Thursday, Nov 16, 2006

Not a prediction, but banks not making enough provision

The Times: Banks told to predict effects of a 40% crash in house prices

BANKS in the UK have been ordered by financial regulators to assess how they would cope in the event of house prices crashing by 40 per cent

Posted by holding out @ 08:33 AM (433 views)
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1. george monsoon said...

Absolute class...and a more realistic approach to news publication..

Thursday, November 16, 2006 08:43AM Report Comment

2. denzil said...

With Lenders prepared to throw any amount of money at any person who meets the criteria of possessing a pulse they would be in serious trouble should a 40% reduction occur.

Thursday, November 16, 2006 08:54AM Report Comment

3. george monsoon said...

I bet they are pinning their hopes on higher interest rates covering the losses.

Thursday, November 16, 2006 09:11AM Report Comment

4. waitingfor hpc said...

bring on higher rates - then prices drop.!

Thursday, November 16, 2006 09:13AM Report Comment

5. tyrellcorporation said...

I actually don't see rates rising much more - I reckon 5.25% (Feb/March2007) will be it and then as consumer spending nosedives, panic IR cuts to follow. Plate spinning economics is now an art-form!

This situation exascerbates the rich/poor divide as inevitably those people with good incomes and property portfolios can benefit from the poor saps who lose their houses by buying them at knock down prices. I think we are witnessing a virtual return to Victorian style disparities - under Labour too... oh the irony.

Thursday, November 16, 2006 09:32AM Report Comment

6. paul said...

I like the final comment designed to quell fears that these scenarios are remotely plausible:

"The FSA move came as UK house prices grew at their fastest for four years, according to new figures from RICS."

Trouble is, there's no way they would oblige these institutions to test against impossible scenarios.

Thursday, November 16, 2006 09:36AM Report Comment

7. Ejc75 said...

I've been think the same thing for a while tyrell. What with city bonuses always on the up we're turning into a nation of landlords (no longer shopkeepers). Well half the country are... the other half will have to live in rented accomodation. As we've seen tenants rights erroded by successive governments (mainly Tory but i see no willingness from New Labour to reverse this) and landlords given more freedom I think we will be returning to Victorian England. What Thatcher dreamed about Tony's making reality. What we need is for some policticians with balls to start whacking up tax on those second and third homes and on empty houses. I think the lib dems mentioned it but seeing as most of the population seem to be aspiring to more than one house ownership as the pension systems screwed I dont see that proving to be much a vote winner. maybe there's a need for a single issue party to start standing at elections in those marginal seats to get the main parties to act on the situation.

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

8. inbreda said...

Personally Ithink the balancing act involves high interest rates.

Think about it like this....

The government cannot print money at will without decreasing the value of that money. They have been increasing M3 at the rate of 14%. If interest rates do not rise, the value of the governments debt is not eroded.

We are all aware that 'official' inflation figures are nonsense. Increasing oil prices have no effect but then decreasing oil prices do?!?!?

What if they intentionally keep rates low to encourage people to borrow. People are then in permanent debt to their banks.

Then they raise the interest rate to erode the value of the governments debt.

House prices plummet which means that most BTL landlords CANNOT sell up because they do not have enough money to make up the shortfall. They therefore continue paying to the banks - bear in mind that the banks have effectively printed the money they lend out, and still charge the same margin irrelevant of the BoE base rate.

If they get repo'd they still owe the outstanding value (plus charges. Repos are more profitable than customers who don't default).

So....high interest rates mean that the banks make just as much money, and the governments debts 'disappear'. And the public are enslaved to the banks/government. Forced to work for what they can get and then give it all up.

In fact, if I was cynical - which I am - I'd suggest that if I was a powerful politician/banker, I'd intentionally organise it in a boom/bust manner in order to maximise profits.

Is that too much of a conspiracy theory??

Thursday, November 16, 2006 03:23PM Report Comment

9. Bubbles. . . said...

Look to the U.S.A. to see tommorows U.K. market. We are such aminiscle pimple on the back of the boil of the economy(the world wide economy) that apart from having a couple of mouldy companies for sale to any bidder including Russia China Tiawan or east acton we count for nothing!

The few fat cats left in the city will benefit whatever happens, and once again the hapless consumer in his two up two down will suffer a fate "not worse than death" but close!

What to do.
Sell now, and expect to see markets remarkably stable in the face of a massive trade and fiscal defecit only suspended in space by the hot air of Gordon Brown, the charm of Tony Blair and the chinese and russian petro dollars. The crash will come we all know, but as Geoff Randall in the Telegraph recently said "Having been convinced of this for so many months when oh when will the world be ready to except its doom to paraphrase saint joan".

Thursday, November 16, 2006 03:26PM Report Comment

10. inbreda said...

Sorry - an addition to my pervious drivel....

If houses were worth, on average 1,000 the banks would make a premium on a small amount of money. They are MUCH more profitable with high house prices, and have a VI in making prices high. They do not have a VI in keeping them high always.

Thursday, November 16, 2006 03:26PM Report Comment

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