Monday, September 17, 2007

More Greenspan, it’s rich as he caused it!

Homes heartache on way, warns banker

Britain is more exposed than we (USA) are - in the sense that you have a good deal more adjustable-rate mortgages," ..... referring to the standard variable rate loans that many households have chosen over fixed-rate deals.

Posted by auntie @ 10:17 AM (1969 views)
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29 thoughts on “More Greenspan, it’s rich as he caused it!

  • also sold to rent says:

    Yes, but we didn’t cut rates to 1% did we. Going from 1% to 5% is a lot worse than going from 3% to 5%.

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  • yes but we did offer 10x salary and 125% mortages and self cert lie about your earnings mortages – so i think he is spot on. Also UK house prices way more over valued than those in the US which at worst was 6x salary so on that basis we are 50% worse off!!

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  • also sold to rent says:

    @waitingfor
    I totally agree. My comment was aimed only at the “UK has more ARMs than US” comment. The amount of AMRs is not that relevant, it’s how much rates move, which for the UK is not a lot compared to US. However, we do have all the junk lending that you cite, which is probably just as bad as the US.

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  • I disagree on our Junk lending. Alot of self cert is for people with cash who cant prove their income and hidden BTLers. In the US they reckon that sub prime is almost 25% of lending in some states and to some really very questionable covenants. In the UK it is 10% and if half of those are BTLers then unless the rental market completely crashes which is less likely than a burger flipper losing their job in the US then I am not as worried.

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  • Maddison,

    I think the self cert was originally intended and originally used for the type of people that you describe. however my understanding is that borrowers who don’t fall into the category that you mention have also been using it as a way of getting mortgages for very high income multiples. The mortgage brokers and the lenders are of course not stupid and can read between the lines in that many borrowers are not telling the truth, but by the fact that the borrower is certifying certain facts, this legally means that the lender doesn’t have to check the facts and can thus remain blameless.

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  • tyrellcorporation says:

    BTLs always cite ‘being in it for the long term’ – this mantra is about to be severley tested!

    I’d be cacking myself right now of I had a highly leveraged portfolio of properties. I’d be straight down the EAs and stick the lot onto market – although they’ve probably missed the boat already!

    Over the last 12 months I’ve seen a succession of large student occupied terraced houses coming to market in Exeter. This exactly mirrored what happened in about 1989/90 when the world-wise pro landlords saw the bubble signs and sold at the top. At the same time, idiot shamateur landlords were still piling in – it’s basically history repeating.

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  • Myself….I sold up all interests and moved to Switzerland.

    How do I feel now? Oh so so happy. Northern Rock is on the slide. House prices are falling. My sides are splitting from the laughter.

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  • There are lots of people at fault here so I think it is not fair to say that Greenspan caused the problems. This implies that it was greenspan alone.

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  • Maddison – You Are Wrong.

    I am 30 years old – and all and I mean ALL my friends have sef cert mortages and 100% + borrowed. And ALL at multiples of 6x at least – and on top of this about half used a credit card for all other purchases like carpets , kitchens, etc etc.

    We have a MASSIVE problem far worse than the US. I have been at BBQ parties where all they talk about is the PROFIT in the house and what they can spend it on.

    A friend recently bought a £275K property in London – he was lent 305K, with no deposit, and he earns ……. £20K. He lied about his mortage and is dependant on a lodger for the second bedroom. But he ignored my advice saying ‘ i must get on the housing ladder – prices will never come down they will only go up’.

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  • tyrellcorporation says:

    Waiting… This is my experience of friends too. they have piled in with income lies, eye-watering multiples, ridiculous exuberance and irrational expectations. I can’t see a happy ending for these folks.

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  • Gordo knows that the UK economy is dependant on houseprices rising for ever, he will do all in his power to stop a houseprice crash. Expect extreme pressure on the BOE to drop interest rate from the government, this may buy the housing market some time but the end result will be mega inflation in the winder economy, then expect wild swings in interest rates as the government trys to control deflation in the housing market and inflation in the wider economy. Eventually they’ll give up on the housing market to save whats left of the economy/Sterling and ratchet rates up to double digits.

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  • @waiting – your friend is probably right about prices only going up. In the bizarre world of NuLabour, rising house prices are seen as an achievement and they will no doubt lean on BoE to try and keep it that way.
    According to the Housing Green paper: “Since 1997… homeowners have seen the values of properties increase….all this has been achieved in a climate of economic growth and stability”

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  • C'mon Correction says:

    I would also agree with waiting… most of my friends are heavily in debt with little or no equity and are borrowing in the range of 4-7 times JOINT income.

    The UK housing market is much more over-valued relative to earnings than the US and virtually all our mortgages are variable rate (2-3 fixes don’t count). Boom and Bust Britiain again, only this time it’ll be even bigger under Nu Labour because they have slowly been killing business over the last ten years and we’ve got little to fall back on.

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  • Nosignofdavid90210 says:

    A colleague of my girlfriend recently (two weeks ago) completed on a house purchase – the house price was £160K – the woman is only on roughly £22K (depending on her quarterly bonuses), her boyfriend an unemployed chef – she had to borrow from her parents to cover the Estate Agents Fee and Legal Fees.

    The mortgage is an Interest-Only mortgage.

    The house is located in Shoeburyness (not exactly a Prime Location, ask anyone is South-East Essex).

    If that mortgage wasn’t Sub-Prime then I don’t know what is.

    The funny thing was this woman looks down upon my girlfriend and myself because we don’t own a property.

    Well, she won’t “own” her property soon, it will be at an auction house.

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  • Mr Mickey – the markets are probably expecting this which would explain why sterling is dropping a block this morning.

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  • It is way too late for any IR cuts to have any effect whatsoever….

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  • I totally aggree with waiting4hpc. Anyhow, all this talk of ‘sub-prime’ is a diversion. The market is well over valued and plenty of ‘prime’ borrows are up to their eyes in dept. I’m dreading the times ahead, things are gonna get nasty

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  • I am interested in waiting for HPC friends very much as I am amazed that the bank would lend that much unless the earnings prospect is good ie professional, doctor, dentist, lawyer, architect, ( i will leave banker out of it for the moment Ha!)

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  • dohousescrashinthewoods says:

    6. tyrellcorporation, exactly. A colleague at work tells be his EA mate says he has never seen this before – people coming in with a portfolio of literally 20 properties and instructing the whole lot to be sold. This was supported by the posting the other day about BTLs cashing in. If this is indicative of the market, we could literally see prices plummet before Gordon can pull a press release out of his over-stuffed a.. (well, you get the picture). It could happen with such speed and ferocity that no one has time to save it.

    If prices suddenly drop, there won’t be a chance for people to escape negative equity. Bear in mind that in the last crash people had equity, these days there’s MEW, so even some long-standing owners will hit NE. If BTLs are dumping, expect shoddily-built cheap-and-flimsy 250K “investor” flats to hit 40K in a flash. Presumably 3-bed terraces will take longer but as the rot suffused through the economy starts pouring out of the woodwork, they too will head back past the long-run average.

    Either that or GB hyperinflates to keep the numbers the same but hides it under the CPI.. Oh, you mean that’s what he’s doing already? Well I never.. I would vote for him to make him eat his own mess, but frankly the last person I want managing our forrest-fire of an economy is an arsonist.

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  • What chance the UK hyperinflating, now, then?

    I started following this website 18 months ago expecting a bearish 10-12% drop in House Prices – I was wrong.

    What I may be seeing now is the UK’s flagship export, the finance industry, holed below the waterline and the whole economy going south !

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  • Interesting a run on the banks to withdrawal cash coupled with a run on EA’s to off load BTL portfolios. Sounds like speculative bubble going pop. But how can this happen, wasn’t property expected to raise 40% in the next four years just a couple of weeks ago?

    Worrying for GB but how long before we see the true economic miracle of a large % of electorate with massive NE and living pocket sized 2 Bed, 2 Bath, card board wall flats…sorry “Luxury Appointed Apartments”.

    On the +plus side if they hyper inflate, it will make the balance of payments due on the PPP initiatives allot smaller, hell they might be able to pay it off with those new £500 notes.

    However I do hope BOA hold their nerve a bit, a funny image is Merv turning round to GB and the large banks and saying. “It doesn’t work like that!” or “The computer says no!”.

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  • Waiting

    I have 3 close friends each brought their houses around 1996. For around 60k I had been thinking they had done so well for themselves over the years. Until recently i found out that due to equity withdrawels not one of them has a mortgage for under 120K. but they have lovely furniture in their house’s, 07 plate cars and great sun tans! although I can’t see many exotic holidays for them for the next few years. I believe the fun is coming to an end as all of us have been expecting. And I too don’t believe these 3 are the only ones.

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  • dohouseprice….the news about BTLers dumping portfolios en masse is major. Which part of the country if I may ask?

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  • Cyril…do you really believe they can do anything meaningful now? Sure, a huge drop in the base rate might save the day, but what is the real scope for that? Certainly 0.25% points cut is not gonna make the difference this time. Anyway I reckon it really has got to the stage where it’s out of their hands, because it’s the tightening of lending criteria that will stiffle demand now, as all the people keeping the market afloat by taking on loans they really shouldn’t have been able to get will now be unable to get finance.

    Not just for new buyers either. If you took out a 125% loan recently you are already in negative equity. If house prices even “stagnate” (which I think is a ridiculous suggestion if you factor in even a basic knowledge of market phsychology) then you remain in negative equity. If lenders such as Northern Rock can’t/won’t lend these sort of mortgages anymore (already happening) then you are stuck – you can’t remortgage to a cheaper deal if you are struggling, and you’re looking at paying the ridiculous SVR when you’re fixed deal expires even if you can make ends meet for now. How many people have taken mortgages on terms (small LTV, high ratio to earnings, small ratio of rent to interest payments for BTL, etc) that are now going to dissappear from the market place, leaving them unable to switch to find a cheaper deal rather than pay the SVR? It’s not going to be pretty.

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  • waitingfor hpc says:

    My friend works in telephone marketing and is in far from a safe job – he was even talking about trying to buy another one. I have another friend of the family who earns 12K per annum and has 2 BTL properties!!!!! – Mad, totally mad.
    I also have friends driving BMW, AUDI cars all out of house money and have lost count of the exotic holidays they have been on!
    I was at the boat show Saturday and met a couple in their 40’s that are planning to ‘sell the house buy a boat to retire & live on in Spain’ and it struck me that without housing the nation is BUST already.
    All this economy is built on sand and the sand is shifting, it will be very interesting to see what is left underneath.

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  • Dugmug and Cyril.

    Drop in rates. Well agree that quarter percent at most might be possible. but this would be very economically unsound as inflationary pressures are building. There could really be sound argument for interest rate rises, but this will just kill consumer spending and fasten up the drop in the property market that lies ahead. UK is really between a rock and a hard place. The UK is in the position that if you reduce rates to solve one problem this will just have an adverse effect on something else ie inflation. If the government takes the option of inflating its way out of the problem this will just be areturn to good old Labour with high inflation – and its already starting to feel like a return to the old days with lots of the unions all
    planning strikes.

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  • “…wasn’t property expected to raise 40% in the next four years just a couple of weeks ago?…”

    I always check my sources. What was Will Hutton saying and has been saying since the early part of this year at least?

    Methinks you may have been paying too much lip service to the likes of David Smith.. and the people who blog on his and it may have been better to have realised that (1) They can show at times a fundamental lack of economic understanding and (2) when someone tried to argue with them they stopped them blogging on that site.

    That is the currency of an opinion that may be misinformed…

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  • dohousescrashinthewoods says:

    23. Winnie: South London/Surrey I believe.

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  • 2 weeks ago: a mystery figure makes short call on the EuroStoxx50.
    Now world renown economist Greenspan says prices certain to fall.
    Pretty shrewd, huh ;-P

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