Jump to content
House Price Crash Forum
eric pebble

"- Uk-'s Subprime Crisis

Recommended Posts

U.K.'s Subprime Crisis May Be Worse Than U.S.'s:

"The U.K. has had a property bubble every bit as crazy as the U.S.'s. Valuations were stretched, and lending criteria loosened. And now arrears are starting to rocket, even while the economy remains healthy.

Not only does the U.K. face its own subprime crisis, it could be far worse than in the U.S. "

"The latest figures on debts and mortgage arrears in the U.K. certainly make grim reading. Households ``are getting into more trouble when it comes to their mortgages,'' London-based consulting firm Capital Economics Ltd. said in a note to investors. ``With higher interest rates yet to have their full effect, mortgage arrears are likely to rise further, while unsecured bad debt might start to rise again too.'"

" No Proof of Income

The British market doesn't fall neatly into ``prime'' and ``subprime'' categories. Most of the mainstream lenders offer so- called self-certified mortgages, which require no proof of income. Plenty of prime borrowers -- meaning people who haven't defaulted on a loan yet -- are likely to take out mortgages that will be hard to make the payments on.

The U.K. subprime crisis may be a lot nastier than the U.S one. Here's why.

First, despite the mounting evidence that people can't afford them, house prices continue to soar. The National Housing Federation predicted this week that British house prices will rise 40 percent in the next five years, taking the average value of a home to 302,400 pounds ($618,000) by 2012.

The average British home already costs 11 times the average local salary, and that figure continues to increase."

" While the property market rises, everyone will be safe. If your house is worth more than your mortgage, you will be desperate to hold on to it. If you get into trouble, you can always sell it, repay the loan, and move somewhere cheaper.

Yet, as the U.S. has discovered, if house prices start to fall, that arithmetic changes. If you are in trouble with your mortgage, you can't pay it off by selling. There is little incentive to keep up the payments. Why not just walk away, and hand the keys and the problems over to the mortgage company?

Britain hasn't reached that point yet. But if it does, the mess could be even worse than in the U.S. "

http://www.bloomberg.com/apps/news?pid=206...id=axWmsMHJDjiQ

Edited by eric pebble

Share this post


Link to post
Share on other sites
First, despite the mounting evidence that people can't afford them, house prices continue to soar. The National Housing Federation predicted this week that British house prices will rise 40 percent in the next five years, taking the average value of a home to 302,400 pounds ($618,000) by 2012.

Well I don't think they are soaring any more. The Land Reg (was it them?) figures for June point to a large increase, but as someone pointed out they lag the market by the length of time between offer and completion.

The NHF is obviously a VI. They have probably extrapolated past growth into the future, but cooled it down a tad because of IR rises. Despite, their phenomenal rate of recent growth, not every shop will be a Starbucks in 5 years time.

I agree with the conclusion though. ;)

Share this post


Link to post
Share on other sites
Well I don't think they are soaring any more. The Land Reg (was it them?) figures for June point to a large increase, but as someone pointed out they lag the market by the length of time between offer and completion.

The NHF is obviously a VI. They have probably extrapolated past growth into the future, but cooled it down a tad because of IR rises. Despite, their phenomenal rate of recent growth, not every shop will be a Starbucks in 5 years time.

I agree with the conclusion though. ;)

YUP - and you only have to see the poisons that are sizzling in the mud -

http://news.bbc.co.uk/1/hi/business/3222053.stm - ["Mortgage customers 'urged to lie'"]

- and you know the UK has a far worse SUB-PRIME problem than any VI wants to admit.... Click on Watch & Listen top right - just a clip of EAs & Mortgage Brokers commiting fraud - see how this has been and still is done - it's been going on for for years all over the UK!!!...

And see here for a good summary of ENDEMIC UK MORTGAGE FRAUD: - http://www.bbc.co.uk/pressoffice/pressrele..._mortgage.shtml

Edited by eric pebble

Share this post


Link to post
Share on other sites

IMO, this has always been blindingly obvious. Our HPI is up some 300% compared with a fraction of that amount across the US as a whole (200% up in the frothy markets but less than 50% elsewhere). Our houses cost 40-50% more and we earn less after taxes. We are deeper in debt and have an economy that lacks the fundamentals to recover once it all takes on the shape of a pear.

As of this moment the market is on the edge of a very deep precipe. The only thread holding it from tipping over is the last remants of irrepsonsible lending which cannot be more than a few days away from being completley drying up.

When it goes it will be an overnight phenomenon with MoM declines in excess of 5%. I am surprised it has hung on this loing and wonder if it isn't hanging on any longer and the VIs are keeping the stats looking sweet. :blink:

Share this post


Link to post
Share on other sites
Well I don't think they are soaring any more. The Land Reg (was it them?) figures for June point to a large increase, but as someone pointed out they lag the market by the length of time between offer and completion.

The NHF is obviously a VI. They have probably extrapolated past growth into the future, but cooled it down a tad because of IR rises. Despite, their phenomenal rate of recent growth, not every shop will be a Starbucks in 5 years time.

I agree with the conclusion though. ;)

IIRC the LR Index for June pointed to 5 out of the 10 regions going negative with only two regions showing any appreciable gain over 1%?

Share this post


Link to post
Share on other sites
Guest DissipatedYouthIsValuable
U.K.'s Subprime Crisis May Be Worse Than U.S.'s:

"The U.K. has had a property bubble every bit as crazy as the U.S.'s. Valuations were stretched, and lending criteria loosened. And now arrears are starting to rocket, even while the economy remains healthy.

Not only does the U.K. face its own subprime crisis, it could be far worse than in the U.S. "

"The latest figures on debts and mortgage arrears in the U.K. certainly make grim reading. Households ``are getting into more trouble when it comes to their mortgages,'' London-based consulting firm Capital Economics Ltd. said in a note to investors. ``With higher interest rates yet to have their full effect, mortgage arrears are likely to rise further, while unsecured bad debt might start to rise again too.'"

" No Proof of Income

The British market doesn't fall neatly into ``prime'' and ``subprime'' categories. Most of the mainstream lenders offer so- called self-certified mortgages, which require no proof of income. Plenty of prime borrowers -- meaning people who haven't defaulted on a loan yet -- are likely to take out mortgages that will be hard to make the payments on.

The U.K. subprime crisis may be a lot nastier than the U.S one. Here's why.

First, despite the mounting evidence that people can't afford them, house prices continue to soar. The National Housing Federation predicted this week that British house prices will rise 40 percent in the next five years, taking the average value of a home to 302,400 pounds ($618,000) by 2012.

The average British home already costs 11 times the average local salary, and that figure continues to increase."

" While the property market rises, everyone will be safe. If your house is worth more than your mortgage, you will be desperate to hold on to it. If you get into trouble, you can always sell it, repay the loan, and move somewhere cheaper.

Yet, as the U.S. has discovered, if house prices start to fall, that arithmetic changes. If you are in trouble with your mortgage, you can't pay it off by selling. There is little incentive to keep up the payments. Why not just walk away, and hand the keys and the problems over to the mortgage company?

Britain hasn't reached that point yet. But if it does, the mess could be even worse than in the U.S. "

http://www.bloomberg.com/apps/news?pid=206...id=axWmsMHJDjiQ

So. Does this mean Debbie and me should bye a house now?

Share this post


Link to post
Share on other sites
So. Does this mean Debbie and me should bye a house now?

Yeah! It's a great time! - And it's soooh EASY TOO!!! Just pop along to your Mortgage Broker - he'll tell you how to commit fraud - and tell lies -- stick your "income" down on the mortgage appication form as £70k per anum - Yeah - I know you only earn £21,300 pa - and that's in a good year! But - what the heck !! LIE LIE LIE - Everyone else does - so Why Not??!!! -- That way you'll JUST be able to buy a really nice [not] 1 bed flat above a fish n chip shop in Grotsville, Grotland!!!! What more could you ask for?!?!? -- It's you dream home - and a really good investemnt!!!!! Sign your life away on a really cool "sel-cert" LIAR LOAN -- INTERST ONLY -- BARGAIN!!!! GREAT DEAL!!!!!!!!! :P:P

Edited by eric pebble

Share this post


Link to post
Share on other sites

I think the point worth emphasising is that the UK market does not easily split into prime v subprime.

Many supposedly prime borrowers have relied upon self certified mortgages or have otherwise conspired to deceive the lenders as to their true income.

More to the point many other prime borrowers have quite legitimately managed to borrow, often on interest only, 4 x or more of their income; an amount that I consider (from my reasonably well paid and reasonably frugal lifestyle) difficult to support.

So the reality is that a very high proportion of the loans taken out in the last 5 years are actually sub-prime, regardless of any official classification.

Share this post


Link to post
Share on other sites

Is in not the case that a sub prime individual with a large desposit can be classed as a prime whereas, I believe in the US, your FICO score is what makes you prime or Alt A etc and this info is used in the packaging of loans

Share this post


Link to post
Share on other sites

If you take a step back while looking at the prime vs. subprime argument in the US and the UK, it's obvious that is makes no sense to claim that the Britain has fewer subprime loans than the US. Sure, the loans aren't labeled as subprime in the UK, but "subprime" is a definition that based on the US market -- referring to loans that don't meet the credit quality requirements of government sponsored loan purchasers like Fannie Mae (which doesn't even exist in the UK) -- so why would it ever be used in the UK to start with? Prime vs subprime is really a question of credit quality, and it simply isn't mathematically possible that credit quality is higher in the UK than it is in the US given that home ownership rates are much higher in the UK, along with much higher house prices and far lower after tax incomes. Are people arguing that UK borrowers are just so much more responsible than Americans that they're able to juggle mortgages that are twice the size of American mortgages with less chance of defaulting? I'm sure that UK lenders have some model that contradicts this bit of common sense, but they're probably the same models that telling people last year to invest in US subprime mortgages.

The only difference between the US and UK markets is that the UK hasn't yet plateaued like the US market. When that happened in the US (starting at the end of 2005), all of the problem loans that were covered up by the rising house prices were flushed out and, now, 18 months later, the whole market is starting to collapse.

Share this post


Link to post
Share on other sites
If you take a step back while looking at the prime vs. subprime argument in the US and the UK, it's obvious that is makes no sense to claim that the Britain has fewer subprime loans than the US. Sure, the loans aren't labeled as subprime in the UK, but "subprime" is a definition that based on the US market -- referring to loans that don't meet the credit quality requirements of government sponsored loan purchasers like Fannie Mae (which doesn't even exist in the UK) -- so why would it ever be used in the UK to start with? Prime vs subprime is really a question of credit quality, and it simply isn't mathematically possible that credit quality is higher in the UK than it is in the US given that home ownership rates are much higher in the UK, along with much higher house prices and far lower after tax incomes. Are people arguing that UK borrowers are just so much more responsible than Americans that they're able to juggle mortgages that are twice the size of American mortgages with less chance of defaulting? I'm sure that UK lenders have some model that contradicts this bit of common sense, but they're probably the same models that telling people last year to invest in US subprime mortgages.

The only difference between the US and UK markets is that the UK hasn't yet plateaued like the US market. When that happened in the US (starting at the end of 2005), all of the problem loans that were covered up by the rising house prices were flushed out and, now, 18 months later, the whole market is starting to collapse.

I think you're right RichC..... There is LOADS of loan-toxic-waste sitting out there..... and it's going to smell bad soon...

Share this post


Link to post
Share on other sites
I think you're right RichC..... There is LOADS of loan-toxic-waste sitting out there..... and it's going to smell bad soon...

Eric, this is some kind of mis-guided compliment, but when i read your posts, i imagine you look like GUY FAWKES looked just as he was about to light that touch paper, but you light yours, and the smile on your face is like an angel leaving ten penneth for the young child? ;):lol:

Share this post


Link to post
Share on other sites
Eric, this is some kind of mis-guided compliment, but when i read your posts, i imagine you look like GUY FAWKES looked just as he was about to light that touch paper, but you light yours, and the smile on your face is like an angel leaving ten penneth for the young child? ;):lol:

Ahhhn Bless... :lol::lol:

Share this post


Link to post
Share on other sites
YUP - and you only have to see the poisons that are sizzling in the mud -

http://news.bbc.co.uk/1/hi/business/3222053.stm - ["Mortgage customers 'urged to lie'"]

- and you know the UK has a far worse SUB-PRIME problem than any VI wants to admit.... Click on Watch & Listen top right - just a clip of EAs & Mortgage Brokers commiting fraud - see how this has been and still is done - it's been going on for for years all over the UK!!!...

And see here for a good summary of ENDEMIC UK MORTGAGE FRAUD: - http://www.bbc.co.uk/pressoffice/pressrele..._mortgage.shtml

.....yep....but the lenders of sub prime are all approved by the FSA who reported direct to 'Gordo' Brown when he was Chancellor...is Mr Darling speaking to the FSA on this subject...?.... :o:o:o

Share this post


Link to post
Share on other sites
.....yep....but the lenders of sub prime are all approved by the FSA who reported direct to 'Gordo' Brown when he was Chancellor...is Mr Darling speaking to the FSA on this subject...?.... :o:o:o

I fully acknowledge - FSA = Cr@p....... although I hear they've had a big clearout of staff - and are hiring new staff who are "qualified": Don't hold your breath though!! :huh::huh::blink:

Share this post


Link to post
Share on other sites

But so long as the economy is OK wont the majority of the sheeple just continue to trundle along to the building societies every month with their bundles of cash and keep the ball rolling?

Share this post


Link to post
Share on other sites
IMO, this has always been blindingly obvious. Our HPI is up some 300% compared with a fraction of that amount across the US as a whole (200% up in the frothy markets but less than 50% elsewhere). Our houses cost 40-50% more and we earn less after taxes. We are deeper in debt and have an economy that lacks the fundamentals to recover once it all takes on the shape of a pear.

As of this moment the market is on the edge of a very deep precipe. The only thread holding it from tipping over is the last remants of irrepsonsible lending which cannot be more than a few days away from being completley drying up.

When it goes it will be an overnight phenomenon with MoM declines in excess of 5%. I am surprised it has hung on this loing and wonder if it isn't hanging on any longer and the VIs are keeping the stats looking sweet. :blink:

For once RB, you and I are in total agreement.

Share this post


Link to post
Share on other sites
But so long as the economy is OK wont the majority of the sheeple just continue to trundle along to the building societies every month with their bundles of cash and keep the ball rolling?

Sadly - Yes, probably. People here in the UK seem to be so ignorant - and seemingly totally unaware that they are just being utterly ripped off left, right and centre.

Share this post


Link to post
Share on other sites
IMO, this has always been blindingly obvious. Our HPI is up some 300% compared with a fraction of that amount across the US as a whole (200% up in the frothy markets but less than 50% elsewhere). Our houses cost 40-50% more and we earn less after taxes. We are deeper in debt and have an economy that lacks the fundamentals to recover once it all takes on the shape of a pear.

As of this moment the market is on the edge of a very deep precipe. The only thread holding it from tipping over is the last remants of irrepsonsible lending which cannot be more than a few days away from being completley drying up.

When it goes it will be an overnight phenomenon with MoM declines in excess of 5%. I am surprised it has hung on this loing and wonder if it isn't hanging on any longer and the VIs are keeping the stats looking sweet. :blink:

Reminds me of an old course slide:

Change.GIF

Takes time, but then the BTLs will take the fast lane!

post-6750-1187893061_thumb.jpg

Edited by Fence

Share this post


Link to post
Share on other sites
Reminds me of an old course slide:

Change.GIF

Takes time, but then the BTLs will take the fast lane!

AND THE FT TELLS THE TRUTH - All this is what I've been saying for years: The House Price Bubble has been driven and fed by utterly irresposible and CRIMINAL/FRAUDELENT Lending Practices.

FT: Subprime: The next financial crisis starts here. By Clive Crook

http://www.ft.com/cms/s/0/8615bdd0-5110-11...00779fd2ac.html

Published: August 23 2007 03:00

Washington is deserted in August, so demands for a political response to the financial-market debacle have been muted. Rest assured, this will change. The problem will not be dealt with by next month - things could easily get worse before they get better - and some appealing suspects are just asking for a regulatory beating. Enron and the other corporate scandals begat Sarbanes-Oxley. What will the subprime mortgage meltdown bring forth?

Observers of the subprime mortgage business (not counting those who work for it) had been predicting a breakdown for quite a while. Regulated banks do little if any such lending. Bank affiliates or independent mortgage companies have built the business - and they are, respectively, lightly regulated or virtually unregulated. They lent eagerly to borrowers of limited means, often on patently reckless terms (initially low "teaser" rates-switching to expensive variablerates; interest-only loans; loans whose principal increased over time). Everything was premised on perpetually rising house prices.

The Federal Reserve was worried, but mainly on consumer-protection not systemic-risk grounds. Lacking the will and the authority, it mostly failed to act and the business boomed. A lot of people who otherwise would have been unable to buy a house did so, which is good. How many of them hang on to their houses as this credit cycle unwinds, however, remains to be seen. Legislation will be needed to bring all mortgage lenders under the Fed's supervision, so that basic standards of prudence can be enforced. This much seems likely to happen.

The harder question is whether new rules are needed for the wider financial system. On the face of it, the answer is Yes. One rationale for excluding non-bank lenders from Fed scrutiny is that they pose no systemic risk. So much for that. Wall Street financed the subprime boom by buying the loans - repackaged as securities, stamped AAA by the credit-rating agencies - and selling them on. This model, of course, made the original lenders even less attentive to loan quality. On the other hand, it spread the risk throughout the system, which was also thought to be a good thing - until the loans started to go bad. Then, it turned out, investors wanted to know where the risk was and nobody could say. Arriving as if from nowhere, that fear led to the freezing up of the credit system.

How are regulators to grapple with this? If the opacity of the system is the problem, then new scrutiny and disclosure requirements for secretive investors such as hedge funds and private-equity firms must be part of the remedy. But it could be that complexity, more than lack of transparency in its own right, is the issue. The accelerated pace of financial innovation and the ever-proliferating complication of modern financial instruments seem to defy the ability even of the products' designers to fathom what is going on. And the new instruments are often thinly traded, if at all, so values are guessed by simulation or calculation, not in the market. Sophisticated investors are left poorly informed about the risks they are bearing; unsophisticated investors have not got a clue. Desirable as fuller disclosure by hedge funds and private equity firms may be, it is hard to believe that it will be enough.

In other words, financial innovation itself is the problem. This poses a dilemma. The benefits of modern finance are real: as its champions rightly say, it deserves much of the credit for the relative stability of the world economy in the past two decades. Stifling this innovation, or attempting to manage it, looks unpromising.

Part of the answer - and, along with fuller scrutiny, perhaps the best that can be done - is to create a climate where excessive risk-taking is more effectively discouraged, and punished when things go wrong. Here the role of the Fed is crucial, both in the boom phase of speculative cycles and in the bust. Fast-rising house and other asset prices have been buoyed by very low interest rates. It was enough for the Fed that consumer-price inflation was low; asset prices, in their own right, were not its concern.

This set the scene for America's remarkable debt-fuelled house-price surge - whose inevitable end was the proximate cause of the subprime collapse.

The Fed's long-maintained reluctance to weigh asset prices in its monetary policy calculations needs to go.

Then, when financial markets seize up, the Fed must take care, as far as possible, to avoid bailing out the culprits.

As the economists, Willem Buiter and Anne Sibert, have argued, the Fed was wrong to cut the discount rate last week, and will compound the error if it soon cuts the more important Fed funds rate as many now expect - unless there is evidence of harm spreading to the real economy. Instead, honouring Walter Bagehot's maxim, it should provide liquidity at a penalty rate (against conservatively valued collateral) to those so lacking in liquidity that they are willing to pay it. That memorably costly help should be available not just to banks, as now, but to hedge funds and other financial firms willing to accept the Fed's terms.

It is a cliché, but nonetheless true, that the end of each financial crisis sows the seeds of the next. Better regulation has a place, but the Fed is the key to attacking that cycle.

----------------------------------------------------------------------------------------------------

Question: Will this happen -- and what's going to be done about outright Price Fixing/Hiking via Sub-Prime/"Self-Cert" [etc.] here in the UK? -

Mortgage customers 'urged to lie' - http://news.bbc.co.uk/1/hi/business/3222053.stm

&- http://www.bbc.co.uk/pressoffice/pressrele..._mortgage.shtml

Edited by eric pebble

Share this post


Link to post
Share on other sites
I fully acknowledge - FSA = Cr@p....... although I hear they've had a big clearout of staff - and are hiring new staff who are "qualified": Don't hold your breath though!! :huh::huh::blink:

...qualified in what.......?..the only thing this lot needs is common sense and responsibility owned from the top.....all this stalling and blame game while Rome burns does not fool anyone....they need to walk into the lenders and tear their books apart....have they no gumption.....?..it's their funeral when their missed opportunities are unvieled as they will be.....!..... :ph34r::lol::lol:

Edited by South Lorne

Share this post


Link to post
Share on other sites
...qualified in what.......?..the only thing this lot needs is common sense and responsibility owned from the top.....all this stalling and blame game while Rome burns does not fool anyone....they need to walk into the lenders and tear their books apart....have they no gumption.....?..it's their funeral when their missed opportunities are unvieled as they will be.....!..... :ph34r::lol::lol:

It's a really sad situation South Lorne - it would appear that there is NO ONE who can really deal with this matter --- result of dumbed down society?

Edited by eric pebble

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 354 The Prime Minister stated that there were three Brexit options available to the UK:

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.