Saturday, October 10, 2009
Blow for sellers
As a reminder, 20K deposit at 10% LTV represents 200K funding for a purchase. At 15% LTV for 20K deposit represents ~133K funding for a purchase. Either prices will drop or deposits must rise, if deposits rise to compensate then an additional 10K must be saved (30K deposit). For 50,000 transactions/month, 500million must come out of UK consumption, or 6 billion/year. This doesn't sound like much but of course the overall effect on the economy is many many times worse (Peter buys a beer from Paul, Paul uses the money to buy ciggies from Sam, Sam etc), because the initial transaction is lost. Higher deposit requirements are deflation in themselves. Although I was surprised because I thought all the 10% ltvs were already gone.