Wednesday, Nov 15, 2006

HBOS pour more petrol onto the fire

The Times: Young professionals get 125% mortgages

HBOS, Britains biggest mortgage lender, will launch a loan for graduates and professionals today that will allow them to borrow more than the value of their property to help with the initial costs of buying a home. Other lenders that offer similar deals include Northern Rock, Coventry Building Society and Bradford & Bingley. The move is expected to boost demand for mortgages worth more than 100 per cent at a time when fears are growing that homeowners are already borrowing too much against their incomes.

Posted by scumbag @ 04:12 PM (466 views)
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1. Surfgatinho said...

Fool em into thinking they need a degree that isn't worth the paper it's printed on and give them a taste for debt. Then hook em with a lifetime mortgage - voila! Debt slaves for the 21st century!
I look forward to employing a few as dogs bodies when they need 2 jobs to pay their mortgage!

Wednesday, November 15, 2006 04:58PM Report Comment

2. nearly30 said...

Classic nuts economics at play. So what does the average graduate FTB couple look forward to in 3 years time.

160,000 for their first mortage
60,000 of combined student debt

They say there is a pension crisis - mmm... this will surely help loads!!!!

Forget it!!! Talk about mortgaging the futures of millions. Doubt anyone will be jumping for the bottom rung as the Baby Boomers pull up the ladder!!!

Why aren't we more like the Spanish?

Wednesday, November 15, 2006 09:30PM Report Comment

3. nearly30 said...

Have been a bit of a geek tonight playing with data - doing some cod-economic analysis.

Found an interesting de-coupling trend that happenned around 1998 and 1999 in regard to Affordability and Interest Rates.

Before 1997 - they tracked each other with consistency - showing a clear effort to keep HPI in check. In order to get house prices back in check - from the graph - I can only deduce IRs should be nearer 10%.

Also - assuming Affordability is a trigger to a bubble collapse (HPC)- average house prices need to get to approx. 205 K - which gives us about 6 to 8 months for an average across most regions to be close to this.

Previous bubbles burst when Affordability hit 147.6% of average take-home pay - currently this is getting close in all areas - West Mids is at 135% - sadly London is on a par with the North at only 90%.

I am assuming this is a 1 person income? If so - it is no wonder the model family is being destoyed so easily!!

London can be taken in isolation of course - that's the problem with averages!!!!

Would like feedback - am an arm-chair economist at best - a tubthumper at worst.


Wednesday, November 15, 2006 11:06PM Report Comment

4. Glorious Sunshine! said...

Hi nearly30,

Your comments look very interesting. I guess house prices need to go up more before a crash or if they just hold steady - well they may just hold steady and not crash!

Dont you just love it! Thank God I am on board!

Was that 'board' the housing ladder (escalator) or something to surf with?

Perhaps both??? :-) ...oh, I wish they all could be California girls...oh, I wish.....

Well East coast girls are hip
I really dig those styles they wear
And the Southern girls with the way they talk
They knock me out when I'm down there

The Mid-West farmer's daughters really make you feel alright
And the Northern girls with the way they kiss
They keep their boyfriends warm at night

I wish they all could be California
I wish they all could be California
I wish they all could be California girls

The West coast has the sunshine
And the girls all get so tanned
I dig a french bikini on Hawaii island
Dolls by a palm tree in the sand

I been all around this great big world
And I seen all kinds of girls
Yeah, but I couldn't wait to get back in the states
Back to the cutest girls in the world

I wish they all could be California
I wish they all could be California
I wish they all could be California girls

I wish they all could be California
(Girls, girls, girls yeah I dig the)
I wish they all could be California
(Girls, girls, girls yeah I dig the)
I wish they all could be California
(Girls, girls, girls yeah I dig the)
I wish they all could be California
(Girls, girls, girls yeah I dig the)

Just be happy everyone :-)

Thursday, November 16, 2006 12:40AM Report Comment

5. sold 2 rent 1 said...


I agree with your point of 6-8 months before a peak is reached.

I have been thinking about the affordability graph again

This graph really does explain what has happened in the UK economy since the 1970s

After the golden era of 1950s and 1960s house prices rocketed in the 3-5 years before 1974.

The crash of 1974 can be explained by the oil shock combined with high house prices.

But look at the rest of the graph have a good hard look.

Why did the affordability get significantly worse in the crash of 1981 and again in 1990? A key thing here is that the peaks of the housing booms in 1979 and 1989 were also lower each time.

I think the explanation is that a huge housing boom continues to affect the population for years to come say 15-20 years.

The people who will be caught out in the coming crash will have bought between 2003 and 2007.

The people who bought between 1993 and 2002 should be spared. But how will these people cope over the next decade. These people will have expanding families and will need to trade up, at least once and maybe twice over the next 15 years.

Consumption and average growth between 1974 and 1994 was significantly less than in the period 1994-2007. Once house prices peak we will see a period of much slower consumption and growth.

The figures of 180,000 to raise a child will start to fall as this money will have to be spent on mortgages instead.

My biggest difference between now and the 1970s is that there was relatively high inflation back then. If world inflation remains relatively low (I cannot seeing RPI going over 5%) then the overextended families will not have their debt eroded away like in the 70s and 80s.

The conclusions I come to is that we are in for a scenario of low growth, low consumption and low inflation. Without inflation to erode those debts this could turn into a depression similar to Japans in the 90s

Thursday, November 16, 2006 12:49AM Report Comment

6. tyrellcorporation said...

I remember in 1990 when I graduated the design job market evapourated almost overnight. In my final year I was supremely confident of walking into a great job and then suddenly my first class degree was put to use picking tomatoes and working at a petrol station. My mate who graduated from central St Martins was in the same boat and the total number of people from my course (20) who got design work was zero. This was also in a time where media studies and dog psychology courses didn't exist - what the hell are these graduates going to do in a downturn?!?

If employers get wind of a slow-down they halt all recruitment and you hit a brick wall. It seems to me people think the credit fuelled boom will last indefinately - IT WON'T. Lending money on potential future earnings is totally reckless and people will inevtably get burnt badly.

Thursday, November 16, 2006 09:25AM Report Comment

7. sold 2 rent 1 said...


I graduated in 1991 and know the extreme difficulty of getting a job.

The point I am making is that this crash will be like 1974 rather than 1990.

The 1990 crash saw the affordability index go to an all time low, and then on the recovery saw the affordability index go to an all time high.

I dont believe that the affordability index will have to go that low for a crash to happen. I also dont think the affordability index will return to the highs of the 90s (when a housing recovery starts in 3-4 years).

What I am saying is dont expect to pick up the bargain properties like we saw in the early 90s. They will be cheap but not mega cheap. Remember there are an awful lot of people who still have huge equity in their houses.

The 4 bed house I am going to rent has no mortgage on it.

On the point of unemployed graduates; the unskilled work that they would normally do in a recession is being done by immigrants. This should push unemployment higher. The immigrant workers will be sending a significant proportion of their income home consumption will be less with immigrant workers than local workers this reinforces any downturn in the economy.

Thursday, November 16, 2006 09:57AM Report Comment

8. nearly30 said...

Cheers sold 2 rent 1 et al... interesting stuff.

Will be interesting to see how the self-cert and interest only mortgages mess up the bigger picture.

Could they alone drive a new era where the housing stock is only owned by those who bought before 2000 or have liquidity (big city bonuses) - and the rest merely pay a 'rent' to the banks or to buy-to-launderers.

Effectively a whole generation of renters!!

In addition as houses continue to be incorporated into investment and pension portfolios - HPI could still go on but with small cycles of reprosssesions and bankruptcies for those who dared stretch themselves to get onto the housing ladder though 'old-skool' mortgage arrangements (yes 125% mortgages HBOS!!) - they will kill off any FTBs.

A sad picture and may mean we will be in this status quo for more than just a few more years - could be 1800s all over again.

A paradigm shift of epic proportions?
Could we see the under-30s be the most economically and socially marginalised generation in history?

Thursday, November 16, 2006 10:23AM Report Comment

9. Inflation Is Eating My Savings said...

>Could we see the under-30s be the most economically and socially marginalised generation in history?

Of course, but they are so brainwashed, they won't even notice.

Thursday, November 16, 2006 10:55AM Report Comment

10. tyrellcorporation said...

Nearly 30... I think so. :(

A wealthy aquantance is 27 and has 12 properties, his brothers and sisters have similar 'portfolios'. We are indeed witnessing a new era of gentrification. The haves and have nots - Labour's black and white society!

Thursday, November 16, 2006 11:34AM Report Comment

11. waitingfor hpc said...

guys - all this is part of the bubble this is!! Wealth is measured in very different ways - asset value high but cash poor - especially if this man with 12 properties is all borrowed money.

this is not a new era - nothing like - just a 10 year cycle of cheap money - and the poor have got better off with this bubble as well. Minimum wage, tax credits, housing, health care. The list goes on. OK I am no fan of Nu Labour - infact I deteste them but .. along with wasting billions of our tax money and debt with PFI's they have created jobs and lots of them in the public sector for people.

We are seeing now that debt has nearly maxed out. And the vain attempts to lend more are now on the high street but they have been here for a while through brokers. All this news is old.

The facts as I see them is IR's at 5 - 5.5% over next 6 months. Under the spin the economy is in real bad shape, unemployment going up, inflation ripping through manufacturing and now the shops. Imports going up. US slowing and world facing up to the idea of prices going UP for the first time in nearly 10 years.

Wages will go up inflation in the UK at 8-10% in real terms , if fuel goes up again, which I feel it will then more pressure on IR's. I have had 2 of my staff ask for pay rises due to inflation already!!!!! I have had 2 others say that they earn 7.50 per hour but now the minimum wage is going up they want the same rises because otherwise they are getting closer to minimum wage!

Hold on tight 2007 will be a busy year on this site!

Thursday, November 16, 2006 12:27PM Report Comment

12. millard said...

waitingfor hpc said... "I have had 2 of my staff ask for pay rises due to inflation already!!!!! I have had 2 others say that they earn 7.50 per hour but now the minimum wage is going up they want the same rises because otherwise they are getting closer to minimum wage!"

out of curiosity, how did you respond?

Thursday, November 16, 2006 02:43PM Report Comment

13. indiablue19 said...

Glorious Sunshine....

Well, onboard in the housing department anyway. Whatever you're smoking, let's hope you can still afford it after the crash, otherwise the future looks rather dim in terms of facing something called reality.

Thursday, November 16, 2006 03:13PM Report Comment

14. waitingfor hpc said...

millard -

I told them I do not set inflation, or the minimum wage, that is done by the govt and I work with their figures!
I pay for a wage for a factory job - and it is a good wage for the area and thype of skill level required.

(Bearing in mind I can get Polish workers for much less)

Thursday, November 16, 2006 04:10PM Report Comment

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