Monday, Oct 16, 2006

Banks giving FTBs enough string to hang themselves

Sunday Times Online: Fears grow over housing boom

Lenders are relaxing their criteria to stop people being priced out of the market raising concerns that it could all end in tears.
Homebuyers and property investors are being driven to desperate measures to get into the market, as some analysts predict a return to double-digit growth next year.

And the debt mountain grows... But it doesn't matter because the UK will never ever again suffer from high unemployment or high interest rates because the government will look after us and everybody will easily pay back their debts. Oh and it's lovely here in Cloud-cuckoo-land !

Posted by onyerhike @ 07:06 PM (548 views)
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20 Comments

1. Btloptingout said...

That 1/4 point interest rate cut last year seems to have turned out to be a pretty stupid move if you ask me.
Sent completely the wrong message out to bone-head brits that someone will always step in to maintain the housing boom.
Well it's now going to take another rise in November and probably one again in Spring to quell the flames it caused.

Monday, October 16, 2006 09:27PM Report Comment
 

2. Mystie010 said...

Looks like all us bears out there are doomed then!

Monday, October 16, 2006 09:30PM Report Comment
 

3. Such_short_memories said...

Whats that about the last bear turning bull? This is the sort of optimism that allows people to relax and think "phew, there's gonna be no HPC after all then," only to prime us for the shock of the crunch.

Monday, October 16, 2006 10:29PM Report Comment
 

4. Hook Line And Sinker said...

Mystie

All markets are cyclical, have common driving elements and contain an element of risk of trend reversal and subsequent loss.

This property bubble is absolutely no different to any previous ones and history has repeated itself time and again.

My own opinion is that absolute euphoria is driving this market. It is comparable to the hyped valuations of dotcom companies right before the crash (which was in fact pre 911). The risk of loss in this market is now VERY high indeed. Economic threats are first ie interest rate rises, inflation caused by high fuel and cheap credit, closely followed by political and legislative changes. Thirdly, as valuations peak - smarter investors begin to take profits and the herd follow when they realise what is happening.

I believe the peak is now in evidence - and we are witnessing a 'suckers rally'. All the signs are there - group mortgages, 50 year mortgages, equity withdrawal levels, debt at record levels, insolvency - the list goes on.

I have held many discussions with some very wealthy property developers, who are sitting on big paper gains. When I suggest a crash they laugh it off, which brings me to my final point:

All bubbles burst just when everyone thinks they will go on forever.

Stay a property bear. Buy for half the price at the beginning of the next cycle.........the wheel has almost turned full circle.

Monday, October 16, 2006 11:06PM Report Comment
 

5. Nohsp said...

Yes I am so worried... not
Labour government promised no more boom and bust. Therefor from a political point of view they will do whatever it takes to stop a bust regardless of whose best interest it is in.

Monday, October 16, 2006 11:35PM Report Comment
 

6. Surfgatinho said...

The continued growth in the property market could not have happened without lenders increased generosity. If they had stuck to their old systems, most people would have been priced out of the market years ago and property prices would have crashed, its as simple as that.

Nail on the head - without the current credit frenzy house prices would have corrected to reasonable prices. Is this muppet implying this would have been a bad thing!

Oh well, 15% YOY next year. If that happens, not only will I eat my hat, I'll turn to crime!

Tuesday, October 17, 2006 12:09AM Report Comment
 

7. tyrellcorporation said...

In a perverse way I'm starting to feel these boom stories are actually in our best interest. The last thing we need is a prolonged period of stagnation or a gradual unwinding. When someone blinks there will be a rush for the exits on a biblical scale!

Tuesday, October 17, 2006 08:18AM Report Comment
 

8. Jimmytennor said...

Tyrell - I agree.
The Market would painfully stagnate over some period to come. Thus, these articles & reports of 'mini-boom', 15% hike, mortgages offers of 100x salary etc, only serve to reinforce the likelihood of this cycle finally turning...

Tuesday, October 17, 2006 08:30AM Report Comment
 

9. sovietuk said...

tyrell, to be fair please remember that at least 25% rushing to the exit will have to take the koran with them instead of the bible.

Tuesday, October 17, 2006 08:54AM Report Comment
 

10. denzil said...

It will end in tears. House prices are without question in a bubble and anybody who thinks otherwise is completely deluded and in denial. The question is when will it burst? In my neck of the woods (South West) the chance of a HPC has been postponed due to lack of supply. I see little to no chance of a correction for at least 12 months and unless there are some pretty major triggers and at present I think a CRASH is unlikely but what will appear will be a stagnation followed by small drops etc. unless some unknown factors kick in.
The really big unknown is how fragile the enormous debt mountain is to crumbling. I personally know a large number of people both professionally and socially who are over extended and struggling, this may create the domino effect which will burst the bubble.
One thing is for sure, if the lenders continue their irresponsible lending practises in addition to creating a very fragile housing market they will be heaping a whole heap of misery on their customers.
Sadly I think house prices may see some upward pressure next spring but in the long run the MPC have swerved and avoided all the obstacles in the road but eventually unless rates rise to control HPI the MPC will hit a juggernaut full on.

Agree with the comment further up about the 1/4 point cut being wrong. If memory serves me the Governor of the Bank of England, Mervyn King voted against that rise (Aug 05), which probably speaks volumes for Gordon's hand picked bunch who King shares the MPC table with.

Tuesday, October 17, 2006 09:22AM Report Comment
 

11. holding out said...

The point about the relaxation of lender's systems is key here. The suggestion is that without it the market would already have crashed. Presumably then they will have to change them again (and again) as prices keep going up. If they keep doing it they are risking their own financial stability when the inevitable happens.

Another interesting point is they did exactly the same last time - Once bitten, twice er bitten it seems.

Tuesday, October 17, 2006 10:22AM Report Comment
 

12. miniftse said...

Oh my god..."Alliance & Leicester (A&L) recently changed its rules so borrowers, except first-time buyers, do not need to provide proof of their income if they can put down a 25 per cent deposit, giving them leeway to inflate their earnings to secure their dream home." I have no doubt it will end in tears, but whose tears? As for the cyclical nature of the property market, the down leg is never tthat large and seems drawn out over several years, I think it might be 2010 before we have fair priced housing once again.

Tuesday, October 17, 2006 10:44AM Report Comment
 

13. Sam said...

"Sally Lauder at A&L said: We still credit score customers who use fast track and limit the size of the loan to 75 per cent of the propertys value. The aim is to speed up the process, not allow borrowers to dodge the normal checks."

lol! limit the loan to 75% of the value of the house, duh! yeah, isn't it nice to know that they can do their maths. It's to cover their risks not the risks they are getting customers to take. bunch of bankers.

the other way of saying that is, "yes we get them to max out their money for the deposit so we can cover our risks when the property market nose dives".

Tuesday, October 17, 2006 11:08AM Report Comment
 

14. tyrellcorporation said...

It's all very tempting to head to New Zealand and forget the UK full stop.

Tuesday, October 17, 2006 11:25AM Report Comment
 

15. C'mon Correction said...

Nohps - you state labour have promised no more BOOM and BUST. Are you saying there wasn't a property BOOM from 1999 to 2005?

So they have failed.

Keep crossing your fingers they won't fail you again and stop a BUST over the next 10 years.

Tuesday, October 17, 2006 11:32AM Report Comment
 

16. Nohpc said...

I'm in new zealand at the moment and their houses are all crap looking! They seem even more over valued here than in Britain to me and interest rates are 7.75%

Tuesday, October 17, 2006 11:33AM Report Comment
 

17. Jimmyjames said...

Whose tears? Those who lose out in markets are always those with least information and greatest exposure - step forward all first time buyers. Best to avoid joining them for the time being I think..

Tuesday, October 17, 2006 12:05PM Report Comment
 

18. Nightflight said...

tyrellcorporation,
Right, I am actually reassured to see this - much better not to have gradual unwinding, I am out of property and into Gold Funds and, well, they are going back up at the moment anyway, but rapid drop in equity and property meltdown will drive it into orbit. Slow decline might drag gold down with it in commodity mode rather than money mode.

Tuesday, October 17, 2006 12:32PM Report Comment
 

19. harold said...

Totally irresponsible behaviour by lenders, and by the government for not putting a stop to it. Of course, when it all goes pear-shaped there will be the predictable noises from the media, politicians and hapless borrowers that this must never be allowed to happen again. Lots of hot air will be exhaled. But the banks will just carry on wrecking lives, society and our economy because they can get away with it. Anyone else committing such vandalism would be locked up. Instead, what do they get - a bonus.

Tuesday, October 17, 2006 01:53PM Report Comment
 

20. bidin'matime said...

I agree on the point about keeping the hype going - a bubble will burst more quickly if you keep blowing it up.

Tuesday, October 17, 2006 09:48PM Report Comment
 

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