Jump to content
House Price Crash Forum
laurejon

Are You Astute, Or Just A Statue ?

Recommended Posts

I am intigued by the many posters who are waiting for a HPC. For sure its coming but I think many are missing something very important. For those of you who feel you missed the boat having called HPC too early, or STR too early then maybe you should take note.

Go back 8 weeks and 100% mortgages were available at a fixed rate of 5.5% over 20 years.

Today a 100% mortgage is as rare as hens teeth, or put another way as rare as the buttocks on Gordon Browns backside during his "Old School" days.

The price falls is a bit of an irrelevence, the important thing is that nobody wants to lend and it can only get tighter.

Banks are hoarding cash as they need it themselves to insulate against projected losses. Some Banks are teetering on the edge of insolvency, and its only a matter of time before their guarantees on securitised mortgages are called upon. The wholesale rate of money is well above the mortgage rate.

The Fed today pumped 200Bn USd into the markets in yet another vain attempt to provide some liquidity to the market.

So, if you are waiting for a crash you maybe should think again. When prices have dropped 40%, you are going to find that most lenders will not touch you with a barge pole.

If you are thirty years old, then can you really wait until you are fifty to get onto the housing ladder ? Because that is how long it is projected for this mess to be sorted out.

My advice to anyone today, if you can afford to buy and you have a lender willing to lend on a fixed rate that is for at least 10 years, then you would be a fool not to buy.

If you require a mortgage, then a house purchase involves two purchase making decisions that must be right and balanced. The price of the Finance, and the price of the house, if the mortgage is affordable then its foolish not to jump in now whilst mortgages are available because in a couple of years time mortgages will be a thing of the past.

Share this post


Link to post
Share on other sites

The global credit crisis plunged to new depths yesterday as persistent fears over the collapse of a large financial institution caused funding markets to dry up and forced the US Federal Reserve to make available up to $200 billion (£99.3 billion) of emergency financing.

The Fed said that a “rapid deterioration” in the credit markets in recent days had prompted it to begin a series of fresh cash injections in an effort to shore up the balance sheets of America’s stricken banks. Unemployment also shot up in the US last month, adding to the gloom. US stocks tumbled, dragging the Dow Jones industrial average down 138.40 points to 11.902.00. Treasury prices jumped and the dollar fell to record lows.

Bankers said that the moves underscored the deepening severity of the crisis, which was triggered last June by the collapse of the American sub-prime mortgage market and has got progressively worse since. One senior banker in London said: “This is the beginning of the real credit crisis and it’s not going to end without a major casualty.”

Sources said that the present crisis was triggered by cash-strapped banks starting to get tough with their hedge fund clients by making margin calls on loans and drastically raising interest rate payments overnight. The move has pushed the funds into the panic-selling of assets, mostly AAA-rated US mortgage securities, and several are thought to be on the brink of collapse. One of them, Carlyle Capital Corporation (CCC), said yesterday that overnight it had received “substantial additional margin calls” linked to its souring investments in US mortgages.

Thornburg, the US mortgage lender, exacerbated investor jitters when it said that it did not have enough cash to meet $610 million of margin calls. Last week Peloton, a London hedge fund, collapsed after it became unable to meet the banks’ demands.

Bankers said that the problem was related to a perceived increased risk surrounding the AAA-rated prime mortgages and to the consequences of dangerous overleveraging of the funds themselves. In the case of Carlyle, its CCC fund had leveraged its assets by $30 for every $1 of its own cash.

“The whole industry was created by cheap debt,” the banking source said. “It was really all just an illusion.”

Underlining the Fed’s desperate attempts to calm markets, for the first time it said that it would accept mortgage-backed assets as collateral from the banks for fresh loans. As the fear spread, the perceived risk of owning US corporate bonds - measured by the widening of credit spreads – also rose to its highest level.

Friedman, Billings, Ramsey, the US analyst firm, said that the US financial industry would need $1 trillion of permanent capital to maintain current pricing of mortgage assets. However, it added that the industry would not be able to obtain that amount.

Shares of Carlyle’s CCC fund were suspended in Amsterdam yesterday as it disclosed that it had received more default notices from its lenders and that some of those lenders had been forced to sell CCC’s mortgage assets in an effort to recover their loans. The dire forecast came only 24 hours after CCC said that it had been issued with $37 million of margin calls from lenders, having satisfied $60 million of calls only the week before.

Sean Egan, of the Egan-Jones Ratings Company, said: “When financial history is written, the Carlyle liquidation will go down as one of the single most major events. Carlyle has built an image as one of the smartest investors around, and to see one of its funds fall apart shows there is a fundamental problem with the market.”

Share this post


Link to post
Share on other sites
The price falls is a bit of an irrelevence, the important thing is that nobody wants to lend and it can only get tighter.
So, if you are waiting for a crash you maybe should think again. When prices have dropped 40%, you are going to find that most lenders will not touch you with a barge pole.

I agree. 50% of credit refusals in the Great Depression were given as "bank policy".

The banks did not want to lend. They'd rather have $1000 safe cash in their own coffers than lend a $1000 for a loan in an uncertain environment.

Although I think the banking system will split in to two tiers... and the strongest banks will still lend to those with good credit ratings, employment/income, sizeable deposit ect.

Anyone else might be forced to wait until bank confidence improves come an eventual recovery.

Share this post


Link to post
Share on other sites
I agree. 50% of credit refusals in the Great Depression were given as "bank policy".

The banks did not want to lend. They'd rather have $1000 safe cash in their own coffers than lend a $1000 for a loan in an uncertain environment.

Although I think the banking system will split in to two tiers... and the strongest banks will still lend to those with good credit ratings, employment/income, sizeable deposit ect.

Anyone else might be forced to wait until bank confidence improves come an eventual recovery.

I don't think that's exactly true.

the banks would be perfectly willing to make GOOD loans to GOOD prospects, but who in their right mind would loan money on the values of the current housing market.

it's getting fairly obvious to everyone that they are overpriced so it's just good sense to not loan on them at the multiples etc. that were given before.

not a shortage of money to lend.

if you go in with a %20 deposit, on a mortgage that is 3 times your salary, and you have a good credit history and job security, getting a loan is not really a problem at all.

the people that won't be able to get loans in the future as standards tighten, are the people that probably SHOULDN'T be taking loans now, as they are setting themselves up for trouble.

Edited by Mr Nice

Share this post


Link to post
Share on other sites
I don't think that's exactly true.

the banks would be perfectly willing to make GOOD loans to GOOD prospects, but who in their right mind would loan money on the values of the current housing market.

it's getting fairly obvious to everyone that they are overpriced so it's just good sense to not loan on them at the multiples etc. that were given before.

not a shortage of money to lend.

if you go in with a %20 deposit, on a mortgage that is 3 times your salary, and you have a good credit history and job security, getting a loan is not really a problem at all.

the people that won't be able to get loans in the future as standards tighten, are the people that probably SHOULDN'T be taking loans now, as they are setting themselves up for trouble.

You are speaking about the present. I am talking about the future.

20% will most likely not be enough to entice banks to loan on housing. I think the new business they will look too will be pesonal finance, personal loans, Credit Cards etc. The interest rates on these even during the low rate periods have been horrendous and a money spinner, so much so they can entice with 12months interest free credit just to get you hooked.

Mortgage lending will be for most people a non starter. I am hearing that some Banks and BS are refusing 60% of new applications, and the party has yet to start.

If you have cash to buy, then its certainly worth waiting provided you cash is invested in something both safe, secure, and liquid. illiquid investments are going to get a hiding, and from what I can make out some seriously large concerns will be going to the wall very soon.

If you are morgage dependent, then its important to balance the cost of finance with the premium you pay for the property today. If you are going to need a 90% mortgage, and you wait for prices to drop 40% then you risk two events. The first is that the lender will not lend to you as you will not satisfy their lending criteria which in future will require Rolls Royce Standards, the second is that you will pay 100% more for the finance than today, to save 40% on the price!!!!.

Come on, get the spreadsheets out and work it out.

Remember Banks packed up the mortgages and sold them on, this is no longer an option for them today and it can only get worse.

The simple facts are, its unlikely that banks will have money to lend in the future, it will be rationed and its unlikely that FTB'ers or even second timers will be anywhere near the front of the queue.

Edited by laurejon

Share this post


Link to post
Share on other sites
You are speaking about the present. I am talking about the future.

20% will most likely not be enough to entice banks to loan on housing. I think the new business they will look too will be pesonal finance, personal loans, Credit Cards etc. The interest rates on these even during the low rate periods have been horrendous and a money spinner, so much so they can entice with 12months interest free credit just to get you hooked.

Mortgage lending will be for most people a non starter. I am hearing that some Banks and BS are refusing 60% of new applications, and the party has yet to start.

If you have cash to buy, then its certainly worth waiting provided you cash is invested in something both safe, secure, and liquid. illiquid investments are going to get a hiding, and from what I can make out some seriously large concerns will be going to the wall very soon.

If you are morgage dependent, then its important to balance the cost of finance with the premium you pay for the property today. If you are going to need a 90% mortgage, and you wait for prices to drop 40% then you risk two events. The first is that the lender will not lend to you as you will not satisfy their lending criteria which in future will require Rolls Royce Standards, the second is that you will pay 100% more for the finance than today, to save 40% on the price!!!!.

Come on, get the spreadsheets out and work it out.

Remember Banks packed up the mortgages and sold them on, this is no longer an option for them today and it can only get worse.

The simple facts are, its unlikely that banks will have money to lend in the future, it will be rationed and its unlikely that FTB'ers or even second timers will be anywhere near the front of the queue.

if you have %10 on a 200k house, you will have almost %20 when the prices have fallen.

the fact that even %40 of applications are being approved with conditions as bad as they are shows that money as actually pretty loose.

even in the great depression, except for maybe the initial few years of crash, there was always money available.

the problem is having good loans to make.

that is why the gvt is trying to float the banks with loans, to keep all the jobs from being lost, houses repo'd etc.

once the standards get back to normal, and people's standards of living are re-normalized, things will likely go back to the way they were before the boom.

not that it isn't going to be a difficult trip.

but if you are having trouble getting a loan now, it isn't that there is "less money" available.

It's that you are a bad credit risk, so maybe taking out the biggest loan you can, as we face one of the biggest recessions we've ever seen, is not the best option.

IU do think, however, that if you have shaky credit, now might be the time more than later while things as still at least a little loose, as the standards are only going to tighten in the future.

Edited by Mr Nice

Share this post


Link to post
Share on other sites

In the last recession I became well placed to pick up a few bargains, land was my primary objective it was dirt cheap!!.

Banks do not lend during a downturn, Cheltenham and Gloucester part of Lloyds were notorious for only accepting masssive amounts of security, and hefty downpayments.

Many people today may well think they are credit worthy, no defaults, reasonable salary, however banks views will change, and they change very fast, in fact once the policy is agreed its immediate.

Money is not freely available today, if you think it is then apply for a loan, pay the 1k + application fee and weep when they tell you its a No.

Northern Rock are still advertising mortgages, do you think they are actually lending any money on property ?

The banks are no fools, they are driven by share price, and a run on the bank by Shareholders is much worse than a run by depositors, shareholders can fold a bank in less than an hour!!! . Banks will continue to create the illusion of liquidity, however they are using their cash resources to stave off a major sell off of their mortgage securities.

Edited by laurejon

Share this post


Link to post
Share on other sites

that's just not true.

mortgage applications are down but they aren't 0.

they SHOULD be down by half since many of the loans given out over the past several years have been very high risk.

what they are saying is no more high risk loans at prime rates. that's normal and good, ultimately.

but they definitely aren't saying no money period.

it may feel like they are totally closing down, but thats only because the housing market is so out of skew.

even in the great depression, and in Japan, the banks are and were more than willing to give you a good quality loan, people just didn't have the money, or are not willing to pay the prices involved.

it's more of people's lack of capital than the banks at that point.

Share this post


Link to post
Share on other sites
that's just not true.

mortgage applications are down but they aren't 0.

they SHOULD be down by half since many of the loans given out over the past several years have been very high risk.

what they are saying is no more high risk loans at prime rates. that's normal and good, ultimately.

but they definitely aren't saying no money period.

it may feel like they are totally closing down, but thats only because the housing market is so out of skew.

even in the great depression, and in Japan, the banks are and were more than willing to give you a good quality loan, people just didn't have the money, or are not willing to pay the prices involved.

it's more of people's lack of capital than the banks at that point.

A great deal of the new loans as always are equity withdraws, the borrower having a large stash of equity, equity of less than 30% is being refused.

There are very few FTB'er loans being approved, or indeed applied for.

Money is tight, very tight, and as I have said its not 0 yet but its going to get worse, much worse.

Share this post


Link to post
Share on other sites
Guest muttley

You can turn this argument around and ask the question

"If you haven't sold your house by now, then who the hell are you going to sell it to?".

Share this post


Link to post
Share on other sites

Well, you've convinced me. I'm going to rush out and buy an overpriced house asap because I might not be able to afford it in a year or two when its price has dropped by 40%.

I'm going to get myself the biggest mortgage I can right now because I may never get the chance to borrow as much again. At least when my house loses a lot of its value my mortgage will remain reassuringly large.

Thanks for the good advice! :lol:

Share this post


Link to post
Share on other sites
So, if you are waiting for a crash you maybe should think again. When prices have dropped 40%, you are going to find that most lenders will not touch you with a barge pole.

If you are thirty years old, then can you really wait until you are fifty to get onto the housing ladder ? Because that is how long it is projected for this mess to be sorted out.

My advice to anyone today, if you can afford to buy and you have a lender willing to lend on a fixed rate that is for at least 10 years, then you would be a fool not to buy.

If you require a mortgage, then a house purchase involves two purchase making decisions that must be right and balanced. The price of the Finance, and the price of the house, if the mortgage is affordable then its foolish not to jump in now whilst mortgages are available because in a couple of years time mortgages will be a thing of the past.

I'm beyond thirty. Can I wait twenty years? Obviously, the answer is yes as there is no point at which renting wouldn't satisfy my needs for housing. Would I need to wait that long? I don't see how. You're imagining a future where mortgages are completely unavailable. In that future, house and land prices would fall to levels where mortgages weren't needed and people would be buying houses with savings and personal loans. If the mortgage system were removed, I doubt it would be more than 5 years before I could buy with cash.

It won't happen though, because the risk will never be so high that banks simply refuse to lend and as prices drop and achievable deposit percentages rise, the market will find a support level where lending risk is acceptable.

Share this post


Link to post
Share on other sites
The price falls is a bit of an irrelevence, the important thing is that nobody wants to lend and it can only get tighter.

Banks are hoarding cash as they need it themselves to insulate against projected losses. Some Banks are teetering on the edge of insolvency, and its only a matter of time before their guarantees on securitised mortgages are called upon. The wholesale rate of money is well above the mortgage rate.

The Fed today pumped 200Bn USd into the markets in yet another vain attempt to provide some liquidity to the market.

So, if you are waiting for a crash you maybe should think again. When prices have dropped 40%, you are going to find that most lenders will not touch you with a barge pole.

If you are thirty years old, then can you really wait until you are fifty to get onto the housing ladder ? Because that is how long it is projected for this mess to be sorted out.

My advice to anyone today, if you can afford to buy and you have a lender willing to lend on a fixed rate that is for at least 10 years, then you would be a fool not to buy.

I was in the US a few weeks ago and watched that strangely compulsive "Mad Money" programme, the one hosted by the guy who had the famous You Tube rant. He said that he can't personally hold equities because it would be a conflict of interest, so instead he was buying property, even though he was convinced it would fall further. The reason being he could acquire long term mortgages at low interest rates which he thought would be unobtainable in the future. So factoring loan availability into the house price equation had led him to believe that now was the optimum buying moment.

Doesn't apply to me personally because I'll be a cash buyer when I decide to stop STR-ing, but I think for anyone looking to buy with a mortgage there is a possibility that they could face the horrible prospect of finding the house of their dreams at an affordable price but then not being able to access finance. If this crash is to be driven by the credit crunch (as opposed to a BTL implosion, which is what I'd expected twelve months ago) then that scenario does have a grim logic about it.

Share this post


Link to post
Share on other sites

One conclusion from LJ's thoughts would be to rush out and buy an overpriced house. Another would be to go long on cash, save and ride through the turbulence so when things to begin to improve, you will be the kind of FTB that the banks are fighting to get their hands on.

If you have the sufficient deposit now to buy say at £200,000, think how much extra you could save in the next 5 years when you can then buy at £160,000.

If you do buy now and their is major economic turbulence, not only will you be guaranteeing negative equity but also stand a chance of losing your job. The 2 together equal bankruptcy which will ruin the chance of owning your own home for years.

There is also the risk of being stuck in a flat that is too small and being able to sell due to negative equity even when you desperately need to due to life changing events (although perhaps a HPC will keep the divorce rate down!).

Share this post


Link to post
Share on other sites

I kind of agree with you laurejon, I think it is worth buying on a 10/5 year fixed only IF you can find a struggling seller and buy a house at a massive discount. Outside of london you should be looking to pay the 2003 price if your buying today. I think there will be a sweet spot where fixed mortgages are cheap and sellers are panicing because they want to move/emmigrate/retire/downsize.

The key is finding a nice medium/big house, for a bargain price, that could be extended, in a good location walking distance to shops and work opportunities. You would have to be nuts to to pay asking price, or buy a flat and to a certain extent terraces as there so overpriced... IMHO the sweet spot for flats will be in a couple of years time when STRers can buy a couple for cash.

Edited by moosetea

Share this post


Link to post
Share on other sites

LJ makes a good point here and I agree that it this may be a concern for the future. However, its makes no difference to me (and I guess many others) at the moment as I cannot afford the current prices so I have no choice but to wait it out and see what comes along in the future.

What LJ points out is the possible nightmare scenario for me. But at the moment I have to take my chances, as my current inability to afford to buy a house is real.

Share this post


Link to post
Share on other sites
So, if you are waiting for a crash you maybe should think again. When prices have dropped 40%, you are going to find that most lenders will not touch you with a barge pole.

If you are thirty years old, then can you really wait until you are fifty to get onto the housing ladder ? Because that is how long it is projected for this mess to be sorted out.

With prices dropping banks will be fighting to get buyers with good credit history / deposit....

otherwise they will have no business for twenty years as you predict

50% off

Share this post


Link to post
Share on other sites
So, if you are waiting for a crash you maybe should think again. When prices have dropped 40%, you are going to find that most lenders will not touch you with a barge pole.

If you are thirty years old, then can you really wait until you are fifty to get onto the housing ladder ? Because that is how long it is projected for this mess to be sorted out.

With prices dropping banks will be fighting to get buyers with good credit history / deposit....

otherwise they will have no business for twenty years as you predict

50% off

Share this post


Link to post
Share on other sites
With prices dropping banks will be fighting to get buyers with good credit history / deposit....

The reason prices are dropping is that credit is drying up. In other words house prices and credit availability are linked. If house prices ever become cheap it will be because no one can afford to buy them, and that means either they haven't got a job or there's a mortgage famine.

What will never happen is an idyllic fairy land where everyone's in well-paid jobs, mortgages are cheap and easy, and house prices are bargain basement

Share this post


Link to post
Share on other sites
So, if you are waiting for a crash you maybe should think again. When prices have dropped 40%, you are going to find that most lenders will not touch you with a barge pole.

Screw that. When prices have dropped 40%, many of us (myself included) are hardly going to need a mortgage to buy a house. At which point, the bargepole is in the other hand.

Share this post


Link to post
Share on other sites
So, if you are waiting for a crash you maybe should think again. When prices have dropped 40%, you are going to find that most lenders will not touch you with a barge pole.

They will at 3.5X

Share this post


Link to post
Share on other sites
So, if you are waiting for a crash you maybe should think again. When prices have dropped 40%, you are going to find that most lenders will not touch you with a barge pole.

...

If you are thirty years old, then can you really wait until you are fifty to get onto the housing ladder ? Because that is how long it is projected for this mess to be sorted out.

...

My advice to anyone today, if you can afford to buy and you have a lender willing to lend on a fixed rate that is for at least 10 years, then you would be a fool not to buy.

It only makes sense to buy if you can knock 10% off the asking price. Otherwise, you're crazy to fuel HPI. This is finally turning around to favour the buyers, hold steady and keep offering 10% below asking.

Dont lock in a fixed rate now - rates will come down even further for the next year.

Share this post


Link to post
Share on other sites
The reason prices are dropping is that credit is drying up. In other words house prices and credit availability are linked. If house prices ever become cheap it will be because no one can afford to buy them, and that means either they haven't got a job or there's a mortgage famine.

What will never happen is an idyllic fairy land where everyone's in well-paid jobs, mortgages are cheap and easy, and house prices are bargain basement

while I agree in normal conditions, one of the things we are facing is massive numbers of people with large amounts of debt. (from negative equity, Credit Cards, Cars etc.) AND have massively negative housing sentiment.

those two conditions could lead to at least a temporary situation of cheap houses, fairly cheap mortgages.

I could easily see a window where people just don't buy(there will always bee some buyers, I know) either because they have to pay off some debts first, or they just don't trust the housing market.

I wouldn't expect it to last long though.

Edited by Mr Nice

Share this post


Link to post
Share on other sites
You can turn this argument around and ask the question

"If you haven't sold your house by now, then who the hell are you going to sell it to?".

<shrugs> I'm gonna continue to live in mine ;)

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.

  • 294 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%



×
×
  • 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.