supply of shares, houses, or tulip bulbs. All the extra liquidity chases prices up rapidly.

Soon however the speculative fervour prompts new issues - in the tech boom it was Internet companies with barely more than a business plan, in the UK housing market it's tens of thousands of new build flats.

Soon new supply balances new investment, and prices plateau. Finally when the liquidity tap is turned off there is a huge overhang of supply, and the holders try to sell before everyone else does. Prices can collapse very rapidly.

I remember at the bottom of the last house price crash, in 1994, looking at flats in London Docklands, just before we got married.

They were building "Yuppie flats" like crazy, and selling them for about 60K.

We didn't buy one, they all felt too cramped and too much building work going on, as well as poor transport connections. There was definately an air of desperation from the sales people, it seems they couldn't give the flaming things away.

Being young, i didn't realise what a great investment they would have been. I was looking for a "home" and these didn't feel homely.

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Soon however the speculative fervour prompts new issues - in the tech boom it was Internet companies with barely more than a business plan, in the UK housing market it's tens of thousands of new build flats.

I think that using the term "business plan" for some of the companies that appeared during the internet boom is extremely generous.

Billy Shears

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Nice to see you back Freetrader, you should post more often.

There was an article written recently by a Cambridge economist about the savings ratio, and how the growth in debt fuels the bubble.

At some point an event triggers a reversion to saving, the liquidity dries up and the market falls.

I think this event may be falling real house prices, which we are now starting to see.

Just wish I could find the article.

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Nice to see you back Freetrader...

...

At some point an event triggers a reversion to saving, the liquidity dries up and the market falls.

Thanks, Bandwagon.

If, over a relatively short period of time, we experience negative debt growth instead of the current positive double digit levels (i.e. households start to pay down their secured and unsecured debt), then this country is going to experience a truly brutal recession. Gordon Brown would be revealed as the modern day Charles Ponzi that he really is, and would become a pariah.

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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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