Sunday, October 24, 2010

Still ramping

HOUSING MARKET IS SET TO FACE A PERFECT STORM

HOUSE prices are sliding again and George Osborne’s brutal spending review looks set to accelerate the market’s decline. Even before the Chancellor announced his £81 billion cuts, property prices were coming under severe pressure. The prospect of nearly 500,000 public sector job losses will make things worse by increasing the number of distressed sales. Last month mortgage lending hit its lowest level for a decade at just £12 billion, due to a shortage of finance and dwindling confidence, according to the Council of Mortgage Lenders. This followed shock figures from Halifax showing a record 3.6 per cent drop in house prices in September, the biggest fall in 27 years.

Posted by little professor @ 02:34 AM (2475 views)
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13 thoughts on “Still ramping

  • A somewhat schizophrenic style of wamping whereby a warning of impending doom is followed by a clarion call to buy. The rampers are clearly losing it!

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  • mark wadsworth says:

    Compared to normal Express output, I’d say that article is surprisingly realistic. Good to see those marginal mortgage interest rates of 14% making a re-appearance.

    i.e. 90% mortgage at 4.99% interest = £90,000 x 4.99% = £4,491 interest per annum
    75% mortgage at 3.19% = £75,000 x 3.19% = £2,393 interest per annum.

    Subtract one from t’other and you find that the extra £15,000 that the first person borrows costs him or her £2,098, divide that by £15,000 and the effective interest rate is 13.987%, call it 14% for sake of argument.

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  • “brutal spending review” ?

    No , that is what we will have to have in a couple of years time because the politicians dodged the issues now .

    Just like Ireland and Greece , you either summons up the guts to take care of it yourself or do a half job and let time and circumstances lead to even deeper cuts .

    People think think what happened to Ireland couldn’t happen here ?

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  • this article says it all, they have lost the battle

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  • The nations primary investment dissolves like sand, long over due!! For those who work hard and are unable to get a foot in. I would call this very good for all young families. I hope this makes people look at property differently! And maybe some of us can finally have a home!

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  • The article started off with a realistic assessment of the market and I was beginning to wonder why Little Professor used the ‘ramping’ word.

    “First-time buyers who are lucky enough to get a mortgage should benefit as prices start falling and property becomes more affordable but they are likely to be the only winners.”

    Because going straight into negative equity is for winners?

    “Shared equity is another option. The Government-backed HomeBuy Direct scheme, which helped those on low incomes onto the housing ladder, ended last month. But a number of property developers, including Barrett Homes, Taylor Wimpey and Crest Nicholson, offer their own shared-equity deals.”

    Shared equity deals are a sure sign that you cannot afford to buy.

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  • To be honest I’m really surprised to see 90% LTV mortgages around at the moment.

    These will almost certainly go underwater within the next 12-18 months.

    Does anyone know if the lenders of these products are ‘selling them on ‘ or if they’ve taken out some sort of insurance policy to cover negative equity defaults ?

    If the rumpled of very low interest rates until 2014 are true then they may survive without too many defaults, but with all the problems out there I wouldn’t be placing any insurance policies in that direction.

    But I’m careful and prudent so what do I know.

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  • Arghhh – who programmes predictive text on I phones to think ‘ this chaps just typed rumours, he probably means rumpled’.

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  • Little Professor says:

    Yeah, the first half of the article was very negative, but then unsurprisingly they go on to say now is as good a time to buy as any, and talk nonsense about gifted deposits and shared equity schemes that were responsible for the distorted market in the first place.

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  • “First-time buyers who are lucky enough to get a mortgage should benefit as prices start falling and property becomes more affordable but they are likely to be the only winners.”

    What about buyers who are trading up. They also benefit from lower prices as the gap gets smaller!

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  • mark wadsworth says:

    STR; “To be honest I’m really surprised to see 90% LTV mortgages around at the moment. These will almost certainly go underwater within the next 12-18 months.”

    1. The extra interest rate on the bit of the loan that takes you from 75% LTV to 90% is at least ten per cent more than the overall interest rate, let’s say 4% on the first 75% LTV and 14% on the rest, bringing you to an overall average rate of 5.1%.

    2. So the bank’s gamble is as follows: I can lend out an extra 15% LTV – say £15,000 – for extra income of £2,100 per annum. In two years, I will have earned extra £4,200. If in the next two years, a quarter of these loans go bad, I am still ahead of the game.

    3. Obviously the maths at step 2 is far trickier than that, but there is a trade off. Banks can charge 25% or so for entirely unsecured loans like credit cards, on which the default rates are very high. If they can charge 14% on not-quite-so-high-risk loans, why wouldn’t they do so?

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  • You seem to have the hang of this MW.

    So offering savers 3% on savings, will our new Internet bank be profitable ? !

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  • Phils

    And don’t forget mums and dads not having to dip onto their pension funds for offspring deposits.

    So in actual fact, everyone’s a winner. Oh except BTLers and Banks. Boo Hoo. What are we waiting for?

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