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Bbc File On 4, Tuesday 25 September 2007 At 2000 Bst,


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No doubt about it, momentum is gathering - stormy times ahead.

Well we all knew it was going to happen but it is reassuring to hear in the mainstream at last, except of course if you have just taken out a dodgy mortgage on some crappy overpriced newbuild.

You have to feel sorry for that bird losing £120 a month, maybe for about 10 nanoseconds anyway. Well maybe not. Feck 'em. Let 'em burn.

Good programming from the BBC, we're going to be hearing a lot more of this. Let the bear feast begin.

[typo]

Edited by MrBenn
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Guest Shedfish

i hadn't fully realised the implication of that 15% 'discount' by the developer, to get the 100% mortgage. so that 15% mark-up is a one-shot thing. even if a flat is sold for what was really paid (as opp.to what's on the land registry), that's an instant 15% drop

other than that, i'm in need of a LIE DOWN to digest.

in the meantime, for those still with the munchies here's a 'behavioural finance' intermission from the FT

http://www.ft.com/cms/s/2/04f6cf98-678e-11...00779fd2ac.html

http://www.ft.com/cms/s/0/dd6abc1e-67ab-11...00779fd2ac.html

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That was excellent.

A number of issues jumped out at me:-

1. The Land Registry know some prices are mis-stated but their attitude is "Not my problem guv". Shocking.

2. LR figures are one of THE main supports for house price stats.

3. FSA are aware of problems but have done little about it. Who do the FSA report to? Treasury.

4. Some lenders must know their loan books are based on over-valued assets, but have sold on those assets anyway. In particular lenders focussed on the BTL new build market. If Portman/Nationwide knew 2 years ago it is inconceivable others didn't. Again, where were the FSA? Same place as for NR.

5. Scale of developers cashback/incentives. These are widely advertised so no excuse for FSA or LR.

6. The sheer scale of the sub-prime market. Up to 4 million mortgages? Staggering.

The ONLY downside was that this was on Radio 4 not BBC1. It is SO big and affects so many people for such huge sums of money I cannot understand how it got hidden on radio 4. How many people would have listened compared to the profile and number of people that need to be aware of this?

The major city new-build/flat market is in deep trouble. The FSA are in deep trouble. Millions of borrowers are potentially in deep financial trouble. This can only get worse from here not better, and any regulation/action by the FSA will make the market tighter and the price correction steeper imo.

I predict political focus will be on fraud by loan applicants, and sub-prime mortgage cos. and they will try and resrict it to new-build and city centre BTL/developers, and keep it well away from the mainstream market. i.e. isolate the problem to keep the rest of the market stable. They will fail. FSA will be roasted alive.

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Borrowers told to lie about wages

A BBC investigation has found evidence of serious mis-selling in Britain's sub-prime mortgage market.

Industry insiders have described how people have been advised to lie about their incomes to take out loans far bigger than they can afford.

.....the BBC's incompetence is showing here....they were well aware of this in 2003 .....in 2004 the FSA took over the regulation of OO mortgages.....why are BBC not investigating the FSA...?.....The FSA have been reviewing the UK sub prime from May of this year....what have they come up with...they better be quick as the 'Tsunami' is fast approaching.....and why have the FSA not incorporated the BTL side of the business into their brief....who is responsible for this side of the poor lending practices..... ?.....just another hole waiting to be filled ....let's face it ....Brown messed up badly when he created the FSA ...all this weak or illicit lending should be put back to the BofE who might understand it all a bit better.... :ph34r::ph34r::ph34r:

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Yes -- but IF THE "MONEY" to pay the "PRICE" was simply NOT THERE, NOT MADE AVAILABLE [by the Moneylender] - then it simply WOULD NOT BE POSSIBLE!!! Can't people get this??! It's SO weird. People just CANNOT see that none of this would have been possible if the "money" couldn't be got hold of in the first place! And the people behind all this HAVE KNOWN this all along. The "housing market" has been, for years and years and years, a PYRAMID SELLING SCAM!! How many times do I have to tell people this!???

HPI = MBSs, CDOs, Shares, Funds, etc.... debt trading gone mad. Indeed it is the biggest pyramid scheme ever devised, even some rich kids are losing their shirts...... SH*TSTORM!!!!! :blink::rolleyes:

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I think you are all being cold hearted. May be we should help all of these poor BTL purchasers. Why don't we set up a scheme whereby we sell water softeners. We can let the person that sells the softener keep 30% of the proceeds of their direct sale and 5% of the sales of those they sign up. If we get everyone selling to each other and keep increasing the price every month we can soon all be rich. Can't we?

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That was excellent.

A number of issues jumped out at me:-

The ONLY downside was that this was on Radio 4 not BBC1. It is SO big and affects so many people for such huge sums of money I cannot understand how it got hidden on radio 4. How many people would have listened compared to the profile and number of people that need to be aware of this?

Hoping not to sound too much like a BBC embedded poster...BBC Radio has been really good recently about subprime, the credit crunch etc. World Service (get yourself a digital radio or listen on your telly) has been especially bearish.

Try looking through this link or go to BBC.CO.UK and search on Credit Crunch.

Remember that Telly is for the terminally lobotomally challenged [except for Newsnight and C4 News on rare occasions].

Hurrah! for some intelligent programme making at the BEEB and keep listening to the Radio - this is where real broadcast news happens.

If you don't like broadcast, then read the papers or the net. In a way, telly can't be criticised - it's merely food for non-thinkers. And that's every telly channel, every telly broadcaster.

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Hoping not to sound too much like a BBC embedded poster...BBC Radio has been really good recently about subprime, the credit crunch etc. World Service (get yourself a digital radio or listen on your telly) has been especially bearish.

Try looking through this link or go to BBC.CO.UK and search on Credit Crunch.

Remember that Telly is for the terminally lobotomally challenged [except for Newsnight and C4 News on rare occasions].

Hurrah! for some intelligent programme making at the BEEB and keep listening to the Radio - this is where real broadcast news happens.

If you don't like broadcast, then read the papers or the net. In a way, telly can't be criticised - it's merely food for non-thinkers. And that's every telly channel, every telly broadcaster.

...as stated earlier the BBC are repeating safe 'revelations' which they reported on four years ago....this is now the 'FSAGATE'....why are the BBC not investigating their lack of control over the whole OO lending scene....?......for the BBC this programme is merely 'rearranging the deckchairs on the Titanic'.....good listening if you like watching paint dry...!.... :ph34r::ph34r::ph34r:

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Hoping not to sound too much like a BBC embedded poster...BBC Radio has been really good recently about subprime, the credit crunch etc. World Service (get yourself a digital radio or listen on your telly) has been especially bearish.

Try looking through this link or go to BBC.CO.UK and search on Credit Crunch.

Remember that Telly is for the terminally lobotomally challenged [except for Newsnight and C4 News on rare occasions].

Hurrah! for some intelligent programme making at the BEEB and keep listening to the Radio - this is where real broadcast news happens.

If you don't like broadcast, then read the papers or the net. In a way, telly can't be criticised - it's merely food for non-thinkers. And that's every telly channel, every telly broadcaster.

I agree with you. My point was precisely that the vast majority of people who are most affected by this issue are not R4 listeners, they are a TV audience. Sub-primers in difficulty, amateur BTLers, FTBers about to take on huge mortgages on over-valued properties etc.

Edited by Red Kharma
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This will become a 'classic' in years to come.

For anyone who missed it, you can download it from here (right click, save):

http://downloads.bbc.co.uk/podcasts/radio4...070925-2106.mp3

I'm sure this will spread rapidly to all the media. It will soon be the only thing on the TV, and everyone will be bored of it :)

The media loves a good story, and this will be one BIG story for them.

Steve

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Here we go. Yet another great mis-selling scandal. It was those nasty brokers wot made us do it, please, please I must get compensation!

I'll bet that right now, the ambulance chasers brokering endowment compensation are gearing up to launch their self-cert mis-selling compo businesses.

Isn't lying on such an application form fraud?

The VI's can say that "there is no sub-prime problem in the UK" as much as they like, but, if the problem exists, denying the problem won't make it go away. The truth will out, probably sooner than later. When it does, we will probably see more queues outside banks.

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While it actually tell us anything we didn't know, I thought last night's programme was an extremely well researched, well constructed, and well presented analysis of the housing bubble.

It majored in two seperate frauds;

Firstly Eric's particular hobby horse, fraudulent mortgage applications where applicants are encouraged to lie about their incomes in order to get begger mortgages. Unfortunantely, the main culprits here, the intermediaries or brokers working on commission, are likely to get away scot-free. By the very nature of their crime, there is no documentary evidence of it - simply the word of the applicant that they were acting with the encouragement of the broker. The broker of course, will simply deny everything and point to the signature of the applicant on the form. 'They lied to me!', he'll say.

I thought that the programme did a good job in pointing out how this widespread fraud had contributed to the unprecedented house price inflation of the last ten years and how precarious its uncovering was going to leave property prices. Pity it took the BBC so long to re-visit this subject!

The second fraud covered was the endemic practice of developers offering discounts of around 15% to bulk purchasers of new-build flats. Nothing wrong with this per se - it happens in all industries.

Where it becomes fraudulent however, is where the buyer secures a mortgage on the valuation of the flat before the discount is deducted. And where the sale price is recorded with the Land Registry as also being undiscounted price. It is clear from a few of the posts above that many people here were not fully aware of this scam. Well, a lot more people are now!

It stikes me that this second fraud is going to be the one that is focussed on by the government. This time there is documentary evidence aplenty - those discounts weren't generally paid in cash-stuffed brown envelopes! It will also adversly affect a very small proportion of the electorate, and the subsequent availability of lots of cheap flats to rent will be popular!

Any investigation into the BTL fraud should look closely at the activities of surveyors and solicitors. They knew what was going on on and colluded with it, presumably for a kick-back. If found to have been involved, they should be kicked out of their respective 'professions'.

The underlying message that this programme managed to convey, and a line I have taken for a while, is that the current housing bubble is very largely a function of these frauds, not the natural cycle. Remove the frauds, and the bubble bursts.

Many people of a bullish inclination trot out the line that there will not be a crash in house prices because the fundementals in the economy remain sound. They will tell you that a house price crash needs to go hand in hand with a recession to happen.

This excellent programme helped to make clear that house prices have risen largely in isolation from the rest of the economy, and can fall in isolation from the rest of the economy. It is a bubble built on fraud, and without the fraud there is nothing to support such high prices.

The unfortunate people who have been mis-sold big mortgages on their family homes are unlikely to be people who are currently making a big financial contribution to the rest of the economy, as they have no spare cash. If they lose their homes and go bankrupt, the result is unlikely to recessionary, as they will be able to spend more of their incomes on goods and services rather than servicing debt.

A few thousand BTL investors going bust or to prison is also not going to apply recessionary pressures to the economy. As previously stated, the main result will be all those flats going cheap.

There is an opportunity here to manage a fall in house prices of 25-40% without triggering a full-blown recession.

And whoever manages that is likely to get a whole lot of credit for it and very little blame.

I have a feeling that Messers Darling and Brown might be looking very carefully at this right now!!!

Edited by Mr Yogi
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An excellent summary Yogi.

I may be over-simplfying this, but would it not be reasonable straightforward for the land registry to search its database for all new-build properties in the last say 3 or 5 years contact all sellers and buyers for confirmation of the net sale/purchase price paid and update their figures?

This would clean up their data, provide a "one-off" hit to house prices and enable all lenders to revise the asset prices on their loan books.

Failure to notify the LR of true figures within a fixed time scale could be made an offence (if it isn't already).

Once the data is reasonably clean and the problem is in the open then anyone wishing to take legal action can do so, whether banks, buyers, IR etc.

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People have done self cert in the past as they may be limited companies and pay themselves with dividends. Their PAYE income may only be £6K but their total income may be 20 times that.

These days, mortgage companies have understood that a lot of self employed people pay themselves with dividends and now take this into account and class it as normal income. Self cert has been a route for tradesmen who dont have a normal proof of income. Granted, there are a number of people who have used the self cert as a buy to lie but to state that it is accountable for 80% of the HPI is just downright hysterical. Your barking up the wrong tree or your just barking.

No it ain't mate!! It is the KEY to the whole scam..... If A, B, C, D & E borrow on a lie-to-buy mortgage so as to pay what OTHERWISE they would not have AND COULD NOT HAVE PAID for a property, then X, Y, Z, T & U will HAVE TO MATCH THE PRICES A, B, C, D & E PAID in the various neighborhoods, towns, villages, villages, streets that THEY bought in. i.e. The fraudulent mortgages advances have a sort of multiplier effect wherever they are issued -- they HIKE up the "prices" all over the place...... and so THAT becomes the norm - the "price" of houses in THE WHOLE AREA/DISTRICT etc etc. It is a magical little scam for those who invented it.... HENCE the stupid house "prices" all over the UK....

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No it ain't mate!! It is the KEY to the whole scam..... If A, B, C, D & E borrow on a lie-to-buy mortgage so as to pay what OTHERWISE they would not have AND COULD NOT HAVE PAID for a property, then X, Y, Z, T & U will HAVE TO MATCH THE PRICES A, B, C, D & E PAID in the various neighborhoods, towns, villages, villages, streets that THEY bought in. i.e. The fraudulent mortgages advances have a sort of multiplier effect wherever they are issued -- they HIKE up the "prices" all over the place...... and so THAT becomes the norm - the "price" of houses in THE WHOLE AREA/DISTRICT etc etc. It is a magical little scam for those who invented it.... HENCE the stupid house "prices" all over the UK....

Thanks for your simple explanation

I am having to compete with ABCDE on an achievable-debt basis where they are prepared to lie to get a mortgage.

Instead, I have chosen to wait until competition for houses is based on savings and income.

I am annoyed, but patient.

VMR.

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No it ain't mate!! It is the KEY to the whole scam..... If A, B, C, D & E borrow on a lie-to-buy mortgage so as to pay what OTHERWISE they would not have AND COULD NOT HAVE PAID for a property, then X, Y, Z, T & U will HAVE TO MATCH THE PRICES A, B, C, D & E PAID in the various neighborhoods, towns, villages, villages, streets that THEY bought in. i.e. The fraudulent mortgages advances have a sort of multiplier effect wherever they are issued -- they HIKE up the "prices" all over the place...... and so THAT becomes the norm - the "price" of houses in THE WHOLE AREA/DISTRICT etc etc. It is a magical little scam for those who invented it.... HENCE the stupid house "prices" all over the UK....

Spot on. I would call it legalised extortion because you have to compete with people who are able to obtain money out of all proportion to their income. If you want a house commensurate with your salary then you're forced to do the same thing.

Edited by thecrashingisles
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