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Darling To Introduce House Price Insurance

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Nobody spot this?

Budget 2008:Plans to insure against fall in house prices

In its wide-ranging Housing Finance Review, which includes proposals to kite-mark mortgage products and develop 25-year home loans, the Treasury unveiled proposals to "develop detailed house price indices to allow the development of insurance on house price movements".

A market for "house price futures" was one of several "innovative product" ideas unveiled alongside the Budget to improve access to housing, though industry experts said it was "years away"..

So, payout will be based on a Treasury index.....let me guess, a 'detailed, robust and independent' index a bit like CPI, ie. one that only goes in one direction.

This new house price index is only thing that comes out of Brown'n'Darlings budget with 100% "stability" guaranteed

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Guest KingCharles1st

errrr- this is exactly the sort of thing I was talking about last week- so the wealthy can insure against a drop- yet benefit from the gains- great...

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So, payout will be based on a Treasury index.....let me guess, a 'detailed, robust and independent' index a bit like CPI, ie. one that only goes in one direction.

This new house price index is only thing that comes out of Brown'n'Darlings budget with 100% "stability" guaranteed

Mmm. That'll be the "experimental" index from the DCLG, which is currently reporting an HPI figure way in excess of the CML index, in spite of the fact the data is obtained from the CML.

The thing is, who will take a long position in insure against loss in UK property at the moment, even on dodgy data?

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errrr- this is exactly the sort of thing I was talking about last week- so the wealthy can insure against a drop- yet benefit from the gains- great...

Guys I think this is some sort of longer term sop to the banks. The interesting point is that right now, no one is going to want ot underwrite house prices falls as clearly the market is falling and will continue to do so for a few years. So don't expect these products to come to the market until prices have bottomed out in a few years time.

At this point no doubt a new dose of HPI will be kicked off and guess what, the banks get to collect lots of fees for 10 years making super profits, until we get back to where are are today and HPC3 comes along.in

That said, the interesting bit is the idea of "House Price Futures". A lot of hedgefunds have complained that it is hard to short houses due to the variation in housing quality - ie there isn't a standard housing unit like you might have with gold, grain or a valuation metric as you might have with some securities. That said the rabbit hutch city centre flats get pretty close to this.

However, if the Government is successful at creating housing futures imagine what might happen. Would it then be possible to short sell houses, rather like what happened with Northern Rock. Perhaps this is not what the Government wants.

Edited by mikelivingstone

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Okay, let's see.

Assuming that wealthier people are more likely to take out house price insurance, let's say the average house to be insured is worth 300k.

Markets have been reported on this site to be pricing in 10% house price fall over 12 months. This, I concede is complicated, but has been discussed at length on other threads. No, I don't have the links.

IE loss of £30,000 EXPECTED.

How much will the premium be to insure against a loss where the EXPECTED loss, not even worst case scenario is 30k?

Obviously it will be at least 30k, before adding on a risk premium.

Anyone going to pay 30k+ for insurance? [edit: for a year's insurance!]

I don't think so.

Edited by Selling up

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In the current context only a genius could have come up with this.

Now let's see:

- Create a derivative market for house prices

- After a while derivative index becomes benchmark for house pricing

- One day, hedge fund 'invests' £1bn into the futures market making the contracts point to a doubling of house prices

- According to derivative benchamrk, house prices have doubled, everyone is f*cked.

Rings a bell anyone? :rolleyes:

Edited by williamdb

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Guest DissipatedYouthIsValuable
In the current context only a genius could have come up with this.

Now let's see:

- Create a derivative market for house prices

- After a while derivative index becomes benchmark for house pricing

- One day, hedge fund 'invests' £1bn into the futures market making the contracts point to a doubling of house prices

- According to derivative benchamrk, house prices have doubled, everyone is f*cked.

Rings a bell anyone? :rolleyes:

It's all a load of *****.

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Insurance is the wrong word as anyone offering it on an actuarial basis would lose their shirt every so often. No "put options" is the right term.

Actually, there is a good case for a derivatives market in housing: it would create a lot more stability in the market through the business cycle and it would greatly reduce the frequncy of irrational manias for housing (to which real estate as an asset class is particularly prone).

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So what we're saying is that even if house prices crash the insurance won't pay out because it takes its prices from an artificially high index of prices, which won't have gone down so far, if at all?

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Lenders used to require buyers to pay for mortgage indemnity insurance, to protect the lender down to 75-80% of purchase price to enable them to lend at high LTVs whilst being protected. I assume this is what is being referred to? OR is it that politicians, fresh from passing risk from private punters back to insurers for pensions and investment now think falling house prices should be paid for by our banks and insurers?

Insurers lost a packet on this insurance in the 1992-5 period, and the banks then decided to retain the risk/insurers backed off - so a free-market solution existed and was cast aside (it still exists in the US/Canada/Australia - and the insurers are predictably getting stuffed). Aside from the liquidity and solvency issues for lenders, the dropping of LTVs we see regularly these days reflects a more risk-averse attitude of banks to the collateral value, and so even the existence of bumper liquidity to lend won't help the first time buyer who has no deposit to put down (and with student fees, that'll be the case for years and years), Doesn't need some interfering socialist to tell the market what to do, the market should be left alone to solve the problem. Which is responsible lending and lower house prices, even if the adjustment is painful.

Am I imagining it, or are the worst problems in over-developed poorly built apartments in labour-controlled areas? I for one don't want to pay even more tax to bail out more marginal labour constituencies where the gamble has gone sour.

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Actually, there is a good case for a derivatives market in housing: it would create a lot more stability in the market through the business cycle and it would greatly reduce the frequncy of irrational manias for housing (to which real estate as an asset class is particularly prone).

Yep. That's exactly what they said about CDOs.

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Insurance is the wrong word as anyone offering it on an actuarial basis would lose their shirt every so often.

Sounds like every other form of insurance to me ;)

Anyway, speaking as an actuary it's completely unworkable as insurance. No scope whatsoever for diversification and premiums would be absolutely ridiculous and completely prohibitive, there's no way anyone would want to definitely lose thousands in insurance to protect themselves against the potential of a nominal loss that they can ride out. A nominal loss that might be completely different to the loss that they'd personally end up with on sale as well, particularly since the indices are likely to always outperform the forced sale prices and if it's not a forced sale then hypothetical falls aren't as big a deal.

Besides, people can bet on betfair or whatever against the house price indices can't they? If they want to hedge they already can.

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Lenders used to require buyers to pay for mortgage indemnity insurance, to protect the lender down to 75-80% of purchase price to enable them to lend at high LTVs whilst being protected. I assume this is what is being referred to? OR is it that politicians, fresh from passing risk from private punters back to insurers for pensions and investment now think falling house prices should be paid for by our banks and insurers?

Insurers lost a packet on this insurance in the 1992-5 period, and the banks then decided to retain the risk/insurers backed off - so a free-market solution existed and was cast aside (it still exists in the US/Canada/Australia - and the insurers are predictably getting stuffed). Aside from the liquidity and solvency issues for lenders, the dropping of LTVs we see regularly these days reflects a more risk-averse attitude of banks to the collateral value, and so even the existence of bumper liquidity to lend won't help the first time buyer who has no deposit to put down (and with student fees, that'll be the case for years and years), Doesn't need some interfering socialist to tell the market what to do, the market should be left alone to solve the problem. Which is responsible lending and lower house prices, even if the adjustment is painful.

Am I imagining it, or are the worst problems in over-developed poorly built apartments in labour-controlled areas? I for one don't want to pay even more tax to bail out more marginal labour constituencies where the gamble has gone sour.

Presumably not as mortgage indemnity insurance is based on actual sale prices on repossession so doesn't need an index. It's not a great form of insurance unfortunately, the anti selection is just too high - when the market's in trouble it's massively loss making and when it isn't nobody buys it so there's no payback.

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  • 297 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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