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House Price Crash Or Mortgage Drought?

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I have been pondering the recent fall in house prices that is based on fewer and fewer complitions as mortgages are becoming harder and harder to come by.

Has the credit crunch made the crash happen or did the price of housing become totaly unaffordable?

I know the credit crunch forced banks to re think lending criteria but that criteria is now to strict ie a missed card payment = no mortgage and they have effectively stopped the housing market dead in its tracks, they are also setting the interest rate not the BOE.

I really do beleive the madness would still be going on if the banks didnt have their funding cut.

I am also not entirely convinced house prices have really fallen yet , they just are not selling because FTB's cannot get loans so the ones that are are discounted .

My worry is if the banks start to lend again is it up and off with the price of housing?

ps (as a BTL I now notice my credit score has dropped hugely due to not being a home owner!!!)

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Mortgage drought + housebuying boycott = house sales crash.

House sales crash + time = house price crash.

Edited by blankster

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the boe's credit conditions survey showed that initially banks weren't lending as the wholesale cost of capital went up

this was due to the boe/ecb raising rates in 2007 and the problems with sub-prime mortgages in the us causing banks not to trust each other

the problem now is that banks expect house prices to fall.. so we've had a domino effect from wholesale funding to house price expectations

i sincerely believe unemployment will rise sharply from here and that's another reason why banks wont lend...

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There does seem to be a link between credit and the US housing market but I am not sure the same mechanism is in play here in the UK. What I think is true of both situations is that they were artificial. Interest rates were artificially low, and house prices high. A big jolt, which includes an oil shock in this case, tends to knock things up into the air and they come down pretty much where they should be. With IRs reasonably high to combat inflation, banks/BSs back with wider margins and normal levels of risk and HPs back down towards the traditional metrics of affordability. Whether they are linked may not be the point. The point is that it was never 'different this time' and we are just heading back to business as usual. It is called 'Boom and Bust' and it is a shame it was ever allowed to happen in the first place.

Edited by iangilb

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the boe's credit conditions survey showed that initially banks weren't lending as the wholesale cost of capital went up

this was due to the boe/ecb raising rates in 2007 and the problems with sub-prime mortgages in the us causing banks not to trust each other

the problem now is that banks expect house prices to fall.. so we've had a domino effect from wholesale funding to house price expectations

i sincerely believe unemployment will rise sharply from here and that's another reason why banks wont lend...

unemployment is something i didnt know the banks factored in , but i suppose they must have to in their models of possible defaults going forward

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Contrary to popular belief, house prices began to soften before lending tightened.

Logical really. As a lender. you would want to tighten lending criteria if your collateral was going to weaken. Which then leads to a self-fulfilling prophecy of falling prices.

(by the way net lending is still positive - i.e. lending is still growing - just not enough to maintain prices despite the fall in transactions)

I don't accept that.....money has all but been trapped by the inbetween men, the real powers in the world. Not the oil refineries, not the sales reps at the stockbrokers, not the clerks on the tills of fuel pumps.

Who are they? What do they do, and was the Exxon trial linked to the credit crunch.The IMF and Worldbank. Real power.

Watch this until the end.....these people are named.

http://video.google.co.uk/videoplay?docid=...11147&hl=en

This is affecting us all.

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The money was going to run out at some point, you can't run a consumer based economy.

Now the money has run out people can't afford to buy at inflated prices, even if prices reduce by 30% which is what the banks think is there economic price the banks still won't lend as they have run out of money which means they will fall further.

If you want to get the market going again the banks had better get chasing rainbows to find some money.

The banks are either insolvent or have committed mass fraud which has artificially inflated house prices. Take your pick.

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unemployment is something i didnt know the banks factored in , but i suppose they must have to in their models of possible defaults going forward

i've been trying to forecast the senior loan officer survey of lending standards in the us. seems to be a function of previous debt, asset prices, unemployment

we get incredible cyclicality in the world

when interest rates are low and unemployment falling e.g. us in 2004, then we get debt accumulation, buoyant asset prices and further rises in house prices. so banks want to lend more

eventually though the weight of debt is too high particularly with central bankers pushing rates up too high for the marginal low quality buyer

then house prices fall, so banks cut back on lending, making falls worse.

this has a spillover effect onto unemployment, banks tighten further, unemployment rises further

we're really in the doldrums for a few years.

Edited by jac

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money is money it trusts no one....

but credit... credit is trust and confidence... hence why credit is at the root of every speculative bubble since tulip mania...

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I got a mortgage offer in January for 105K from the co-op. They only offered me 62K yesterday when I applied for another agreement in priciple.

Interestingly I had a 4K wage rise in April.

January - Salary 19K - Mortgage offer 105K - 5.5X Salary

July - Salary 23K - Mortgage offer 62K - 2.7X Salary

When I asked the girl on the phone why the current offer was lower than the one in January they said the underwriters are "worried about affordability".

Edited by chalky

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Guest sillybear2

There isn't a drought, things are simply 'back to normal', the big banks are still lending, if you go into a bank with a 10% deposit they'll lend you x3 verfied earnings at what are still low interest rates by historical standards. The problem isn't with the lending, it's with the assets, they're priced as if the reckless ultra-cheap and ultra-easy money was still flowing, but it's gone for good.

We're back to standard lending terms, but a 5% or 10% deposit may be too much for some people to manage, given that they're absolutely skint and the asset is still too highly priced, not to mention we have no savings culture.

Stricter terms and 'harder to come by' simply means the banks are refusing to lend massive amounts to people who had no place being in the market in the first place.

Edited by sillybear2

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money is money it trusts no one....

but credit... credit is trust and confidence... hence why credit is at the root of every speculative bubble since tulip mania...

Trust and confidence in what??!

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money is money it trusts no one....

but credit... credit is trust and confidence... hence why credit is at the root of every speculative bubble since tulip mania...

I disagree money isn't just money. The entire concept of money is based on trust.

"If you don't trust gold, do you trust the logic of taking a pine tree, worth $4,000-$5,000, cutting it up, turning it into pulp, putting some ink on it and then calling it one billion dollars?" Kenneth J. Gerbino

Hence once you put the ink on a bit of paper that says Federal Reserve it's suddenly worth it? No we trust it's worth something.

http://www.bankofengland.co.uk/banknotes/about/history.htm

The first recorded use of paper money was in the 7th century in China. However, the practice did not become widespread in Europe for nearly a thousand years.

In the 16th century the goldsmith-bankers began to accept deposits, make loans and transfer funds. They also gave receipts for cash, that is to say gold coins, deposited with them. These receipts, known as “running cash notes”, were made out in the name of the depositor and promised to pay him on demand.

Many also carried the words “or bearer” after the name of the depositor, which allowed them to circulate in a limited way. In 1694 the Bank of England was established in order to raise money for King William III’s war against France. Almost immediately the Bank started to issue notes in return for deposits. Like the goldsmiths’ notes, the crucial feature that made Bank of England notes a means of exchange was the promise to pay the bearer the sum of the note on demand. This meant that the note could be redeemed at the Bank for gold or coinage by anyone presenting it for payment; if it was not redeemed in full, it was endorsed with the amount withdrawn. These notes were initially handwritten on Bank paper and signed by one of the Bank’s cashiers. They were made out for the precise sum deposited in pounds, shillings and pence. However, after the recoinage of 1696 reduced the need for small denomination notes, it was decided not to issue any notes for sums of less than £50. Since the average income in this period was less than £20 a year, most people went through life without ever coming into contact with banknotes.

http://www.bankofengland.co.uk/banknotes/about/faqs.htm#2

What is the Bank’s “Promise to Pay”?

The words "I promise to pay the bearer on demand the sum of five [ten/twenty/fifty] pounds" date from long ago when our notes represented deposits of gold. At that time, a member of the public could exchange one of our banknotes for gold to the same value. For example, a £5 note could be exchanged for five gold coins, called sovereigns. But the value of the pound has not been linked to gold for many years, so the meaning of the promise to pay has changed. Exchange into gold is no longer possible and Bank of England notes can only be exchanged for other Bank of England notes of the same face value. Public trust in the pound is now maintained by the operation of monetary policy, the objective of which is price stability.

As I said paper money is based on trust, if you don't trust the money is worth anything you merely have paper with ink on it.

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There isn't a drought, things are simply 'back to normal', the big banks are still lending, if you go into a bank with a 10% deposit they'll lend you x3 verfied earnings at what are still low interest rates by historical standards. The problem isn't with the lending, it's with the assets, they're priced as if the reckless ultra-cheap and ultra-easy money was still flowing, but it's gone for good.

We're back to standard lending terms, but a 5% or 10% deposit may be too much for some people to manage, given that they're absolutely skint and the asset is still too highly priced, not to mention we have no savings culture.

Stricter terms and 'harder to come by' simply means the banks are refusing to lend massive amounts to people who had no place being in the market in the first place.

Excellent, excellent post.

You are not such a silly bear.

Critical mass has been and gone.

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Guest sillybear2

As for cause and effect, as we know the UK didn't actually blow up (though it would have eventually), but the banks saw what was happening in the US with defaults and pulled the plug before it blew up in their face, namely the wholesale funding market did this for them on a global basis. Hence banks are back to lending on their own book, and they've got rather picky about risk now they can't parcel it off to a greater fool!

On August 9th 2007 the banks collectively realised they were the greater fools, they lent billions cunningly assuming they had a new set of slaves on the hook for the next 30 years but they suddenly realised both barrels were squarely pointing back at them! With sub-prime in the US most of the borrowers had no skin in the game, they could roll the dice and walk away with no recourse when things turned sour, having lived the American dream for a while and MEW'ed it up for a few years, many never dreamt any of this could be possible back in the stodgey risk-averse days. So this was a free ride, their only loss was a few teaser/neg-amortization mortgage payments that were lower than their previous rent, and they could be pyramided and MEW'ed too once the bubble delivered them more 'equity'! What was sub-prime in the US is B&B and BTL in the UK.

Edited by sillybear2

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Excellent, excellent post.

You are not such a silly bear.

Critical mass has been and gone.

i second this. i actually want to ban the phrase 'credit crunch' and replace it with 'credit normalization' instead

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i second this. i actually want to ban the phrase 'credit crunch' and replace it with 'credit normalization' instead

Now that we are starting to get normalization of credit terms, it only follows that house prices will have to come back to normal affordability levels.

I earn something like 40k net, but it means that I cant afford what I would like within real income multiples just yet. The only things that I can truly buy are ex council houses, and thats even with a 35k deposit.

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At the beginning I had a few clients wanting to buy but having troubles finding mortgages, now I just don't have many clients. In the last few weeks I have had no new clients purchasing properties on the open market. A few inter-family sales, remortgages, equity releases & not much else. Not even probate sales!

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This is not recent, this all started to unfold last September, we're nearly at our first anniversary! US subprime mortgage resets caused the global credit crunch because of global investment in US subprime debt, this initiated the fall of an already top heavy UK housing market.

Oh really, my house has fallen by £85K in this time frame (22%). There is still a market value for property, people are still moving, but there is now 14 houses for each prospective buyer rather than the normal 6.

"My worry is if the banks start to lend again is it up and off with the price of housing?" WTF are you for real? Ever heard the expression "sentiment is key"?

I have been pondering the recent fall in house prices that is based on fewer and fewer complitions as mortgages are becoming harder and harder to come by.

Has the credit crunch made the crash happen or did the price of housing become totaly unaffordable?

I know the credit crunch forced banks to re think lending criteria but that criteria is now to strict ie a missed card payment = no mortgage and they have effectively stopped the housing market dead in its tracks, they are also setting the interest rate not the BOE.

I really do beleive the madness would still be going on if the banks didnt have their funding cut.

tt

I am also not entirely convinced house prices have really fallen yet , they just are not selling because FTB's cannot get loans so the ones that are are discounted .

My worry is if the banks start to lend again is it up and off with the price of housing?

ps (as a BTL I now notice my credit score has dropped hugely due to not being a home owner!!!)

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That seems to be one hell of a nosedive. Where's the money going???

Is it a kamikaze in training.

its a growth rate in lending.... no confidence = no lending

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I have been pondering the recent fall in house prices that is based on fewer and fewer complitions as mortgages are becoming harder and harder to come by.

Has the credit crunch made the crash happen or did the price of housing become totaly unaffordable?

I know the credit crunch forced banks to re think lending criteria but that criteria is now to strict ie a missed card payment = no mortgage and they have effectively stopped the housing market dead in its tracks, they are also setting the interest rate not the BOE.

I really do beleive the madness would still be going on if the banks didnt have their funding cut.

I am also not entirely convinced house prices have really fallen yet , they just are not selling because FTB's cannot get loans so the ones that are are discounted .

My worry is if the banks start to lend again is it up and off with the price of housing?

ps (as a BTL I now notice my credit score has dropped hugely due to not being a home owner!!!)

It appears your ability to analyse the housing and credit markets is on a par with your analytical ability on the subject of climate science.

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This is not recent, this all started to unfold last September, we're nearly at our first anniversary! US subprime mortgage resets caused the global credit crunch because of global investment in US subprime debt, this initiated the fall of an already top heavy UK housing market.

Oh really, my house has fallen by £85K in this time frame (22%). There is still a market value for property, people are still moving, but there is now 14 houses for each prospective buyer rather than the normal 6.

"My worry is if the banks start to lend again is it up and off with the price of housing?" WTF are you for real? Ever heard the expression "sentiment is key"?

dont take your stress out out on me you silly little man !!!

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  • 396 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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