Saturday, September 8, 2007

Abrose is the man

British house buyers should worry

This is not a repeat of 1998 and the easy trade-off between growth and inflation is behind us says Ambrose Evans Pritchard

Posted by sold 2 rent 1 @ 12:36 AM (1158 views)
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6 thoughts on “Abrose is the man

  • Great quote

    “By early this year, money was growing on trees. Interest “spreads” were compressed to levels never known before, so even recidivist defaulters in Latin America could borrow cheaply.”

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  • japanese uncle says:

    “British house buyers should worry” is quite misleading, isn’t it? Let us make it sparkling clear.

    “Those who were stupid or desperate enough to have bought houses during the last five years should worry.” while ”those who are thinking about buying” have every reason to rejoice, as they can avoid personal financial meltdown by delaying their decisiont, and will most probably be able to enjoy the giveaway house price in the future.

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  • When market elements distort in one direction, to such an extent that they suddenly and rapidly correct – a crash – they almost aways overshoot in the opposite direction before settling down.

    Thus we have a crash centred on credit being made too cheaply available, and too casually offered.

    We will now see an opposite swing of credit becoming over-expensive (the central bank rates are already side-lined) and offered with excessive caution.

    The immediate consequence for home-owners is that the mortgage lenders at the riskier end of the scale – Northern Rock, Kensington etc.. – will put their ‘default’ standard variable rate (SVR) into orbit. They’ve already bumped these rates up, and they havn’t finished yet.

    No big deal, hardly anyone pays a mortgage at this rate (now) because when their fixed rate deal runs out, they remortgage rather than pay the SVR.

    Problem. The increased caution with which money will be offered means that many people on ‘fixes’ at the moment will be unable to get a new deal when their fix runs out.

    Prediction:

    In 12 months time there will be a significant number of home owners who will be paying twice as much mortgage interest as they are today. This may include some BTL borrowers.

    (or to be more precise, will be charged twice as much – many will be unable to pay…)

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  • Uncle tom; to add to your comments, what is the average mortgage these days, £100K minimum I would suspect ?

    Just check out a mortgage repayment calculator online, put in some high interest rates & the repayments are sky-high.

    There are many people who will suffer serious finger burns……..

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  • A useful article for anyone who hasn’t looked at this website in the last 3 months. Interesting because now the mainstream press is saying what was said here around 6 months ago.

    As for a remedy, the Fed could have dropped interest rates sooner to lessen the pain, say some notable professors from Wharton to Maryland. They are now saying publicly what they said in private 2 months back. So expect a US rate cut next time around. This should stop the rates going high enough to prompt wholesale reposessions.

    This will force the UK to drop their rates pretty quick, I think.

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  • voiceofreason says:

    speculatorone, my mortgage broker friend averages £160K at present. Though he does have a lot of high earning clients.
    Especially city employees who borrow e.g. £500K on say £80K pa, but rely on a £80K bonus to meet the interest payments….

    JU @2, while I would love to see your predictions become true, being short on property myself (as in I only own the one house in which I live, as a good old fashioned owner-occupier).
    But one (naive?) way of looking at inter-bank lack of liquidity is as an over-reaction to to the sub-prime issue, and once it is discovered who is holding the $100bn or so toxic waste, then business may well continue “as usual” because $100bn isn’t enough to cause a wider slump. Central banks will lower IRs and can probably minimise the amount property falls in order to “protect the financial stability”.

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