Friday, March 28, 2008

Oh this is nice!

Nationwide and Halifax put up mortgage rate to deter new customers

Two of the biggest mortgage lenders increased their rates sharply yesterday in an attempt to close the door to all but the most creditworthy customers. The move could lead to tens of thousands of borrowers struggling to get any mortgage deal at all. Within hours of Nationwide’s announcement, Norwich & Peterborough Building Society said that it was increasing its rates by up to half a percentage point. The move came as Britain’s best-known mortgage broker, John Charcol, was warned by its auditor that it faced a “material uncertainty” about its ability to keep operating after its investors put in an extra £1.5 million and deferred loans of £820,000. The auditors highlighted concerns that liabilities exceeded assets by £532,000. AHA HHAHAHAHHA HHAHAHAHH

Posted by confused76 @ 01:51 AM (2573 views)
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22 thoughts on “Oh this is nice!

  • Mikelivingstone says:

    “The housing market could be further hit by homeowners selling-up to cash in the value of their home, and renting until house prices fall. Nearly one in five home-movers plan to do this, a survey from iammoving.com showed. ”

    1 in 5 plan to sell to rent. Blimey. Though I think quite a few are too late.

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  • “one in 5 are planning to sell”. Better late than never? I sold in July 07. Prices in one particular house I’ve been watching have moved from £560k, to £540k to £515 and now £499k via 2 or 3 estate agents. Still not sold. I’ve seen it – nice, but symptomatic of this area. First to be pumped up, and first to deflate. We’re talking a leafy spot between Beaconsfield and Gerrards Cross. All of the agents around here keep on at me “we’re a special location at only 30mins from Marylebone, Heathrow 20mins” blah blah. I’m doing a confused76, and there’s a lot more price erosion to happen yet! Muahhh haha ahhahahahaahaah

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  • Materialistic Weasle says:

    One of my local estate agents had an Easter sale !!!!!!!????!!! Not sure about the financial mechanics of that idea

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  • uncle chris says:

    So, any IR cuts by the BoE will only benefit the big businesses that caused this mess, at the expense of the general public. What a world we live in, with the perpetraitors getting better treatment than the victims. Oh well, I suppose we don’t give as much to Liebour party coffers.

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  • Love the first comment underneath the article:

    “Wrong, Stephen. Buyers DO need to buy … the alternative is to throw money away on rent and see nothing for it. People have been forecasting a fall in house prices for the past decade, yet prices just keep going up and up and up.
    The more people rent, the higher prices will rise, due to the demand for rented properties.
    The choice is simple; to make landlords rich or to get on the property ladder FAST, before prices go ever higher.

    William, Scunthorpe, England”

    Throw money away on rent – Brilliant statement!

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  • Picture the scene:

    You finally come to realise that house prices are falling, you put your house on the market expecting to be inundated with viewings, one or two tentative looks, a few weeks later you reduce the price a litttle, one or two more viewings, finally someone offers a ‘silly’ price which you reluctantly accept, the chain is 5 people long – spread right across the country, weeks pass, each day more doom and gloom on the radio and TV about faling prices, the solicitor for someone 200 miles away is faffing about a boundary dispute on a shared drive which concerns the person selling to buy your buyers’ property and so you all wait and wait and all the time prices are falling……………

    – glad that’s not me!

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  • I’m intrigued by this statement in the article:

    Lenders cannot “cherrypick” customers, so the only way to curb applications and ensure that they have the most creditworthy customers is to raise rates and tighten lending criteria.

    This is news to me. Is it really true? I assume that it means that as long as you pass the credit checks and meet the criteria (LTV, etc), that they have to offer you the mortgage. If that is the case, then borrowers really are doomed. Mortgage companies will be in an arms race to raise rates above their competition to scare off borrowers?

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  • Don’t understand the comment in the article “Lenders cannot “cherrypick” customers”. What else are Building Society managers paid for ?

    A few examples from the past (1970s and 1980s)

    A building society manager who said he only ever had enough money to give out four mortgages a week. A whole day to assess each mortgage.
    A friend who was told he couldn’t borrow three times salary as he already had a car loan for a few thousand.
    A colleague who had the Building Society manager tell him what house to buy (he didn’t like the one the person wanted a mortgage for).

    It was a less risky system than five minutes talking to a call centre in India.

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  • Just realised I had forgotten the best one (although it was 1990s)

    Being refused Redundancy Insurance because you worked for Siemens

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  • Growler you are right.. Smart money gets out near the top, Lucky money gets out at the top and stupid money gets out past the top. This is especially true of property because – as Cornish alludes @4, in a downward market prices can just spiral down. As for the guy from Scunthorpe, I’d love to know when he is changes to a bear position and wants to sell. People that want falls need these type of blinkered individuals, when they realise they are wrong, then we will be close to a bottom.

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  • Spare a couple of minutes to work out how these increases will affect the BTL camp:

    Houses worth 200k
    BTL mortgages 150k
    Rental on each house £800 pm, but after voids, management and expenses, net income £6k pa
    Best deals on 75% BTL mortgage with typical 4.8% yield is now likely to carry interest exceeding £10k pa

    Annual deficit £4k per house

    Most optimistic forecast of HPI – zero

    Portfolio of 10 houses – so £40k pa shortfall – so need to start selling up

    Now, did that make your coffee taste better? 🙂

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  • This comment is interesting from below the article.

    “This is the mirror image of the NR stratagy.A fall of around 40% in UK house prices over the next 2 to 3 years is on the cards.Who’d want to buy anyway when you can earn a years salary by doing nothing?Some sellers need to sell,buyers do not need to buy.”

    So “you can earn a years salary by doing nothing” when prices drop and when they go up.

    Anyway, without thinking about the logic of both scenarios for too long and confusing myself, is there anyway that this price rollercoaster could be stopped ? Any ideas anyone ? Rely on collective buyer action is the obvious answer but that will not work because there are too many vested interests against a buyer.

    How about setting up a separate website which shows the actual value of what you are buying ? Break down the costs, bricks, labour and land as basics. The surveyor does this anyway when carrying out a survey, usually there is a valuation figure and in small print “Cost to rebuild this property = £xyz, usually a much smaller figure. I am serious, as it stands there is nothing that a buyer can point to and say, hang on, what you are selling is overpriced. But the market doesn’t work that way of course. The seller will say, I want so much and if you aren’t prepared to pay the price then I will find someone else that will.

    Just ideas, probably not great ones, but there must be some way to counter the VI’s all pulling in one direction to manipulate the markets. The one thing we all have now that was not in place in the past is real freedom of information via the internet.

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  • Unc Tom, fair point but to be a bit more balanced you need to know:

    1. WHEN they bought the property and what they are using to secure the debt,
    2. IF later purchases are offset by earlier (higher yeilding ones).

    The interesting thing is what will happen to rental prices, and to what extent BTLs that have “averaged” up are happy. Thats why you may see pockets of falls, stablising and then more falls as the less leveraged BTLs become – in effect – more leveraged. Of course at some point the yield will encourage people to get back in – where and when that will be, all other things being equal (eg no demographic changes, increases in unemployment etc) is the interesting part.

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  • I put my house on the market with a view to rent until conditions warrant a re-entry. Yes I left it too long as I now find I cannot sell even having reduced my price.

    A few important things to consider : My house is my home and not an investment. I am not a gambler That’s why my mortgage is affordable. I know people who sold in 2005 went into renting only to see the market go stupid again causing them to make rush decision on the purchase of their next property, finding themselves out of pocket.

    It’s not easy to call the top of the market. I will never gamble the future of my family.

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  • Fair point magnifico – sorry was really aiming that comment at the market “professionals” i.e. the BTLs who make their living from this. Its a phrase that comes from traders along with such other nuggets as “to average a loss is to compound stupidity”, ” you can lose a fortune waiting for the last penny(of a move) a penny isnt worth a fortune” and my personal favourite “picking bottoms gives you dirty fingers”. Good luck with your sale. And of course you are right – if it was easy to call the top of the market it wouldnt be the top.

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  • Techie,

    I was being quite conservative with my example – many BTLers are running mortgages that have much higher LTV’s, often using contrived valuations – the lenders are no longer blind to that game, making re-mortgaging impossible in many cases. The yield figure I used was also pretty buoyant, locally it’s around 4% for smaller properties, and less for larger ones.

    Basically, the party’s over, and those that don’t get out quick will get badly burnt!

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  • Uncle Tom – to follow on from your piece above, say the BTL bought for £150,000 with a 100% mortgage and house is now ‘worth’ £200,000 – if they sold [could find a buyer] now, they would be hit with, say, £4,000 worth of fees and £9,000 worth of CGTax. To get back in to the market at a later stage would cost another few thousand of solicitor fees and arrangement fees and stamp duty.

    It must be a difficult call since they could ride out a fall for a couple of years and still be better off – even with the losses. Mind you, they do have to find the cash in the mean time.

    I suppose it all comes down to how far the falls will be by the end…

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  • Uncle Tom

    You have missed one thing from your calculation

    £50000 x 5% in the Building Society = £2500 a year. Zero hassle. Almost zero risk.

    Even if a BTLer owns the property outright at current prices and yields the only significant profit is made from capital appreciation and if that goes ……

    :- Duncan

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  • techieman: But will people come back in to BTL as prices fall. The old professionals will always be there of course. But as for the rest it will be like the dotcom bubble – they lost money, sold up and vowed never again. Just as they once believed prices would never fall, they will come to believe the opposite.

    Interesting snippet: an estate agent once told me that her friends lost money on dotcom shares, so decided to put what was left into housing. Wise decision??

    As for house prices where I live in Estate-agent-ham, Surrey, the EAs are still pumping for all their worth, holding open days, etc. But one notices houses that have been for sale for a year (at exhorbitant prices, naturally). One place, in a “highly sought after area” is up for rent and sale. The annual rent equates to about 3.8% of the asking price. The rent photos were taken in the summer; the sale ones in winter, and the house now stands empty. What was that about a housing shortage?

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  • Cornishman

    You’re right – the BTL camp have loved to talk about being ‘in it for the long term’ so they didn’t have to worry about CGT, fees etc. However, it was always about short term greed, and the claim has always sounded hollow.

    The majority of the BTL ‘portfolio’ brigade have used equity withdrawal when re-mortgaging to fund new purchases and make up income shortfalls. Few will have much wriggle room to handle a downturn, so I expect many will feel the need to start selling, if if they would prefer not to.

    I think that while the HPI data remains in positive territory (if only 1.1%) many will be minded to ride out the storm if they can, but when the indices all go negative, and they start getting lower valuations when they attempt to re-mortgage, it will not only be a lack of funds that propells them into selling.

    I doubt we’ve seen the last of mortgage interest rate hikes, and bluster about passing it on to the tenants will not sound very credible!

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  • @techieman and magnifico

    I posted a comment to a later post. The sad thing is that we don’t learn in the UK. I moved here in 71 having lived elsewhere in Europe. My family over there struggle to understand the UK market and how extremely volatile it is and what causes it – since at the end of the day we’re not that far apart.

    I’m no gambler either, family first. But it was right palce, right time for me (this time!). I had to move due to a job move in June. I chose to rent as it was pretty obvious what was happening. I do feel sorry for those people having to sell for other reasons. And to be honest, I hold the financial institutions responsible. People are naturally gullible and the things that drive you to buy a lottery ticket (which is wasted money) is the thing that drives the housign market. Optimism and self-interest. Even if you’re a family man (as I am) you always think “have I done ok on the house”, “did I get out at the right time” etc etc.

    My view: It’s a house to LIVE in – and we should find ways to prevent the money makers from having the ability to abuse the market. You can’t blame estate agents and buyers from optimism and enlightened self interest. But you can regulate mortgage finance criteria and this is a big driver. I see it like a “money supply” issue with the finance men running the Royal Mint. Supply of housing stock is a red herring to deflect away from sheer hyperinflationary growth in the “residential property market money supply”. As any basic micro economist knows, an inelastic supply curve sees sharp rises and also sharp falls. In Germany – lending criteria doesn’t really change by much at all. Housing market as a result also very stable. Lets hope their mortagage industry doesn’t recruit to many fired UK executives.

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  • No probs Techieman, I didn’t think that what you said was wrong and not in the least insulting. You are quite right the top of the market is gone, all I’m saying is that it is difficult for a proper bear to put his money where his mouth is even when he knows he’s right.

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