Sunday, July 22, 2007

Timebomb reported by the Times… the end is nigh!

Banks face mortgage ‘timebomb’

Interesting weeks of profit warnings ahead... "Analysts forecast that leading banks will announce a surge in mortgage arrears as well as bad-debt charges linked to mortgages. UK banks wrote off just £56m in the first quarter of this year. But this is thought to have more than doubled to £140m between April and June. Some analysts now predict that the losses could reach £500m for 2007 and jump to £650m in 2008.However, bankers believe the impact of rising interest rates will be most severe in the second half of 2007 and the first half of next year. More than 2m homeown-ers will be forced to take out new mortgages at higher rates when their two-year fixed-rate deals mature in the next 18 months"

Posted by confused76 @ 09:42 AM (563 views)
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16 thoughts on “Timebomb reported by the Times… the end is nigh!

  • planning4acrash says:

    Serves em right for these stupid mortgage deals that put initial rates way too low. I think that they see the first half of 2008 as being the worse, because, their tolerance is for a 6.25% IR peak by then. By that time, when we are at 6.25% and inflation is still pressing, will they see summer 2008 as the danger point? The goal posts keep moving, and, whilst they may cite a time when problems will peak, I see no peaking out of this part of the business cycle in sight.

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  • converted lurker says:

    I’m fascinated to know the amount of lobbying pressure Merv et all must be subject to by various interested parties atm, is the soft landing ever achievable when you’ve manufactured such a ‘boom’? (by simply printing/creating more money)

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  • “The goal posts keep moving”

    The optimism reported in the media about interest rate peaks is hilarious. First it was 4.5%, then 5.5%, now its 6.25%. Where will we be this time next year on upper limit predictions ? 7%, 8%. Yes very probably and even higher. Expose yourself to borrowings (without doing your calculations carefully) at your peril.

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  • Ah yes the Noshbag Smith school of economics prediction. Bad journalism relies on short memories.

    I was reading a great article from a year back when US senate members were hailing the subprime industry as extending homeowning to millions of hardworking minorities, and that the concerns of a vocal few regarding the leveraging of subprime companies was unfounded and unwarranted.

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  • Crashisamyth says:

    BUT HANGON!:
    The CML expects repossessions to rise to 19,000 this year and 20,000 in 2008. However, the figures are way below the 75,000 repossessions at the peak of the housing crash in 1991.

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  • Considering repossessions rose 66% last year (to 17,000) we can expect them to (at least) do that again given the increase in interest rates over 2006 and this year. A large number of people will not have felt these rises… yet.

    I wonder how CML comes up with their predictions. 19,000 for 2007 and 20,000 for 2008 seems way off the mark. Perhaps they benefit somehow by predicting such happy numbers.

    IMHO, even if you take a mild view that the increase in repossessions will continue to increase at 66% that gives us:
    28,000 for 2007 and 46,000 for 2008. I think we’ll hit ‘Peak Crash’ in 2009. That’s if we’re still around.

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  • Myth,
    thats what CML says they expect. If I had their raw data, I could give you my opinion about that.
    To me 20,000 “expected” repossessions (i.e. 37.5% of the 1991 peak!) is the hell of a number.
    So, is 20000 optimistic or pessimistic? consider that CML is threading a fine line between warning the MPC of a slump ahead and not scaring their customers (the public). Since the CML has probably shared the raw data with the MPC, and the MPC will make up their mind, i think the CML has released a more optimistic outlook of repossessions for the public
    So, give or take, the CML may be thinking there will be 35k repossessions in 2008. I would love to see what buffer lenders are cooking in their numbers for the next year. We will know all that when the B&B and HBOS release the 2008 outlook this fall.

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  • Myth,

    According to the CML, first time buyers make up 29% of the market but according to DCLG, they make 8-10%.
    According to the CML, the average age of the first time buyer is 29. According to Halifax and Nationwide, it’s 35.

    Remember, he CML is not exactly an unbiased opinion in all this.

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  • sold 2 rent 1 says:

    Myth,

    So repos
    up 66% in 2006
    up 10% in 2007 (CML prediction)
    up 5% in 2008 (CML prediction)

    Rate rises yet to have full effect.
    Recession yet to start
    Unemployment still good
    More rate rises to come.
    HPs have yet to start falling
    sterling has yet to crash
    Chinese inflation has yet to feed through

    The peak repo time is probably 2 years into the crash (say 2010)
    I think we should be surprised that repos are so bad before the crash starts

    I think we will hit 100,000+ by 2010-2011

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  • Paul said:
    >>I was reading a great article from a year back when US senate members were hailing the subprime industry as extending homeowning to millions of hardworking minorities, and that the concerns of a vocal few regarding the leveraging of subprime companies was unfounded and unwarranted.

    High-risk lending is still high-risk lending whatever way one looks at it. I would really like to see the term “sub-prime” replaced by “high-risk” as “sub-prime” looks and smells suspiciously like turd polishing to me.

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  • European-bear says:

    I actually think a major bank or two going under would be very healthy for long term lending practices. The problem with the last crash was that the banks did not loose that much money because the losses were insured (i.e. they recovered much of the price between what the repossession sold for and the outstanding mortgage from the insurance policy taken out when a high % loan was issued). This time round I am not sure how much the banks are exposed because of such insurance. If they are well covered then sadly a bank will no go bust, unless the insurance companies go bust (we can hope) and the cycle will repeat….

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  • re the CML nobody predicts what is about to happen, i just ran a search through the times for the word repossession in the years 87-97. This may help some the figures are below, the articles themselves make very interesting reading, it sounds just like now, interest rate rises people worried about the newly bought houses of the DINKY’s, other people not worried using the fact that the last time there was a crash the interest rates were much higher that time, all sounds very now. anyway on to the figures and i think you’ll agree it shows that by the time the press are really on to it we are already in it, up to our ears.
    1987 – 33 mentions
    1988 – 34
    1989 – 74
    1990 – 76
    1991 – 291
    1992 – 354
    1993 – 188
    1994 – 125
    1995 – 156
    1996 – 109
    1997 – 98
    My guess (not from the numbers but the flavour of the articles is we are at 1987, deepest number of repo’s was ’92, so we’ll see it again in 2012

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  • Talking about overextended banks as europeanbears comment I have noticed the huge amount of advertising/bulling up being done by a certain Spanish bank called Santander. I imaging that this bank in particular (purchaser of the abbey) may be in a particularly bad position if the property market went south in Spain and the U.K. Does anyone have any opinions/info on this particular bank and its underpinnings etc.

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  • david20040_0 says:

    The banks are likely to make more money as property continues to boom not less.

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  • david20040_0 said…
    “The banks are likely to make more money as property continues to boom not less.”

    Obviously banks will make more money whilst property continues to boom. However I think the general conscensus on this site is the boom is more or less played out. The economic landscape from this point on is about to become very different (bust follows boom – EVERY time………….)

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  • Pete Balchin, Solicitor says:

    I agree that c. 20k repossessions is far too low and a conservative figure.

    if they predict 11% but it could be 66% then yes sadly they could rise to as much as the 75k or more at the peak of the last recession.

    Oh , and … Kirsty Allsop, are you ready to eat your hat?

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