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Observer: Gordon's I R Cut Last Year Stalled The Inevitable

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http://observer.guardian.co.uk/business/st...1810485,00.html

Sunday July 2, 2006

The Observer

......./
Since the Bank of England stepped in with a confidence-boosting cut in interest rates last August to steady a rapid decline in consumer spending, the housing market has surprised many observers by bouncing back - though not to the gravity-defying double-digit price increases of the past five years.
....../
However, analysts warn that despite the market's impressive performance since the turn of the year, many of the same factors which made house prices vulnerable 12 months ago are still in place - and it's only a matter of time before they take their toll.
'There are a lot of headwinds facing consumers at the moment
, which makes me surprised that we have seen such a rebound, and sceptical about whether it can continue,' says George Buckley, chief UK economist at Deutsche Bank. 'The fundamentals are not really in place to sustain a significant further boom. Real income growth hasn't been that strong, inflation is rising for non-discretionary items like energy bills, taxes are increasing and there's a greater need for people to save for their pensions.'
John Butler, chief UK economist at HSBC, agrees. 'I think the fact that it has rebounded over the past six to nine months doesn't mean we're past the worst:
a lot of issues could weigh down on the housing market. House-price-to-income ratios are very high, the debt-servicing burden is high, and banks are suffering a pick-up in arrears. We are still where we were a year ago.'
With interest rates tightening across the world, led by the Federal Reserve in the US, the cost of servicing a mortgage has been rising,
even without the Bank of England changing its policy rate
.
The Bank is expected to leave interest rates unchanged when it meets next week but the markets are betting on a rate rise by the end of the year.
'There is a bigger group of people who are very vulnerable to a 1 or 1.5 per cent rise in interest rates than there would have been five or 10 years ago,' says Stansfield.
Also unclear are the consequences of the rapid expansion in so-called 'sub prime' lending, often to borrowers with shaky credit records.

Mega VI HSBC not too bullish? And, best of all, Gordon no longer controls IR as the world is raising them for him whether he likes it or not. It is different this time around as more are on the edge due to the sheer amount of debt taken on.

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'We are still where we were a year ago'

That line sums it up for me. I've been pretty down about the whole 'spring bounce' this year but then I think back to the reasons I was loathe to buy in the first place and they're all still there and if anything getting worse.

- houseprices adjusted for inflation - still looks a bubble.

- houseprices to wages - getting ever more stretched.

- unemployment and debt levels both rising.

- interest rates rising around the world and an increasing expectation they'll rise here too.

- the price of oil considerably higher than a year ago, isn't that going to have an impact on inflation levels soon.

in fact I can't think of anything that was a harbinger of the crash a year ago that's actually improved, except, well... sentiment. That to me is the big one. The mood around my way is that we avoided the crash last year so we're alright now; so people feel more confident paying those high prices. When yoy hpi figures just failed to go negative last year (and we were sooooo close) then in my mind the crash was postponed for at least a year. A negative set of figures would have set the doubt in place and proven the house prices only rise argument wrong, undermining confidence in the spring market. Those underlying stories of unemployment and bad debt would see much scarier with even small -ve you hpi, but I'm afraid most people see a 2% rise as still a rise - most people just don't take subtleties like inflation into account.

Still a boom purely underpinned by sentiment alone is probably the scariest market of all to enter into. Someone on this forum mentioned the market is now like a perpetual motion machine - that's scarily true as in the real world the perpetual-motion machine is a classic scientific folly, like alchemy, and that's what we have here a grand folly of perpetually escalating prices.

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Interesting article, the first mainstream which discusses UK mortgage rates going up regardless of BOE policy. Does this mean we could have higher lending rates despite the best efforts of Brown and Co?

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Interesting article, the first mainstream which discusses UK mortgage rates going up regardless of BOE policy. Does this mean we could have higher lending rates despite the best efforts of Brown and Co?

It appears to be that way. Our lenders have ultimately aquired their funds very cheaply from the creditor banks in Japan and with their rates moving up at last, the cost of borrowing will increase in the UK. Most VIs have already hiked their fixed rate loans for new borrowers despite Gordon deciding to keep the BoE at 4.5%.

Brown and Co will not move all the time they can convince the public that inflation is being held steady at 2%. Credibility must be fading fast and we may start to see this relfected in the exchange rate for sterling if Gordon indicates that will continue with the farse known as the CPI.

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I've got cash in many UK high St banks. Does this explain why I've been receiving letters this year telling me they are paying less interest to me as their money has become more expensive to aquire?

If so this could be massive. The BOE being controlled by a power hungry politician becomes irrelevant?

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Just goes to show how real yet subtle this Yen carry trade phenomena is? And all this has been happening while the BoJ have not yet officialy moved. 20th March 2006 was when the big Japanese banks began draining liquidity from the Japanese system. It didn't take long for that to reach our shores in the form of higher FR loans and, in some cases, lower savings rates which may mean the banks are trying to absorb some of the rate hikes before raising rates officially?

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We are NOT back to where we were a year the last rate reduction.

Net mortgage debt has increased by around £100Bn in the latest insane flourish. Funny money has taken over where people no longer even realise the significance of these numbers. In non-inflation adjusted terms this last year has seen the same amount of new mortgage debt as:

All the additional net debt from year 1992

Plus all the additional net debt from year 1993

Plus all the additional net debt from year 1994

Plus all the additional net debt from year 1995

Plus all the additional net debt from year 1996

Plus all the additional net debt from the first half of year 1997

In one Year !!!!!!

Yes, it took 5 1/2 years to create as much debt as it has taken the current market to issue in 12 months.

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We are NOT back to where we were a year the last rate reduction.

Net mortgage debt has increased by around £100Bn in the latest insane flourish. Funny money has taken over where people no longer even realise the significance of these numbers. In non-inflation adjusted terms this last year has seen the same amount of new mortgage debt as:

All the additional net debt from year 1992

Plus all the additional net debt from year 1993

Plus all the additional net debt from year 1994

Plus all the additional net debt from year 1995

Plus all the additional net debt from year 1996

Plus all the additional net debt from the first half of year 1997

In one Year !!!!!!

Yes, it took 5 1/2 years to create as much debt as it has taken the current market to issue in 12 months.

We have all observed how a number of large VIs have been busy lowering their lending criterea recently to bring marginal borrowers onto the debt mountain--those with CCJs, bankruptcies and poor records for paying their bills! Fiscal iresponsibility on a grand scale. When it all goes pearshaped these lenders will have no ground to stand on when they try to recover their loans as the court will tell them they should have known better.

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We are NOT back to where we were a year the last rate reduction.

Net mortgage debt has increased by around £100Bn in the latest insane flourish. Funny money has taken over where people no longer even realise the significance of these numbers. In non-inflation adjusted terms this last year has seen the same amount of new mortgage debt as:

All the additional net debt from year 1992

Plus all the additional net debt from year 1993

Plus all the additional net debt from year 1994

Plus all the additional net debt from year 1995

Plus all the additional net debt from year 1996

Plus all the additional net debt from the first half of year 1997

In one Year !!!!!!

Yes, it took 5 1/2 years to create as much debt as it has taken the current market to issue in 12 months.

Should this Merry Go-Round continue with net debt increasing by more than £100Bn a year, just imagine the mess five years from now!! I'm relieved that I'm able to sit on the fence as I want to play no part in this economic miracle.

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don't forget that most indices show that house prices have been dropping over most of the country.. new builds by double digits, over most of the country..

easy to forget that with the VI spin

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http://www.moneyextra.com/news/news-leeds-offer-022051.html

Leeds offer for credit impaired
Leeds Building Society has launched a credit impaired mortgage facility for shared ownership customers. The new product allows clients to borrow 100% of their share of the property and there is no higher lending charge.
The Society will consider a wide range of circumstances, including: County Court Judgements (CCJs) - maximum of £3,000 and none in last 6 months, mortgage or rent arrears, maximum of 2 missed payments in last 12 months and defaults.

Fiscal irresponsibility on the grandest scale imaginable. The Economy is hell-bent on self destruction.

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That drop in IRs has done so much damage. It has been in the past year that most of the people I know who have been waiting for HPI to abate have cracked and given in. Unfortunately these aren't the people I really want to be saying 'I told you so!' to

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surfgatinho,

No doubt many have bought out of shear fear/greed, a metaphorical "gun pointing at their financial head if they waver any longer. No doubt either that the spin associated first with SIPPS and then the rate cut were an additional trigger.

I often wondered looking at what had been done to repos in the 90's as to the mentally twisted state that ex-owners had descended to. I think I can see some of what might have happened and why some went to extreme ends to fling as much crapola back in the direction of the lenders as possible.

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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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