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UK Property Market Stagnating


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Maybe I am missing something here but......surely -ve equity only matters if you want  / have to sell?  If you are happy(?) to pay your mortgage today then just what difference does it make if your house is worth more or less than last week, last month or last year.

The telegraph article says..... "These areas are most susceptible to a fall in house prices and people

face having their homes repossessed or may find themselves unable to

move or take out a new mortgage."

I really dont get this, "people face having their homes repossessed" - only if they dont pay the mortgage, which presumably they have been paying for a period of time.

"may find themselves unable to move" - dont move then, its not compulsory.

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[quote user="powerdesal"]"may find themselves unable to move" - dont move then, its not compulsory.

[/quote]

Ah but most of the current mortgage generation would regard it as a "right" together with being able to borrow huge multiples of imaginary salaries totalling more than 100% of the property values, remortgaging for cars, holidays, breast implants etc.

An earlier poster said that the French system of borrowing not more than 70% of house value with a maximum of 30% net salary as repayments seemed much more sensible. I often say that I like France as it is like Britain 3 years ago, well back then the UK lenders had similar sensible criteria, before they all decided to try and poach each others customers and high risk borrowers.

I cant see many French householders having their houses repossessed as a result of falling values or even elevated interest rates as they would still have sufficient remaining net salary.

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>>Ah but most of the current mortgage generation would regard it as a "right" together with being able to borrow huge multiples of imaginary salaries totalling more than 100% of the property values, remortgaging for cars, holidays, breast implants etc.<<

Time they woke up then - 'rights' bring responsibilities.

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No "Expert" thus far has seen fit to comment on two somewhat hidden realities in all this!

The first and probably most important is that since the current wave lending model is predicated on sourcing the vast majority of funds from primary commercial sources, rather than private investors/depositors, as the current borrowing matures and is "called" by lenders (lenders in the interbank and commercial markets have the right to demand repayment of their funds when the agreed period of lending expires, or "Matures"), where precisely are these gung ho mortgage outfits going to go to replenish their funds?

Since they cannot raise funds for new lending; then they certainly can't raise funds for any existing lending which has not been "Securitised"!

Plus, they borrowed when rates were much lower: thus they have broken the primary rule of safe and prudent banking: borrowing short to lend long.

This New Wave securitised debt model, won't work in the forseeable future either, as investors will fight shy of investing in secondhand debt, rolled up in nice dodgy packages!

When the market does stabilise, then mortgage lenders will have to address other sources for active funds: where??

The second hidden reality is that most mortgage deeds reserve the right of a lender to call the loan at any time by serving 30 days notice of intent: no reason or default necessary.

Since ownership of the debts has now passed through any number of hands, householders may well find in the near future that an investor in Jakarta is demanding their money back, as they bought the Security Backed Assets at discount in a distress/delinquent debt sale!

Asian investors aren't too concerned with causing social privation or injuring the nice British economy over much.

There is a lot of pain and unwinding still to come in this total fiasco.

 

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Perhaps if a little time had been spent in school time to teach basic living expenses,we wouldn't be seeing so many of thses problems arising. The criteria today seems to be get a partner,2 wages,see how large a mortgage we can get on our joint income.Buy a one bed overpriced box,have a baby, then discover that 3 can't live on one wage.Then no-one told us about council tax/water/electricity/sewage/phone /internet/sky/car tax/house & car insurance, oh ,and food/alcohol/nappies etc etc. The advice dished out now seems to be,don't work,get in the benefit system,have a baby ar regular intervals and the state will pay everything for ever.No worry.

We can see both sides as we have family at both ends of the spectrum. The one breeds like a rabbit the other working all hours to keep house and her one child together. Unless the UK government starts sorting the scrounging society out it can only get worse. Most families who get into this state supported life will never work as it doesn't pay them to and in many areas there are now third generation dole merchants.

This poor girl Shannon's family seems an example of what the UK is now breeding. 7 kids.5 fathers. Another affair.probably another child on the way.What an example to her family.

Regards.

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[quote user="Gluestick"]

No "Expert" thus far has seen fit to comment on two somewhat hidden realities in all this!

The first and probably most important is that since the current wave lending model is predicated on sourcing the vast majority of funds from primary commercial sources, rather than private investors/depositors, as the current borrowing matures and is "called" by lenders (lenders in the interbank and commercial markets have the right to demand repayment of their funds when the agreed period of lending expires, or "Matures"), where precisely are these gung ho mortgage outfits going to go to replenish their funds?

Since they cannot raise funds for new lending; then they certainly can't raise funds for any existing lending which has not been "Securitised"!

[/quote]

They (the banks etc) simply ask the BOE to make more money available for them which is has been doing by a few billion a week. To my simplistic mind is this nothing really simpler than printing money to get yourself out of a hole. I seem to remember that Wilson did this back in the 70's (I think that's the right era) and look where what happened then. To coin that phrase "It will all end in tears" except, as usual, it's us, the ordinary bloke on the street, that will end up paying to bail them all out.

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You're right in what you say Steve that it doesn't matter much if you're not moving however a great many are living what are fundamentally unaffordable lifestyles financed by the hitherto unending rise in property values and the availability of cheap money.

Even ignoring the scarcity of mortgages with -ve equity knocking on the door or already over the threashold those people will almost certainly find themselves unable to remortgage the level of debt they are already carrying let alone release more capital to maintain their lifestyles. They then face the double whammy of their lenders SVA which in extreme cases could virtually double existing payments.

As GS says, there is a lot of pain to come......................!

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[quote user="Quillan"]

They (the banks etc) simply ask the BOE to make more money available for them which is has been doing by a few billion a week. To my simplistic mind is this nothing really simpler than printing money to get yourself out of a hole. I seem to remember that Wilson did this back in the 70's (I think that's the right era) and look where what happened then. To coin that phrase "It will all end in tears" except, as usual, it's us, the ordinary bloke on the street, that will end up paying to bail them all out.

[/quote]

It's OK for one thus far, Quillan, but the B of E's commitment obligation is circa £100 billion to Northern Rock: quite apart to all the billions they have injected into the market to improve liquidity.

Which hasn't ameleorated the credit position insofar as consumer credit and mortgages are concerned, anyway.

The danger herein is creation of the ultimate Domino Effect.

And as you say,  they are in truth printing money and by so doing, rapidly increasing money supply with an effective decrease in GDP! = inflation.

And also weakens sterling on Forex markets: which puts up import costs, like oil, gas etc.

Corners and painting are favourite words which spring to mind!

 

 

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The bottom line for most people wanting to buy or sell at the present time, is that an enormous part of the housing market is over financed.

Since as always, the controlling influence's are the banks and building society's, they have been reckless had their fingers burnt and have now pulled the plug.

This does not just affect first time buyers, where income multiples have been reduced to sensible levels, but an enormous part of the housing stock is occupied by people who cannot sell because they are unable to obtain another mortgage for their next purchase.

Since when prices fall they fall for pretty much everyone, its no big deal, unless you were planning to liquidate your asset thus taking the big profit made over the past few years. If thats the case then welcome to real world, investment is high risk!

At the end of the day, someone should be brought to book for this situation, and the FSA should be shot at dawn, what a mess, and since the current crisis could have so easily been avoided, it's all rather unbelievable.

Would'nt it be nice if everybody that had been exploited by the banks and building societies, basic greed, acheived by taking advantage of Mr and Mrs average's desire to own their own home, all got together, and agreed  to stop making their mortgage payments.

I wonder how long they would survive, a month maybe ! would serve them right !!

 

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hi

why are they cutting interest rates when they will have to increase them again shortly when inflation suddenly becomes a big problem?   

The 'good life' life style may be forced upon many of us, we for our part are certainly exploiting our garden much more this year.  We are also using our two wheel transport much more that our 4 wheeler as the computer says it does 26 km/litre.   Its a hard life especially for us early retirees.  I suppose if it ever got so bad we could always go back to work!

 

 

 

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[quote user="tj"]Would'nt it be nice if everybody that had been exploited by the banks and building societies, basic greed, acheived by taking advantage of Mr and Mrs average's desire to own their own home,[/quote]Not to defend the banks and other financial institutions but it does take two to tango and goes far far deeper than the simple desire to own a home !

Perish the thought that those who voluntarily "self certified" mythical incomes could be the tiniest bit responsible for their own predicament.

Do I smell another rash of mis-selling claims and another field day for the parasitic ambulance chasing lawyers [:@]

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[quote user="ErnieY"][quote user="tj"]Would'nt it be nice if everybody that had been exploited by the banks and building societies, basic greed, acheived by taking advantage of Mr and Mrs average's desire to own their own home,[/quote]Not to defend the banks and other financial institutions but it does take two to tango and goes far far deeper than the simple desire to own a home !

Perish the thought that those who voluntarily "self certified" mythical incomes could be the tiniest bit responsible for their own predicament.

Do I smell another rash of mis-selling claims and another field day for the parasitic ambulance chasing lawyers [:@]


[/quote]

I agree entirely, however if you leave the matches lying around you should shoulder some of the responsibility if your child sets the house on fire !

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[quote user="ErnieY"]

Perish the thought that those who voluntarily "self certified" mythical incomes could be the tiniest bit responsible for their own predicament.

[/quote]

Closer examination would probably reveal that most self-certified mortgages came through brokers and who were the first group that lenders withdrew from lending via? Why, brokers of course which means to me that these lenders knew exactly what was going on with this particular business stream

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Many years ago, when we first bought a house, the first question an estate agent asked was " How much do you want to spend?", what a damn stupid question. They didn't seem to appreciate it when I replied that I didn't actually want to spend anything but I realised that I would have to.

Similarly the "expert" advice was always have the most expensive mortgage that you could afford, or "stretch" yourself to afford the absolute max. Of course if this advice is followed when interest rates are / were low then you are automatically screwed when rates rise.

Common sense (in my book) would be to spend the minimum you absolutely need to and build in some "slack" to your ability to pay. Unfortunately there seems to be a historical lack of common sense in the UK house buying situation. Maybe an intelligence test should be a compulsory part of the mortgage application process.

I prefer the French approach.

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Re Brokers:

Back in 1986 after I had made an offer on my UK home I set about arranging a mortgage I had mortgaged my flat with the Nationwide so I went to them for my new one, I was putting down more than a 25% deposit from my savings, was earning very good money and had a good payment history, or so I thought.

The manager refused my mortgage as the last months payment for my flat went astray during the conveyancing, he said that I had a bad payment history and he could not grant me a mortgage unless it was an endowment, when I said I didnt want one he replied with the stock (as they were all tought to say) "can I ask why you dont want an endowment" I replied no and went elsewhere but not before asking him how, with a so called bad payment history, I was only considered a risk on a repayment mortgage?

I soon found that I had been too young and headstrong as every other building society too were only "granting" endowments, I finally went to the Alliance on the recommendation of my accountant only to find that I didnt have an appointment with them but with a broker in a tiny  upstairs office next door who called his-self "Alliance financial services" No prizes for guessing what he was pushing! Sadly at that late stage I had to accept or lose the house.

My gut instinct told me not to trust what everyone was pushing as to me they had a clear vested interest, however I had ended up with a 25 year loan from the Woolwich to be paid "allegedly" by a Norwich Union endowment policy, this was the only one that I would accept as I could redeem it without penalty after one year.

Exactly one year later I negotiated with the lender to convert the loan to a repayment mortgage over 24 years so as not to fall behind, I cancelled the endowment and from memory actually got back my premiums plus 50 quid, or perhaps it was just the 50 quid.

In any case it was the most shrewd financial decision that I have ever made despite everyone telling me that I was mad!

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Sadly in ones younger, less financially savvy years, it was easy to be conned into Endowments. I was but eventually saw the light and sold them off to the Traded Endowment market at a mild profit and certanily well above their surrender values. I resisted the temptaton to spend the money on penis enlargement or breast augmentation and paid it off the mortgage instead. The catalyst for this was the provision of free life cover form my employer which was the only reason I'd kept them going as long as I had.

I can forsee quite a bit of high pressure selling of "added value" products alongside what few mortgages are still being offered.

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[quote user="ErnieY"] I resisted the temptaton to spend the money on penis enlargement or breast augmentation and paid it off the mortgage instead.
[/quote]

But ErnieY, with both of those erm....inflated assets, you would have had some very interesting investments and the TV companies would have paid you hundreds of thousands just to take your picture in the altogether!  Did you not consider that as an alternative surefire money generator?

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Modesty prevents me from elaborating too much sweet17 but suffice it to say that the endowments we disposed of were not the only ones we possessed, merely the ones which were surplus to requirements [:$]

Hint: Google Images "worlds_happiest_couple"

CAUTION !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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About the only good thing to emerge from the welter of Financial Services Regulation has been stopping "advisers" taking commission from financial products.

Before the Financial Services Act was finally tightened up, accountants and lawyers were all standing in line with their greedy hands out, sharing the commission from Endowment Mortgages and Pensions.

Instead, of course, the banks themselves now earn vast amounts every year from pushing inferior advice and financial products onto naive customers; the worst example of course being sickness and redundancy insurance on credit cards and unsecured loan agreements!

I have absolutely no doubt that after this current financial fiasco is eventually unwound, bankers and mortgage lenders will dream up new ways to screw up the majority's lives.....................

Still, let's look on the bright side: once reality comes to pass, BBC, Channel 4 and ITV will have to find another topic to replace the endless stream of moronic programmes about house makovers, buying and selling houses; becoming a "Developer" and making a fortune from property!

 

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I'm not going to be canute about this, lots of people (including me) have made a lot of money out of property (lost a bit too) and will continue to do so,  its the same with anything else in the market, futures, whatever, the trick is of course to make sure you know which part of the circle to join on and when to leave, you have to know when to hold 'em and when to fold them. It may not be good time to sell but I have a feeling it will be a good time to buy in the future. In any case don't forget you need a plan for success and a plan for failure.

prices will rise, politicians will philander, you will get old, but the real troubles in your life could be things that never crossed your worried mind; the kind that blindside you at 4pm on some idle Tuesday. [8-|]

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[quote user="Gluestick"]

Still, let's look on the bright side: once reality comes to pass, BBC, Channel 4 and ITV will have to find another topic to replace the endless stream of moronic programmes about house makovers, buying and selling houses; becoming a "Developer" and making a fortune from property!

 

[/quote]

Oh they have already Gluey - just a quick scan of the TV schedules shows you can "enjoy" moronic programmes about people trying to make a fortune as the next top model, chef, boxer, pop star, variety act, ice skater, business(wo)man, supermarket supplier, hairdresser, trivia quiz-whizz et al... Beeny, Phil, Kirsty and Lamby have plenty of competitors!

For ordinary employed people of the pre-WW2 and baby-boomer generations, property ownership, the access to "easy" credit and the long-term relentless rise in real-estate values have been hugely instrumental in increases in their personal wealth and standards of living.  Some have even financed a little rural-retreat in the sun because of it.  Good on 'em!

Aside: why do we - well most of us anyway - tend to see ourselves as property sellers/vendors? If it was announced that car prices (or food, or fuel, or holiday, or swimming pool, or furniture prices etc) were all going to fall by 10-30% we would tend to celebrate. Assuming our incomes remain unchanged (i.e. if we are not real-estate agents) isn't the news of falling prices for all (not just our own house) good or at least neutral news?

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I’m a little irked, though not surprised, by the amount of self-satisfaction and gloating that’s coming through in some of the above posts.

So no one here benefited from the easy availability of credit and its effects over the past decades then?  How saintly and prudent of you all. Well, I did and so did most in my entourage and we are thankful to have had the opportunity, but we also bled when interest rates were 15% and repossessions rife in the early 90s. You win some and lose some.

Economic cycles mean another boom and bust will come again in so many years time. I assume that, as many here are of retirement age, you’ve all been through this a few times before.

I may knock the dodgy methods of rapacious brokers who blatantly lied, however, as someone mentioned above, no one forced anyone to take out credit.

Easy credit is not a crime, though it’s popular to knock it.  Perhaps we will eventually discover the best way to deal with it without getting too burnt. In a modern economy, easy credit is also wealth generating (as Ian says) because it’s not just about buying luxury goods or funding house acquisitions (though nothing wrong with that); it’s equally about having money to invest, launch businesses and generate employment. A severe credit squeeze doesn’t just affect the housing market, as it has a negative knock-on effect on lots of other areas. The lack of easy credit in France over the past two decades has also been an important factor in the economy remaining sluggish for years now. Too much risk and you may burn or do well, however, too little or no risk means you won’t burn, but possibly die of boredom waiting for things to happen.

Incidentally, over the years, France has brought out a raft of (confusing) government backed financial incentives to encourage the housing market. So, what exactly is THE French approach? Is there a single one?  100% mortgages have been available and, no doubt, still are. I don’t know to what extent and perhaps not as much as UK or US, but I know someone who got one, despite a low salary.  If she got one on that salary, I suppose a lot of people out there have them too. She had no local connections or assets but is a ‘’fonctionnaire’’, which may have swayed it.

I agree that French banks have always been more cautious when lending to French people in France, but I’m not too certain – judging from reading the economic press – that they or their foreign offices have been that cautious when lending in world markets. End of 2008 figures will probably reveal their true full losses from the subprime markets.

Irrespective of what’s happening in the UK market and the perceived ‘by some’ evils of easy credit, the French economy is going to present enough surprises (read cuts to public services) in an attempt to bring public debt down to 60% of GDP, as demanded by the EU. These will certainly impact on the economy and housing market and can be discussed on here ad infinitum.

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I would agree with much of what you say, LG, excepting some core issues.

I'm old enough - sadly - to have lived through the Boom-Bust cycle of the late 60s and early 70s and to have been almost wiped out by unwise speculative property investments at that time.

I forecast both the 1989/99 fiascos and the current idiocy four years ago.

Unfortunately, I have also seen the wholly negative outcomes of easy credit in all three eras.

Government cynically depress base rates to create and stimulate an economic boom to "Prove" how well their policies are working: sadly, by depressing base rates beneath capital value inflation this naturally creates abnormal capital flows and cycles and inevitably leads to a bust.

Fear not: eventually UK base rates will have to rise and rise steeply to counter monetary inflation and to claw back Sterling's value on the Forex markets.

At present, Government is between the proverbial rock and a hard place: if the B of E continues to falsely depress base rate then inflation becomes charged: if they raise rates then the housing market tanks and the support drip down and spin out activities (White Van men), carpets, furnishings, double glazing, kitchens DIY etc tank too and unemployment zooms: as does benefit cost as tax revenues tank as well!

Prudent economic management eh Mr B?

This time around though, consumer credit and mortgage lending have reached a peak of insanity.

France BTW legislates - wisely IMHO - against excessive lending by stipulating that any lender who extends credit of any sort in excess (repayments) of 30% of net income cannot recover in the case of default.

Finally, the core problem of the insane British housing market is simply the reality that the value of residential property last year, exceeded 60% of the WHOLE value of Britain's capital. (Source: Government's own ONS). Four years ago it was already 55%.

And sadly, one cannot export houses or blocks of flats, since the largest slice of house value is the land, rather than the bricks and mortar.

One final point, whilst Britain's PSBR:GDP seems good, the UK is the only G8 nation with an unfunded public service pension obligation.

If this is, correctly, added back in, then France's PSBR: GDP is far far better.

 

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