Saturday, September 15, 2007

Now its more of a commentary on which bits of the market will suffer worse, rather than a debate about whether or not a crash will happen. About time!!

Lenders shy away from riskier properties

“People trying to buy properties that have traditionally been hard to get a mortgage on are now finding it nigh on impossible. The worry is that these properties would fall furthest in a (the) crash.”

Posted by planning4acrash @ 09:18 AM (635 views)
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One thought on “Now its more of a commentary on which bits of the market will suffer worse, rather than a debate about whether or not a crash will happen. About time!!

  • When mortgage lenders are confident that house prices will rise, they compete with each other over income multiples and LTV rates to win business, confident that if the borrower defaults, they will eventually get their money back.

    This, of course, raises the amount that people can borrow, propelling house prices further upward

    Now that they are no longer confident that house prices will rise, they are more cautious, so the amount people can borrow is falling.

    To that add the current credit crisis, which is forcing up rates, and demanding increased caution over lending policy, reducing further the amount borrowers can afford.

    This lack of affordability, in a market where huge numbers are already priced out (resulting in around 20% of property being bought by speculators) looks set to have a much more rapid effect on house prices than I previously thought likely.

    Once people believe that house prices are really falling, there’ll be no stopping it. The speculators will stop buying and start desperately trying to sell, The FTB’s who were anxiously trying to ‘get on the ladder’ will sit tight and wait for the market to bottom out, and the mortgage lenders will all but shut up shop – demanding low income multiples, low LTV’s and high interest rates.

    The secondary effects (which are now being felt in the US) include the drying up of equity withdrawal, and consumers starting to save, as they no longer trust their house to provide a pension – putting a huge dampener on the economy, and provoking a recession.

    Personally, I have my eye on a lovely old cottage, where the occupant recently died. The solicitor acting for the estate thinks it’s worth about £450k – I’m ready to step in at a third of that…

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