Mortgage Squeeze

[Queen of Spades]

After watching tonights Channel 4 news regarding Bear Stearns plus comments from Lloyds man.

Would love to know if you all think that prices will start to drop sooner rather than later now, bearing in mind peoples inability to either get a mortgage or renew at a comfortable price!

Also, would love to know if you now consider prices to plummet further as well as faster!!

[Bloo Loo]

After watching tonights Channel 4 news regarding Bear Stearns plus comments from Lloyds man.

Would love to know if you all think that prices will start to drop sooner rather than later now, bearing in mind peoples inability to either get a mortgage or renew at a comfortable price!

Also, would love to know if you now consider prices to plummet further as well as faster!!

you only have to do the mind game: how much would houses be if you COULDNT borrow to buy one?

I dont htink we'd get that far, although it IS a possibilty,and it does set a lower limit.

[Queen of Spades]

you only have to do the mind game: how much would houses be if you COULDNT borrow to buy one?

I dont htink we'd get that far, although it IS a possibilty,and it does set a lower limit.

This is exactly what I'm thinking, but not allowing myself to get too excited about!

The sort of prices that 10 years ago everyone would have thought were NORMAL before all this greed and speculation began.

[right_freds_dead]

no it wont speed things up.

you will still have most of the towns turkey sellers sitting all next year in the EA windows for just well, stupid prices.

total denial is now the stage for housing. oh they accept credit crunch, hear the problems with deposits and mortgages but as long as its not going to reduce their big profit it wont affect them

it wont be until 09 that we start to the houses collapse. even if all year more and more bad news comes out regarding lending,

i dont expect too much reality with current sellers.

after all, they have had it incredibly good for last 7 years. they think its a done deal.

they think the money is in the bank.

well it is.

its in my bank. (gold i mean)

and thats where its staying until i see some -40% drops. and pronto.

and if it gets too bad, at least i have the freedom to move.

[Queen of Spades]

What fascinates me is how the whole BTL issue will pan out.

According to the late Charles P Kindleberger's economic bubble theories, after the collapse of a bank, the next phase is panic.

"As more people withdraw from real or long-term financial assets into cash, prices fall and bankruptcies ensue. The process can be orderly but tends to degenerate into panic selling that then continues until "prices fall so low that people are tempted to move back into less liquid assets."

The end is generally signalled by 'revulsion'. At this point, disillusioned investors refuse to participate in the market at all and prices fall to irrationally low levels.

Cannot give a link but this is from an article from the Sunday Times July 27th 2003.

If I were a BTL landlord with IO mortgages and lots of properties I would be seriously worried.

I wonder how the Wilsons are?!

[Rick62]

They'll be fine, they're too thick to be worried.

[dances with sheeple]

I think pricing is going back ten years at least. It`s hard to imagine sellers Alice in Wonderland reality standing up to this onslaught of Bear news but the idiocy of the sheeple is a miracle to behold.

[Jonnybegood]

The same will apply to sellers as many say will to buyers.

If you have no reason to sell why would you, there is panic in the stock markets, mortgages are being pulled, LTV is being lowered.

So you panic and sell 20-30% less than current values to only find that things return back to normal within a few years.

Most will batten down and try ride the storm until things get better, property unless for investment is not like a car, for most its primarily a home

[salamander]

The same will apply to sellers as many say will to buyers.

If you have no reason to sell why would you, there is panic in the stock markets, mortgages are being pulled, LTV is being lowered.

So you panic and sell 20-30% less than current values to only find that things return back to normal within a few years.

Most will batten down and try ride the storm until things get better, property unless for investment is not like a car, for most its primarily a home

Ermm... except that many of those that have a "feature" mortgage (e.g. fixed, discounted etc) which expires during that "battening down" period will be in a bit of a pickle, because with lower LTVs they may not be able to switch to any other product, leaving them on their current lender's SVR. THAT will be their reason to sell.

[Lorian]

I think its going to be the one property, oh dear look at that credit card bill, oh dear my mortgage payment has doubled and why is my supermarket bill so expensive crowd that will get drowned in this next phase, I'd like to think you'd be right (damn them greedy BTLs) but I think its the (Nu Labour (I want to save the environment)) man on the street that is going to get it over the next six months as the banks will wash there hands, the BTLers or at least the smart ones who bought early enough will ride into the sunset, profits intact.

[sambino]

Seems in America they have let house prices go and will do there best to keep everything else going, will house prices be sacrificed here or is it too fundamental to Gordons miracle economy to let them go

[redwing]

Ermm... except that many of those that have a "feature" mortgage (e.g. fixed, discounted etc) which expires during that "battening down" period will be in a bit of a pickle, because with lower LTVs they may not be able to switch to any other product, leaving them on their current lender's SVR. THAT will be their reason to sell.

The worse it gets, the more people will be dragged into this position.

However, there are millions of houses owned by people who have a whole bunch of equity, own outright, and/or are in secure jobs.

These people will be OK. It might be psychologically painful but they'll still be relatively safe. For instance, if they need to move then they'll be selling for less AND buying for less.

The real pain will be felt by the latecomers, BTLers, young FTBs with high LTVs and people working in financial services, estate agency, DIY retailers etc.

There won't be an armegeddon; however, it will be very nasty for a lot of people, uncomfortable for many; but OK for a whole swathe of unindebted, secure households.

[salamander]

The worse it gets, the more people will be dragged into this position.

However, there are millions of houses owned by people who have a whole bunch of equity, own outright, and/or are in secure jobs.

These people will be OK. It might be psychologically painful but they'll still be relatively safe. For instance, if they need to move then they'll be selling for less AND buying for less.

The real pain will be felt by the latecomers, BTLers, young FTBs with high LTVs and people working in financial services, estate agency, DIY retailers etc.

There won't be an armegeddon; however, it will be very nasty for a lot of people, uncomfortable for many; but OK for a whole swathe of unindebted, secure households.

Phew, that alright then. If it's only the latecomers, BTLers, young FTBs with high LTVs and people working in financial services, estate agency, DIY retailers etc. that are going to be hit badly I doubt it will even make it into the papers. House price crash cancelled then.

Edit: There will also be plenty of people who had lots of equity, but have mewed it away on conservatories, extensions, holidays, school fees, cars, plasmas etc. They are also toast in this scenario.

Edited March 18, 2008 by narrowescape

[Guest Steve Cook]

1) Lender's interest rates rising in an effort to recover losses despite central bank reductions

2) Credit becoming progressively less available as lendors don't have the money (due to destruction of money via debt default)

3) Reduction of economic activity due to rising costs (due to oil prices) resulting in lower spending by consumers

4) Unemployment rises as producers/service providors are forced to lay off staff due to economic downturn

5) Significant and sustained falls in real estate value

(1), (2) and (3) are now given. (1) will be enough to cause some price drops due to distressed selling. How much and how far is debatable.

If (4) begins to kick in, then (5) becomes inevitable

Steve

Edited March 18, 2008 by Steve Cook

[red]

After watching tonights Channel 4 news regarding Bear Stearns plus comments from Lloyds man.

Would love to know if you all think that prices will start to drop sooner rather than later now, bearing in mind peoples inability to either get a mortgage or renew at a comfortable price!

Also, would love to know if you now consider prices to plummet further as well as faster!!

My theory, fwiw:

Even the most stupid, greater fool cannot now borrow what he wants to buy property. Hence, the market will fall quicker and further than it might have.

I dare say, it's gone beyond sentiment - even if you were bullish about property, you'd find it hard to finance...yet sentiment, of course, will keep prices falling, even when property prices become more affordable.

This is the big one, folks.

[huw]

you only have to do the mind game: how much would houses be if you COULDNT borrow to buy one?

I dont htink we'd get that far, although it IS a possibilty,and it does set a lower limit.

Most people would not be able to buy if they had to rely on their income (they would probably not even be able to buy the bricks).

The interesting question then would be, how much rent would they end up paying? That number gives you the yield available from a house, and determines a reasonable price/value for the house.

[cells]

my guess is, if we dont get v.high inflation

by 2010 3bed home in ok parts of london for 200k (currently its 290-310k)

and a LOT of people will be in a LOT of trouble as a lot of them will end up having to pay the SVR.

Edited March 18, 2008 by cells

[huw]

Ermm... except that many of those that have a "feature" mortgage (e.g. fixed, discounted etc) which expires during that "battening down" period will be in a bit of a pickle, because with lower LTVs they may not be able to switch to any other product, leaving them on their current lender's SVR. THAT will be their reason to sell.

But if they are in NE (which many will be) they won't be able to sell unless they can make up the shortfall from their own resources. So they will be stuck paying the SVR mortgage if they can, or being repossessed if they can't.

[salamander]

But if they are in NE (which many will be) they won't be able to sell unless they can make up the shortfall from their own resources. So they will be stuck paying the SVR mortgage if they can, or being repossessed if they can't.

Agreed. But that comes later. The reduction in LTV for new "feature" loans, coupled with resets is a primary trigger rather than a consequence of price reductions. That is why it is so significant.

[GBdamo]

I dont think there are many safe areas, IMHO the banks will look to foreclose with lightning speed on any property where they can recover collateral and costs, ie property with equity. This will keep the books looking good. I'm just not sure where the benefit is for the banks in chasing someone whos fully MEW'd and CC'd up to the neck for money they are unlikely to recover.

I hate management speak but one I often get is 'go for the low hanging fruit'. There are a lot of people out there whos LTVs are frighteningly high, who have probably got reasonable equity and who are going to struggle when their mortgage drops of the discount/capped/fixed rate. Fools to buy at that kind of LTV but otherwise sensible, their kind will have the banks rubbing their hands.

Damo

[EmpiricalBear]

Seems in America they have let house prices go and will do there best to keep everything else going, will house prices be sacrificed here or is it too fundamental to Gordons miracle economy to let them go

If NR's loan book is halved (as press reports suggest it might be) then 20% of the UK mortgage volume will have been removed in a single stroke.

The government has already realised that house prices have to be sacrificed, but they have to say something else.

This is the reason they have chosen Yvette Cooper to face this up. The job requires someone able to say anything politically expedient no matter how nonsensical.