Friday, May 21, 2010

Can someone else give me money so I can lend it recklessly or I’ll go bust

Funding gap causes mortgage lending to dive

Outrageous. Having frittered away real cash on stupidity, they now want more cash so that it's back to the old ways. Loser: buyers, followed by us all again in teh ensuing bailout

Posted by growler @ 11:59 AM (2795 views)
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18 thoughts on “Can someone else give me money so I can lend it recklessly or I’ll go bust

  • gone-to-colombia says:

    It´s over.
    There is nothing that can stop a crash now.

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  • “However, the CML, which is the trade association for the residential mortgage lending industry, added that a funding gap between what banks wanted to lend and what they can afford to was set to worsen in the next few years as support schemes such as the Special Liquidity Scheme are withdrawn from next year.”
    So lenders want to lend more than they can afford to and borrowers want to borrow more than they can afford to. Just how thick do you have to be to still think houses aren’t overpriced?

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  • Everyone in the UK has a heavy mindset that house prices go up. It’s going to take a long time to turn that ship around, but it will happen. The UK is in bad shape, but not much pain has been feel yet by the average person compared to what’s coming.

    The government is going to try to support the housing market at the tax payers expense. I doubt they will have any means to do so without firing up inflation, which will erode housing prices anyway

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  • I suspect part of the squealing is because the BOE issued it’s trends in lending report today and one of the things that came to the surface is that the BOE suggest that as many as 1.5 million borrowers had less than 10% equity in their home as of March thus the need to keep the party going or the bubble inflated as some prefer to call it.

    More detail including access to the report @ http://www.mortgagestrategy.co.uk/economy/news/15m-have-less-than-10-equity-in-their-home/1012151.article

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  • “But we still do not know how the incoming Government plans to address the funding gap looming over the next few years in the mortgage market”. Well, letting the market find its own level would go some way to solving that one. Wonder why they never thought of that?

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  • No lessons have been learnt – yet.

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  • It’s the front of the CML that amazes me. I’d be embarassed to say something like the “business case is that we shoudl not lend anymore, but in order that we have an industry, could the government carry on giving us lolly to feed the gravy train with.”

    If it was a company, it would be “if you can’t make it work, tough”. Just ask LDV and Rover.

    Given all the cr#p the country has to face, the wage freezes, the cuts – all of which I accept we might have to suffer – I put the comments I find it just incredible.

    I don’t think that the Coalition would have the balls to actually fund loans for house purchase when there is so much need for money in productive areas.

    I also think…. here comes the HPC. Now lets wait and see where it ends. Where is that bubble/denail curve again?

    Maybe interest rates will have to go up. Time to move the money and watch HPC on TV like the OJ Simpson Trial!

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  • srt 2007 – or they know what the lessons are but won’t act on them.

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  • Icarus: I actually think the coalition will not want to inherit the bubble buy funding it. If they are seen to continue promoting the bubble, all the misery that will SURELY follow will become the fault of the coalition. They’ve helped here and there – but this still falls under “help” not “promote”. The best result for them is to have a small HPC and then a period of flatline that they can firmly pin on B squared (Brown and Blair)

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  • mark wadsworth says:

    Icarus quotes the killer line. That “only 25 per cent” refers to a cool £300 billion of taxpayer-funded mortgages.

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  • gone-to-colombia says:

    Two years ago it was an option for the government to keep the bubble going, there is no longer any cash to do that.
    I suspect that all the present govenment will be able to do is offer a little steering to a boat that is heading towards a waterfall.

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  • I think the lenders know the party is coming to an end and whilst they will look to make cost cuts for efficiency purposes I also think they are preparing themselves for a prolonged drop in volume business – note yesterdays post by Mark on Newcastle BS and in addition Nationwide has confirmed plans to move from six processing centres to two, resulting in the closure of centres in Birmingham, Chester, Doncaster, and Newcastle (Source http://www.mortgagestrategy.co.uk/lenders/news/nationwide-to-shut-four-out-of-six-service-centres/1012088.article)

    If you really want to get the blood boiling however have a read of this article – “Nationalised banks should be forced to offer sub-prime” http://www.mortgagestrategy.co.uk/specialist-mortgages/sub-prime/news/nationalised-banks-should-be-forced-to-offer-sub-prime/1011945.article

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  • The real house prices chart is looking very much like we are at the ‘back to normal’ phase on the infamous bubble graph.

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  • Perhaps if the government were to encourage savers (by offering higher interest rates) the Building Societies and Banks might have more cash to lend. At present, there is a big incentive to take your cash out of your account and spend it on anything which might keep its value when inflation bites.

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  • growler 8 – I think this goes beyond housing and HPI. It’s difficult to dismantle a house of cards in an orderly fashion. The economy has long been held up by the ‘private Keynesian’ policy of getting the private sector to borrow and spend on the back of its paper wealth.When that system collapsed governments switched to public Keynesian policies. Much has to do with the banks and the preservation of their capital/asset base. The official story is that if asset prices decline banks will have less/no capital, there’ll be less lending and a general downward spiral. See how the Fed is doing everything to provide the liquidity to support share prices – keeping down IRs, QE and not auctioning any of the the MBSs it bought from bankrupt banks for fear that such an auction would drain liquidity and hurt shares. And the US government, like ours, IS the housing market, supporting a massive asset class.

    The unregulated and undercapitalised shadow banking system cranked out huge amounts of credit with little capital behind it. Since excessive leverage (most financial innovation is designed to hide the amount of leverage in the system) drove the financial system over a cliff there have been massive liquidity problems, which help to explain the 6th May slide on NY exchanges. The chickens are coming home but policy is to keep them at bay to support the banks.

    Banks are wards of the state, have no money to lend out, and are useless. Pretending otherwise means keeping the balls in the air for as long as possible.

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  • He who laughs last isn’t holding an over priced illiquid asset in such uncertain times…

    Houses are back to 7x income and people are baffled why there are fewer saps out there rushing to buy them.

    Where are the bulls anyway? Since the bubble graph is looking to make that final deathly turn they seem to have all gone quiet.

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  • mark wadsworth says:

    Good point, Mr F. We haven’t heard from Greenbay for a year, and Smugdog hasn’t dropped in to say “Buy on the dips” or anything.

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  • tenyearstogetmymoneyback says:

    I agree with Alan (although I don’t think any Government intervention is needed).
    Offer 8% ish to savers and the institution doing so would quickly have more money than they could possibly lend out
    (unless they were really silly and started doing so at a lower rate than they were offereing to savers).

    The expression that really annoys me is the “Banks won’t lend to each other” saying that keeps getting repeated.

    Firstly what they mean is foreign banks won’t lend to the U.K. (because they now have more sense).

    Secondly why should it be necessary for banks to lend to each other ?
    Do you really think that the likes of Bristol & West Building Society needed to borrow from other banks ?
    I have read their history and their expansion came from taking over smaller societies along with all their savers.

    It was actually quite sad in that the article was written just a couple of years before they themselves were
    taken over my Bank of Ireland who disposed of the undesirable savings side and just borrowed the
    money to fund mortgages from elsewhere. No wonder they no longer exist.

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