Sunday, September 16, 2007

A Must Read In Simple Terms – Gordonomics and your Mortgage

Mortgage madness will end in inflation, inflation, inflation

Even at the height of the ruinous US housing boom, US banks weren't offering 125% mortgages or six times earnings to people on £18,000 a year. Yet that is what British high rollers such as Alliance and Leicester and Northern Rock have been doing and have "helped" first-time buyers get on to the "housing ladder" with 40 year interest only mortgages which are so good you don't even get to own the house.

Posted by enuii @ 05:18 PM (2352 views)
Please complete the required fields.



45 thoughts on “A Must Read In Simple Terms – Gordonomics and your Mortgage

  • CRASH CRASH CRASH CRASH.

    I thought US lenders had been more reckless than GB lenders??????

    Oh well if not can we expect a bigger crash 🙂

    Reply
    Please complete the required fields.



  • From the article:

    “Inflation is the weakest and sneakiest way of re-pricing inflated assets – it ruins savings and the livelihoods of people on fixed incomes – so it’s a slam-dunk certainty that this is what the government will do.”

    Scary, Very scary. Perhaps it’s time to buy Kruggerands.

    Reply
    Please complete the required fields.



  • planning4acrash says:

    David, have you been converted by the last week by any chance?! Have you seen the light? Tasted the sweet bounty of affordable homes?! Do you see an affordable paradise, the promised land?! Wohooooo!!!!!!!

    Reply
    Please complete the required fields.



  • I think that the UK are in at least as much trouble if not more because so much of their recent 10 year economic miracle has been built on debt.

    I also think that it is very unfair to give the mess to the Tories to clear it up though…

    Reply
    Please complete the required fields.



  • I agree with David thoughthat it coule be that prices will fall to about -30% and then stagnate.

    Reply
    Please complete the required fields.



  • I made a point last week that nothing happens without critical mass. Now the masses are in the streets qeueing up for their Northern Rock money and the BTL sure winner has been exposed as very risky.

    There is no news like bad news. The media has turned and will accelerate very quickly now in this direction. Interest rate decisions/minor adjustments no longer matter now, it is no longer just a BOE back room meeting issue, it is out there in the streets.

    Reply
    Please complete the required fields.



  • This is not a crash.. and will the other “David” stop posting under my name please…

    Reply
    Please complete the required fields.



  • I have always wanted a crash, I just didn’t want to believe that it would happen because I had seen so many flase dawns before.

    But seriously though I thought the US lenders had been much more reckless than GB lenders placing them in a worse position. Surely we can’t have been worse? Surely?

    Reply
    Please complete the required fields.



  • Can’t wait to know what people are actually going to talk about and aim for from now on – what selfish chatter and ambition shall it be next if we’re no longer going to be obsessed over making money out of buying and selling property..?

    Reply
    Please complete the required fields.



  • planning4acrash says:

    Why not David? Hasn’t London been gaining more trade because its less regulated than New York?

    Reply
    Please complete the required fields.



  • planning4acrash says:

    Its nice to see you talking about yourself in third person, using the past tense when describing your annoyance with false dawns 🙂

    I reckon this northern rock thing this is the tip of an iceberg. Lets wait to see what happens when we know the exposure of all of the large banks. It could be eye watering.

    Reply
    Please complete the required fields.



  • Dave, In the UK its the multiples of income that really determine subprime which have come from lax lending practices and it is these lax practices that have fuelled the boom in house prices. When you have couples taking out up to 5 or 6 times their joint income just to buy a semi where once upon a time 3x one salary would have done it you have stored up a truck load of trouble. You’ve got to remember also that once an individual or couple takes out such a mammoth commitment they are awfully exposed to a downturn in the economy, increased interest rates and the general debt burden of everyday living expenses in this country. I personally know quite a few people who have took out ridiculous mortgages to buy what are admittedly nice houses using up to 6x their income interest only on the pretext that it will be alright in a few years time because they can always sell it and downsize without a mortgage. Trouble is they are banking on the next generation of housebuyers to take on even greater debt burdens in an economy that apart from the financial sector (at the moment) is not producing the sort of industries and jobs that would enable this.

    I recommend a great book called ‘fantasy island’ by Larry Elliot and Dan Atkinson which covers this and other subjects associated with it in an informative and ultimately very readable manner.

    Reply
    Please complete the required fields.



  • I will be sneeky here and would want people to test this theory of mine.

    What I have heard and read in US, when things went bad the mortgage lenders started to reprocess the house ASAP.
    The reason for this as I ascertain is as follows, as the house prices are high, the sooner you repocess it the more you can make of it.
    If you wait for longer the house prices would have fallen and a repocession would mean a loss for the lender.

    So, in US they repocess after around 3 mis payments initially now when its wide speard and prices halved (if you can sell it that is). They say they are happy to speak to households and help. because they will make a loss if they repocess.

    Now coming back to UK… Also as we have heard that big banks will make no money this quarter and will have difficult times ahead.
    How aggressive will the UK lender be when its starts to melt down in the next few months. when people will come off fixed/initial discounts term of their mortgages. If any one working in a bank wants to make his bonus, he has to meet his profit target and quick repocession and sale at the top of the market is the only way… Also before this sleepy govt. wakes up to this practice.

    Cunning but true…

    Reply
    Please complete the required fields.



  • Also wanted to say about the article..

    Crisp and precise… How I like it.

    Reply
    Please complete the required fields.



  • But the BoE might bail out these banks to save the market.

    Also where is my money safe? I have saved up enough for a deposit and have it placed in Icesave, are they safe?

    Reply
    Please complete the required fields.



  • If the newspaper front pages have the power to shift consumer sentiment, then consider it shifted over the last few days.
    In fact in a funny kind of way, it would be the BoE bubble saving antics that actually popped it in the end.
    Fragile things bubbles !

    dbnazz, the Northern Rock queues look very much like the direct action we debated on this blog the other day 🙂 It looks like the masses are organizing themselves.

    And I wonder what is going through the minds of the people I know who have splashed out 20% deposit on an off-plan £200K BTL flat in Leeds city centre.

    Reply
    Please complete the required fields.



  • David. You might like to read FAQs posted earlier today. – in particular Uncle Tom’s post @8

    Reply
    Please complete the required fields.



  • deepak.
    Speed of repossession was a factor in the last crash in the UK too. Most people knew sombody who got repo’d and in a falling market the lenders were in and auctioned the place before many people could catch their breath and that was back int the days when a 5% deposit when buying was the norm.

    As for inflation. It narks me that the measure for inflation is just unrealistic. I really don’t know anybody whose expenditure has risen by as little as 2-3% over the year. In certain respects I feel a little sorry for what the BoE have to work with. The government give the MPC the stats and the MPC have to work with it but if the stats i.e inflation are inadequate what can they do? It’s fair to say I loath Gordon Brown and in Kevin Keegan style, “I would love it, just love it..for Mr Brown to be exposed for what it he is”. His miracle economy is a complete farce.

    Reply
    Please complete the required fields.



  • Here is an example of inflation I just found…

    2 night stay in holiday cottage in Nov 2007 costs £216.
    Same cottage for 2 nights in Nov 2008 costs £327.

    That is about a 50% increase.
    Oh yes, holiday cottage short breaks aren’t in the CPI.
    See
    http://www.cottages4you.co.uk/uce/c4y?action=readAvailability&view=&startdate=01/11/2007&cottageId=421462&displayLayer=off&duration=7
    vs.
    http://www.cottages4you.co.uk/uce/c4y?action=readAvailability&view=&startdate=01/11/2008&cottageId=421462&displayLayer=off&duration=2

    Reply
    Please complete the required fields.



  • No David, Icesave is not safe – It’s based in Iceland, so if it goes down, no-one is likely to bail you out.

    In a another thread yesterday, I explained why I think this may be a very dangerous place to put your money –

    – they offer a deal that is literally too good to be true.

    Reply
    Please complete the required fields.



  • They arebacked by the FSA though!

    Surely they should be OK due to that?

    What about ICICI HiSave?

    Reply
    Please complete the required fields.



  • we forget about the simple stupid taxes we have to pay for that gone up above inflation i.e tv licence last year £131.50 , this year £135.50 i.e up at 3.05% and thats if you pay for it in one go up front! Council taxes last year to this year up 4.9% in my area ( Band c – worcester ), need i say more??

    Reply
    Please complete the required fields.



  • I would err on the safe side for cash deposits and steer clear of anyone offering fantastic saving rates and spread your money around the BIG national banks not trumped-up former Building Societies and with no more than 30K anywhere if you have that sort of liquidity.

    Reply
    Please complete the required fields.



  • Lets turn the bold off there done.

    Reply
    Please complete the required fields.



  • forgot the slash

    Reply
    Please complete the required fields.



  • What would be classed as Big National banks? The only ones I can think of are:

    The Royal Bank of Scotland (with them owning Natwest, Ulster Bank)

    Halifax – Bank of Scotland

    Lloyds TSB

    Any others considered safe.

    Landsbanki who control Icesave seem to have been arounf for a while though.

    Reply
    Please complete the required fields.



  • David,
    I’ll look after your money for you.

    Cheers
    Denzil

    Reply
    Please complete the required fields.



  • I don’t want to have saved up waiting for a crash for all my money to disapear.

    Reply
    Please complete the required fields.



  • I was thinking the sort of Banks that the powers that be would not let fail e.g. as you said, LTSB, HSBC, RBS, HBOS, NatW the sort of Banks with a branch in every town. Like Uncle Tom said about ICICI it’s Icelandic and Iceland contrary to popular perception is NOT in the EU so if something untoward happened you might be out on a limb with regard to your money.

    Reply
    Please complete the required fields.



  • David, according to FSA Compensation you get the following
    0-2000 – 100%
    2001- 35000 90%
    35001+: 0%

    So you could divide you money among a few banks, that would firstly divide you risk.
    and secondly if any of them went bust you loose the least.

    Also remember it is the compensation is per person not per account. So if you have 2 accounts with the same supplier the rule does not apply individuallly per account but a sum total of all the accounts.

    Financial Services Compensation Scheme.

    Reply
    Please complete the required fields.



  • planning4acrash says:

    I think I’ll buy some gold bullion!!

    Reply
    Please complete the required fields.



  • planning4acrash says:

    How do you buy gold?

    Reply
    Please complete the required fields.



  • Enuii, ICICI is a very big Indian bank and ISave A/c is from the Icelandic bank.
    Both are covered by the FSA guarantee as is Natwest, HSBC, Barclays and even Northern Rock..

    Reply
    Please complete the required fields.



  • planning4acrash says:

    Surely there is a circumstance where the guarantee cannot be met? Also, can you insure yourself to cover all your savings?

    Reply
    Please complete the required fields.



  • Thanks for the correction Deepak, I’m an engineer by trade and would have thought ICICI would have had something to do with Imperial Chemical Industries a few months ago. It might be easier if it was common knowledge what banks/financial institutions were not covered by the FSA guarantee to ave the speculation by us mere mortals who know something is wrong with the overspent UK but can’t do anything about it other than try to minimise any damage?

    Reply
    Please complete the required fields.



  • More people are with the big UK banks than places like ICICI and Icesave, but the people behind both accounts have been around for a while.

    I resent getting rubbish returns on my savings though, Halifax is 5.30 while ICICI is 6.30, no brainer really.

    Reply
    Please complete the required fields.



  • Regarding buying gold.
    One Ounce Krugerrands or similar one ounce bullion coins can be bought from coin dealerships / jewellers.
    Many high street shops also have ebay stores.
    A one troy ounce Krugerrand is about £370 to buy, £350 to sell (to a jeweller, more on ebay). Changes every day with the gold price obviously.
    http://www.numis.co.uk/
    Coins are more easy to trade than small bars.
    Gold sovereigns are another option, as they are smaller, (£80 each at present). But the commissions make up a higher percentage of the price.
    Or what about shorting Northern Rock stock ?

    Reply
    Please complete the required fields.



  • ICICI: is Industrial Credit and Investment Corporation of India. It used to be business finance
    You can find there annual business results @ http://www.icicibank.com/Pfsuser/aboutus/resultsann/webcast.htm

    Actually if you look carefully all banks have it on there website. have a look @ http://www.icicibank.co.uk/ you will see it at the bottom in an image.
    For ISave have a look @ http://www.icesave.co.uk/about-us.html Check out the link under Good Practice: financial protection..

    Also you can check FSA @ http://www.fsa.gov.uk/register/home.do for the bank name and if they are registered and for what purpose.

    Reply
    Please complete the required fields.



  • I remember selling some Krugerrands in 1987 and got £200 ish for each one, this was 20 years ago. The same money in the bank at 4.5% p.a. would have made my initial £200 worth over £500 now so I’m still not convinced about gold.

    Reply
    Please complete the required fields.



  • off the top of my head I’d guess that the price of gold has nearly doubled in less than a year, so given your 1987 example above, I’d have stuck with the gold.

    Though I haven’t checked the figures

    Reply
    Please complete the required fields.



  • A couple of dodgy lenders going under doesn’t constitute a price crash. Demand for housing remains high, London’s annual growth will still be 14% by the end of this year. If everyone puts their money under their bed that will drop to 0%, in addition if people renewing mortgages can’t afford the higher 1-2% interest increase (bearing in mind the BoE will reduced rates) then we might get a 5-10% drop. That’s still pretty small bearing in mind that the past 5years have seen double figure increases year on year. The financial orgy that’s being discussed on these pages is out of proportion. Our housing market isn’t anything like the States, for starters our population density is almost ten times greater. And while in the states they were busy turning all available march land into Florida villas our building regulations have remained firm. Not only are we restricting new homes being built but also restricting conversions on current buildings. The government is keen to maintain consumer confidence and having learnt from the mistakes of the federal bank they will be sure to prop up failing lenders in the coming month.

    Reply
    Please complete the required fields.



  • “I remember selling some Krugerrands in 1987 and got £200 ish for each one, this was 20 years ago. The same money in the bank at 4.5% p.a. would have made my initial £200 worth over £500 now so I’m still not convinced about gold.”

    But with inflation your 500 pounds would be nothing compaired to what 200 pounds would have bought you twenty years ago.

    Reply
    Please complete the required fields.



  • Gold’s rise hasn’t been quite that dramatic…more like 30% in the last year.

    If you want to buy gold safely and conveniently, and have it stored for you in a vault, albeit with a 2% purchase premium (or thereabouts), google for “goldmoney”. I have about eight grand’s worth of gold and silver with those guys.

    Reply
    Please complete the required fields.



  • Lord D'arcy Pew says:

    Looks like Bradford & Bingley, Alliance & Leicester and Paragon are may need emergancy funding. http://www.thisismoney.co.uk/news/article.html?in_article_id=424388&in_page_id=2&ct=5
    If their books don’t balance expect more queues in the High Street.

    Reply
    Please complete the required fields.



  • It might be worse I suppose…..

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>