Sunday, June 13, 2010
Bank funding arrangements
Volatility returns to property financing, say Savills
"The cost of unwinding interest rate swaps – which are set at a fixed rate for a period of time - was preventing banks releasing a flood of property onto the market," . There are a few articles about this around. I think (but stand to be corrected) that this is the bank version of; a mortgage holder on a fixed rate(about 6% say) back in 2009 being unable to refinance to take advantage of lower rates because locked in or early redemption fee. Or, bank funding was locked in before Mervyn dropped the rate
Posted by stillthinking @ 10:17 AM (1272 views)
5 thoughts on “Bank funding arrangements”
Add a comment
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
stillthinking says:
Another thought came to me concerning transparency in housing prices. If somebody has taken out a 100% mortgage on a house which originally cost 200K, then if they don’t sell then hard to see the value. But behind the scenes the debt is being sold by the bank for funding. Lets say that the bank is desperate for funds instead of having the BoE step in with guarantees, lets say that they have to raise funds. In a worst case scenario they might have to sell that debt for 100K (like a very bad US mortgage), in which case the buyer either makes 100K profit because the debt is successfully paid off, or if the mortgage holder walks off or defaults, ends up with the property, which cost them 100K.
So my thought on this, is that irrespective of what is happening in the estate agent windows, the real market value of a house is the estimated recoverable amount, or the value of the debt. Unfortunately all the mortgages are bundled up and then further sliced into tranches so it doesn’t seem to be possible to do this on a house by house basis. That aside, if you accept that the bigger and more sophisticated the market place, the more accurate the price, then the average price of this kind of debt is a proxy for expected house prices. Apart from the fact that the banks don’t have to raise open funding because of the BoE.
Which means one more perfectly reasonable accusation of price fixing against the BoE. But in a two years or so either the banks repay the 300 billion to the BoE or this gets added to the national debt.
My conclusion is that buying debt (providing funding for debt) must be cheap and going ahead even cheaper, as represents the only accurate way in to get a proper valuation on the current facade of high prices presented to the consumer, and that the BoE and various governments such as Spain and the US, are attempting to hold back asset price collapse at this background level, which is why there is nothing really occurring on the consumer facade. Additionally, passing repossession laws and restrictions on getting the house after default is really something to drop this debt price even further.
Therefore (!) for savers to get a good deal, rather than placing their money in A) a gov. guaranteed bank saving account, they would or will be much better placing their money in B) bank funding which is secured.
simon68 says:
To: stillthinking
Everyone is now waiting for the first blood to be drawn in Europe……………..(case 1) Greek/PIIGS defaults on its national debt………………(2) German & French say its enough we won’t bail out PIIGS anymore, we decide to retreat and resurrect German Mark/Franc.
No foreigner is such stupidity to keep on lending to a debtor where the subject debtor can’t enough service the debt interest to the lender.
Interest rates for both banks and sovereign debts can only go up in future years in Europe (of course except Germany and France) or witness Euros and GBP collapsing and inflation rocket rising.
fallingbuzzard says:
@2. Point 1 – you don’t need foreigners to finance UK debts, even if the BOE stops buying. point 2 – foreigners only have limited choices so a crappy option is sometimes the best of a bad bunch. After all, there’s only so much gold, silver and potash around!
simon68 says:
http://img535.imageshack.us/img535/9095/bestul.gif
http://img156.imageshack.us/img156/4027/worst.gif
But the market confirmed that US Equities and Asian emergent stock market is the best place to part your money and UK Gilts is the most crappy investments in the world.
fallingbuzzard says:
@4, was