Edinbugh Latest

[copper crutch]

It is in effect growing money on trees, you print it then you lend it to banks at zero % interest who lend it to us or spend it in big public works like roads but because it is not based on "Produce" or "Growth" it simple puts more money in the system which can drive up prices.

You only have to look at Zimbabwe to see how effective an inflationary tool it is. In Zimbabwe there was no produce or growth to trade with so to pay for public services they simply printed money, this starts a spiral of inflation so you need to print more money to pay for services, the more you print the more you need to print but without an asset to lock it to it has no comparable value and spins out of control (look up the Gold Standard on Wikipedia)

The BoE is very scared of deflation (it stops people spending today) so printing money is one way to encourage inflation, you need some inflation to maintain what is called fiscal lag otherwise people stop investing in things

Thanks for the info, all i can say is the banks are not lending at the moment, so if as you say the government gives all the money to the banks, then the banks lend to us, does that mean the return of 100% loans for ist time buyers, and 90% loans for Buy to Let purchases, self cert mortgages again ?

[copper crutch]

Not sure if the following is being condescending or not - but here goes anyway !!

Normal Government money is not backed by gold or silver anymore. It is backed by debt, and more importantly a promise to pay. Hence investors buy UK Government debt and get paid a premium for it. Known as the yield.

So the UK wants 10 bill more debt. It sells this at auction. Government/Sovereign debt is generally seen as being the safest type of investment. Due to it being backed up by actual resources, military power, and most importantly future taxpayers. Not always the case of course.

So the Government gets its 'money' to spend and these investors get a return based on their faith that the UK will pay them back. This helps prevents a Wiemar style hyperinflation, because whilst this money is not backed up by a tangible asset like Gold, it is at least backed up by a promise to pay - based on debt. Not a great scenario but a hell of a lot better than just 'printing' money based on nothing but numbers on a computer screen.

This new BoE plan is to do just that. Create that 10 bill, or in fact probably much more, and back it up with nothing, no promise to pay or yield attached. The question is what are they going to spend it on ? Are they going to buy UK debt with it to gift money to the Government ? They say not but I am not too sure. How would this affect the future auctions for UK debt (Gilts/Bonds) that investors actually have to pay for ? If it is foreign Government buying - will they just start printing their own money to buy the UK debt ?! So many questions and far too complicated for me to work out.

However it can lead to a messy situation. The printing getting out of hand and the Government not being able to reign it it. This is what leads to a Argentina /Zimbabwe style situation.

Honestly I have no idea if this whole printing episode will end up as a damp squib, or with all of us paying for a KFC with a barrel of cash. Either is completely possible IMO and everything in between.

The simple fact they are doing it is enough to give everyone who has read a little about it the jitters. In light of all this the idea that property prices will increase in real terms is beyond me. Of course if it does go all Weimar then perhaps having a property as a real tangible asset won't be a bad thing - as it will hold value and have real 'worth'.

Too many possible outlooks. I plan to work hard, If I can, and be rewarded in the end. Who knows if this will happen.

Thanks for the information.

[ccc]

No probs.

As for the question about 100% mortgages - who knows. For the banks/BS that are not under Government control ? Not a chance IMO. Asking for a 30% deposit is just them being risk averse. If the asset they provide a loan for falls by 30% they want you to be stumping up the cash for the loss, not them. It is just a margin call in advance. Of course if they had thought of this years ago we wouldn't be in this mess. Better late than never though.

As for those in Government control ? Possible. Not sure how it would go down though.

Government encouraging lax lending, at the same time as they are getting 'angry' at the Banks for the same reason ? Can't see it. Although not impossible.

I can see the likes of NR, Lloyds/HBOS and RBS starting to offer 90-95% mortgages. They are doing so just now on the face of it. Very different story in reality I imagine. So not a big change for them to do.

Self cert mortgages ? 6 times multiples ? I can't see it. If that were to happen I would be moving all my cash into gold and silver. We would be well onto our way to an Argentina style economy - at best. IMO.

The whole thing is a huge mess. In situations like this people can do very well and make fortunes. They ahve to be VERY sharp though. Lost of very smart people get wiped out in situations like these. You need to be the cream to get rich today I reckon !!

As for property being thjat vehicle for future riches ? I doubt it. That has been the cause of the mess we are in. I can't think of one bubble in history where teh next big riches to get into have been the same as the cause of the bubble. Just doesn't seem to happen. Doesn't mean it is impossible, just very unlikely.

That is why I reckon alot of the vultures who are rubbing their hands with glee as you say - will get wiped out int he next couple of years.

Will be intersting to look back in 2015 and see if this feeling was correct.

[copper crutch]

No probs.

As for the question about 100% mortgages - who knows. For the banks/BS that are not under Government control ? Not a chance IMO. Asking for a 30% deposit is just them being risk averse. If the asset they provide a loan for falls by 30% they want you to be stumping up the cash for the loss, not them. It is just a margin call in advance. Of course if they had thought of this years ago we wouldn't be in this mess. Better late than never though.

As for those in Government control ? Possible. Not sure how it would go down though.

Government encouraging lax lending, at the same time as they are getting 'angry' at the Banks for the same reason ? Can't see it. Although not impossible.

I can see the likes of NR, Lloyds/HBOS and RBS starting to offer 90-95% mortgages. They are doing so just now on the face of it. Very different story in reality I imagine. So not a big change for them to do.

Self cert mortgages ? 6 times multiples ? I can't see it. If that were to happen I would be moving all my cash into gold and silver. We would be well onto our way to an Argentina style economy - at best. IMO.

Fair points you raise, the situation is you simply cannot rule out anything, the printing money thing has never been done before in our country.

Interest rates at zero, never been done before, the banks in effect government owned or at least 3 big ones are, never happened before.

We are sailing into uncharted waters, with Brown and Darling steering the ship, we all could be sailing on the Titanic.

On top of that a general election next year, that these 2 do not want to loose, what was there words " We will do whatever it takes "

To me all these factors all have an unpredictable outcome, its clear they are trying there best to avoid a Depreccion, how all this affects house prices is very interesting.

The whole thing is a huge mess. In situations like this people can do very well and make fortunes. They ahve to be VERY sharp though. Lost of very smart people get wiped out in situations like these. You need to be the cream to get rich today I reckon !!

As for property being thjat vehicle for future riches ? I doubt it. That has been the cause of the mess we are in. I can't think of one bubble in history where teh next big riches to get into have been the same as the cause of the bubble. Just doesn't seem to happen. Doesn't mean it is impossible, just very unlikely.

That is why I reckon alot of the vultures who are rubbing their hands with glee as you say - will get wiped out int he next couple of years.

Will be intersting to look back in 2015 and see if this feeling was correct.

[Guest An Bearin Bui]

Thats what makes the subject so interesting, there are so many variables that affect the market and so many points of view, at the moment if we were talking shares it would be sell sell sell prices falling, then at some point, the secret is when is the point when it turns to Buy Buy Buy.

The man who can time that point just right, makes the pot of Gold, it is the herd mentality.

The analogy to the stockmarket is good for the market you're in. The 'vultures' you're dealing with are pure investors. The properties they buy have purely an investment value, not a utility value so in that respect, they are just like investors in the stockmarket. This explains why you're seeing so much activity at auctions and from cash buyers. For them, it's a buy sign that so many over-leveraged competitors are selling up and as a result your side of the property market, the investor side, is turning quickly.

The main property market, however, is made up of owner-occupiers and accidental landlords. They are still in cloud-cuckoo land of 2007 and are standing firm on their price demands. This is because their house is their only asset in life and has huge emotional and utility value for them. They are not professional investors and don't understand market dynamics and so will sit and sit with their house up for sale for months and years either until they finally panic in 2010/2011 as the economic news gets worse or alternatively just give up on selling, if they can afford to. This is why historically property markets take a long time to turn around. The peak can be quite short but the tail of the downward trend can last a long time as sellers drip feed the market and buyers see no urgency to buy or upgrade. This is the death/divorce/debt market you mentioned earlier and it is very slow to move upwards once it sets in.

I'd recommend reading Fred Harrison's Boom Bust book if you're further interested in this. He has tracked property market cycles in the UK going back over 200 years and found a fairly regular 18 year cycle recurring. In his model, prices would only begin to recover again by about 2018 but this time around, who knows what will happen as the global downturn is much more severe than anything that has happened before in the context of mass homeownership.

[copper crutch]

The analogy to the stockmarket is good for the market you're in. The 'vultures' you're dealing with are pure investors. The properties they buy have purely an investment value, not a utility value so in that respect, they are just like investors in the stockmarket. This explains why you're seeing so much activity at auctions and from cash buyers. For them, it's a buy sign that so many over-leveraged competitors are selling up and as a result your side of the property market, the investor side, is turning quickly.

The main property market, however, is made up of owner-occupiers and accidental landlords. They are still in cloud-cuckoo land of 2007 and are standing firm on their price demands. This is because their house is their only asset in life and has huge emotional and utility value for them. They are not professional investors and don't understand market dynamics and so will sit and sit with their house up for sale for months and years either until they finally panic in 2010/2011 as the economic news gets worse or alternatively just give up on selling, if they can afford to. This is why historically property markets take a long time to turn around. The peak can be quite short but the tail of the downward trend can last a long time as sellers drip feed the market and buyers see no urgency to buy or upgrade. This is the death/divorce/debt market you mentioned earlier and it is very slow to move upwards once it sets in.

I'd recommend reading Fred Harrison's Boom Bust book if you're further interested in this. He has tracked property market cycles in the UK going back over 200 years and found a fairly regular 18 year cycle recurring. In his model, prices would only begin to recover again by about 2018 but this time around, who knows what will happen as the global downturn is much more severe than anything that has happened before in the context of mass homeownership.

Thanks for the info on the book, here is an example of what you refer to is going on, http://offices.remax-scotland.com/Musselbu...38a&Index=9 which is being advertised as an investment ?

And the identical property sold at Auction in November for 50% less by an investor lot 23. http://www.countrywidepropertyauctions.co....tland-Nov08.pdf

Which id imagine he would have got around a 3.5% btl mortgage on, if he can get 700 pcm, he got a decent result.

[copper crutch]

Could this happen in the UK.http://news.bbc.co.uk/2/hi/business/7897428.stm

[HAMISH_MCTAVISH]

Could this happen in the UK.http://news.bbc.co.uk/2/hi/business/7897428.stm

It could, and if the market doesn't recover, it most likely will.

But thats not the half of it.

Obama has also just announced that FTB's are to be given a grant, not a loan, but a grant of $8,000 each. And Australia is now giving up to $21,000 to FTB's.

When you're printing the money and not borrowing it, it opens up all sorts of populist, tax cutting, helicopter dropping, fiscal stimulus possibilities.

[ccc]

JambosRbarry.

Anyway Hamish have a look at Aussie property today. A fair few threads appearing on the main forum. The stimulas plan doesn;'t seem to be working as planned.

When people are scared for their jobs ? House prices will fall. That is the basic jist of it.

All these futile attempts ate shoring up a falling market are in vain. IMO.

Unless I am mistaken it has never worked before. The market always wins. But hey maybe Broon, Darling and Obama are the dream ticket to do the unthinkable ?

I wouldn't bet on it.

[TTD]

On the News Quiz a few weeks back, one of the panellists suggested Fiscal Stimulus was a cracking name for a band.....

[copper crutch]

It could, and if the market doesn't recover, it most likely will.

But thats not the half of it.

Obama has also just announced that FTB's are to be given a grant, not a loan, but a grant of $8,000 each. And Australia is now giving up to $21,000 to FTB's.

When you're printing the money and not borrowing it, it opens up all sorts of populist, tax cutting, helicopter dropping, fiscal stimulus possibilities.

Very interesting if Brown and Darling were to follow in these steps they would need to be putting up 20k for 1st time buyers at least as the best deals are only 60% ltv.

[Matt Henson]

Thanks for the info, all i can say is the banks are not lending at the moment, so if as you say the government gives all the money to the banks, then the banks lend to us, does that mean the return of 100% loans for ist time buyers, and 90% loans for Buy to Let purchases, self cert mortgages again ?

in 1996 I took out a 95% LTV loan on a £60k two bed flat (at 8.5%), so my guess is yes we will return to high LTV's but for those who remember that far back you had to pay a wedge of high LTV insurance (about £1800 on my £57k loan) so don't be surprised if that comes back as well. LTV insurance protect the lender not the borrower!!!

BTL, my bet.... consigned to history or at least only for those with 40%+ equity

Self Cert always existed but at very high interest rates, it will become availlable again but much like the 90's only with a decent deposit.

Go back to 1997-2000 and the same rules will apply again.

Edited February 18, 2009 by Matt Henson

[copper crutch]

in 1996 I took out a 95% LTV loan on a £60k two bed flat (at 8.5%), so my guess is yes we will return to high LTV's but for those who remember that far back you had to pay a wedge of high LTV insurance (about £1800 on my £57k loan) so don't be surprised if that comes back as well. LTV insurance protect the lender not the borrower!!!

BTL, my bet.... consigned to history or at least only for those with 40%+ equity

Self Cert always existed but at very high interest rates, it will become availlable again but much like the 90's only with a decent deposit.

Go back to 1997-2000 and the same rules will apply again.

The insurance thing you mention intrigues me what is it ? i have never heard of this before ?

[ccc]

Interesting rate for 1996 Matt. Got me thinking about Hamish's argument that interest rates have averaged 5% over the past 250 years. Setting aside the importance of 1971 I somehow forgot this basic fact. Most borrowers don't get a mortgage at anythign like the base rate !!! The interest rate today is 1%. I imagine the average today across the board is more like 3% or 4%.

Saying interest rates are on average 5% is pretty pointless for mortgages. In the year you got yours the base rate was below 6% for nearly all the year. That means your premium over it was more than 2.5%. Rather a huge amount over 25 years. Even considering my error with compound interest.

Hamish - shouldn't you re-evaluate all your stats (Renting vs buying) based on a long term average rate of circa 7.5% rather than 5% ? Yes you can get a fix today for 5.98% but we are talking averages here.

As you say - an interest rate of 5% results in you paying back roughly 1.75 what you borrowed over 25 years. If that is raised to 7.5% it gets closer to 2.25.

Big difference. Not sure why I didn't think about this before.

[Matt Henson]

The insurance thing you mention intrigues me what is it ? i have never heard of this before ?

It was a insurance premium that you the borrower paid the mortgage company to cover the mortgage company against you defaulting on the mortgage, it was placed on any mortgage with an LTV over 85% and was about 2-3% of the value of the loan.

It disappeared around 2000 but I bet it makes a come back

Another posters mentioned interest rate over 5%..... hell no, most mortgage up to 2001/2 were in the 7-8% league, disocunt mortgage are a relatively new thing, my dads mortgage in 1989 was 12%

A long term average of 7.5% is more realistic, when I bought in Kinross in 1998 I fixed a 7.2% for five years and that was a good deal

Edited February 18, 2009 by Matt Henson

[ccc]

It was a insurance premium that you the borrower paid the mortgage company to cover the mortgage company against you defaulting on the mortgage, it was placed on any mortgage with an LTV over 85% and was about 2-3% of the value of the loan.

It disappeared around 2000 but I bet it makes a come back

Another posters mentioned interest rate over 5%..... hell no, most mortgage up to 2001/2 were in the 7-8% league, disocunt mortgage are a relatively new thing, my dads mortgage in 1989 was 12%

A long term average of 7.5% is more realistic, when I bought in Kinross in 1998 I fixed a 7.2% for five years and that was a good deal

That was a good deal. Official Interest rate then was about 7%. Then again over the next 5 years the average official rate was about 5%.

[HAMISH_MCTAVISH]

Hamish - shouldn't you re-evaluate all your stats (Renting vs buying) based on a long term average rate of circa 7.5% rather than 5% ? Yes you can get a fix today for 5.98% but we are talking averages here.

As you say - an interest rate of 5% results in you paying back roughly 1.75 what you borrowed over 25 years. If that is raised to 7.5% it gets closer to 2.25.

Big difference. Not sure why I didn't think about this before.

Hell, my first mortgage was well over 10%. But I am fairly sure those days are long gone.

As I said, 5.98% fixes are available for 25 years.

Fill yer boots... If you think thats not extortion!!!!!!!!!!!!

[ccc]

Hell, my first mortgage was well over 10%. But I am fairly sure those days are long gone.

As I said, 5.98% fixes are available for 25 years.

Fill yer boots... If you think thats not extortion!!!!!!!!!!!!

Aye but we are talking averages here for the average person Hamish.

For any rent vs buying calculation you have to agree a figure of more like 7-8% is more reasonable ?

Even if not - you are erring on the side of caution. Surely a sensible thing to do for someone signing up for a 25 year debt.

[meltsheep]

They are selling at these prices, you can get a 3 bed for 150k that was selling for 335k 3 years ago down at western harbour, prices down nearer 60% on new.

I was some for 130k in the Evening News. Granton is Granton is trainspotting land. Who an earth would want to live there at the moment. Buying for 130k might be a reasonable idea if you could find people to rent to. Possibly around 7% return on these places assuming you might get 750pcm (optimistically). Hmm. That's looking a little better. However getting finance for new builds aint happening at the moment.

[Matt Henson]

Hell, my first mortgage was well over 10%. But I am fairly sure those days are long gone.

As I said, 5.98% fixes are available for 25 years.

Fill yer boots... If you think thats not extortion!!!!!!!!!!!!

Its impossible to tell, that specific mortgage product will be based a traunch of money released on a long term contract at rate somewhere below that. It doesn't mean the average mortgage rate will be 5.98% for 25 years, it just means that product will.

Nobody predicted black Wednesday in 1992 when Sterling fell out of the ERM, that day interest rates went up to 15%

You are being optimistic me thinks

Edited February 19, 2009 by Matt Henson

[ccc]

Id be surprised if they dropped to your 75% prediction i actually think we are at the bottom end of the ladder in terms of new build re sales, why i say this is at the last auction i attended in Glasgow there was ( standing room only ) and all the vultures were there, i thought the pilrig one could be bought for 95k, but unfortunatly there were loads of bidders forcing it up to 115k, ( i was very upset it went for such a high price ) Wester harbour the same 100k i thought for a nice 2 bed, but it also was forced up to 125k.

Still a good 60% down on new build sale price, so as much as id like to agree with your 75% price reduction, it wont happen as the vultures with money are stopping them dropping by any more than this, so id say the 60% drop is the bottomed out price.

The sad thing is there are still properties on the ESPC At near 2007 levels, they are being fooled into a false sense of security by the EA, and the Remax mob of conmen who are commision based.

I have just had another think about this. These people are 'vultures' ? I think these people are idiots.

A 2 bed In a Pilrig stag night hellhole = 115k.

A 2 bed in the half constructed hellhole that is the Granton shore development = 125k.

IMO anyone buying at these prices to live in are mugs. As for buying at these prices as an investment !!

Do any of these vultures actually track the rental market ? Because I do and the increase in supply of 2 bed flats in Edinburgh has been nothing less than staggering. If you want to rent out that 2 bedder in granton in a hurry you are looking at 5-550.

That is a yield of circa 5%. In a hellhole area. That has no chance of being finished anytime in the next 5 years. With house prices falling. With a minimum 30% deposit. As Britain is entering the worst recession for decades. I could buy one of those tomorrow if I wished. I would have to actually have a gun to my head to do it. And I am one for taking the odd risk with investments as well.

When a 2 bed flat in that Grnaton hellhole is selling for 50-60k is when the real 'vultures' will be descending IMO.

Have a think about it. Busy auction room full of 'savvy investors' outbidding each other to get hold of a 2 bedder in Granton for 125k.

I honestly wouldn't even buy one of those for 80k.

As I have said only time will tell, but history tells us what we can expect to happen. I trust history will be proved correct as per usual.

Good luck though with the mugs willing to pay you to to find them a BMV property !!! These people need help.

[Scunnered]

The banks have seen just how much money can be made from a decade of boom, and you can bet your bottom dollar they'll be absolutely delighted when the next one occurs.

I'm still wondering exactly where all this money is.

[HAMISH_MCTAVISH]

I'm still wondering exactly where all this money is.

What do you think has paid for all the shareholders dividends for the last 15 years? Or the bankers bonuses? Or the massive expansion into foreign markets?

Profits on their mortgage books is what.

Not saying it hasn't gone a bit tits up lately for them.... But they made a lot of money for a long time before it did, and they'll make just as much money in the future.

And to be fair the banks have not lost any serious money on UK mortgage loans so far. Don't forget that a default rate of 10% (which is well over triple the current rate, and which nobody is predicting by the way) on a loan book would only wipe out two years of profits from the 25 years worth of profits. And thats assuming a zero percent return from reposession, when a 50% return is more likely. So even with a 10% default rate, the banks only lose 5% of capital at worst, which is around one year of profit from a 25 year loan book.

A £30 billion bailout for RBS sounds bad, until you realise that most of it had nothing to do with losses on the UK mortgage book, and that it's a tiny percent of a several Trillion pound loan book that will continue to deliver profits well into the future.

[geed]

Id be surprised if they dropped to your 75% prediction i actually think we are at the bottom end of the ladder in terms of new build re sales, why i say this is at the last auction i attended in Glasgow there was ( standing room only ) and all the vultures were there, i thought the pilrig one could be bought for 95k, but unfortunatly there were loads of bidders forcing it up to 115k, ( i was very upset it went for such a high price ) Wester harbour the same 100k i thought for a nice 2 bed, but it also was forced up to 125k.

Still a good 60% down on new build sale price, so as much as id like to agree with your 75% price reduction, it wont happen as the vultures with money are stopping them dropping by any more than this, so id say the 60% drop is the bottomed out price.

The sad thing is there are still properties on the ESPC At near 2007 levels, they are being fooled into a false sense of security by the EA, and the Remax mob of conmen who are commision based.

Be great if you could send me a link to any auction websites crutchster. Are these Allsops, Savilles etc... sales?

[copper crutch]

A Wee birdie is singing that DJ Has been sniffing around this property and is trying to make a come back.http://edinburghnews.scotsman.com/scotland/39Bomb-site39-historic-house-for.4996000.jp