UKC

In reply to grumpybearpantsclimbinggoat: so the outlook is good then!

blissfully ignorant dave

In reply to gingerdave13: Can I borrow your tinted glasses please?

In reply to grumpybearpantsclimbinggoat:

Slightly anecdotal news from house building sector :-

One national housebuilding company, whose sales targets were 300 units PER WEEK reported a sales total of zero two weeks ago.

One timber kit manufacturer has reportedly stopped manufacturing timber kits for houses - even ones sold off plan - just stopped production.

Banks are revisiting appraisals, re-evaluating projected sales and are now not honouring "agreed in principle" deals with developers leaving them unable to finance their projects.

At a charity lunch of Housing Developers last week the discussions were that a large % of the sales personnel were being "stood down" (ok, sacked)

Banks are now reportedly reveiwing in greater details mortgage agreements with people, if they cannot get a mortgage they cannot buy a house - lots of projects currently on site grinding to a halt and being left unfinished - not just the houses but the infrastucture to serve those house already completed which people will be wanting to move into (no associated public gardens/green spaces, play areas, road/traffic calming, finishing off the top coat to access roads etc)

Not all of these people being paid off within the housing sector will be able to find other jobs within the construction sector.

Never mind though, the government is still sticking to its statement for proving so many new houses within the UK.

In reply to grumpybearpantsclimbinggoat: yup i'll post them

c/o stack of cards
21 shoebox
cardboard street
london

was that it?

ignorance is bliss......

In reply to grumpybearpantsclimbinggoat:

My partner and I have just been to see our bank manager. He offered to lend us well over £300k, which is well over £200k more than we wanted, but it's nice that he felt able to be so generous.

From Fat Elvis

In reply to grumpybearpantsclimbinggoat:

The basic underlying reason for the potential collapse in house prices is simply one of affordability. When house prices outstrip annual wages in some cases by a factor of 5+, it was only a matter of time before the market implodes.

Cheap credit consumer was always a ticking time bomb for our economy, sure you can blame the banks for this fiasco, equally culpable in this is the consumer and the Government for letting the big banks create their own ‘mini’ central banks by letting them recycle debt via securitisation and other exotic financial tools, those of you with slightly longer term memories will remember the Enron debacle several years ago. Letting the banks move assets off balance sheet enables them to lend more as this circumvents or at least modify the minimum capital requirements and other key ratios which are in place for a very good reason. The government has let them do this as a way of growing the economy without the central bank pumping money in to the system and thereby affecting the inflation figure (which are open to manipulation for example excluding house price inflation from the figures). The mortgage boom started in the 1970’s as a result of the recession in the early part of that decade; the banks have just developed the idea and pushed it to the next level, and in my opinion have let the consumer and the banks push it too far.

1960’s a bankrupt nation
1970’s recession and the birth of securitisation and other exotic financial instruments.
1980’s junk bonds and corporate debt, house price recovery and growth, E.R.M !
1990’s house price crash and recession.
2000’s Dot com bubble bursting, house price recovery the consumer debt explosion, now price contraction, credit crunch and possible recession.

Legislation will come in due to course to control this situation and reign in this credit explosion, but legislation tends to be retrospective, stable door scenario. This is the price we pay for living in a mercantile based economy, and indeed a mercantile law method of regulation (which have I no problem with). But as we have witnessed during the last 12 months the market to a large extent is self balancing.

But things have moved forward, for example don’t you think that on the whole the country is ‘better off’ now than in the early 70’s or even the early 80’s. Recessions and crashes come and go, but the overall trend is upward, while it hurts at the time and it is no consolation for the folks who have been financially dispossessed or even repossessed, we haven’t figured out a better system yet but it shouldn’t stop you trying.

Sorry rambled on a bit…

In reply to grumpybearpantsclimbinggoat:
And lest we forget in this age of media sensation, it's still fine to buy a house, if you can afford it, and you plan on keeping it for the long term.

Often forgotten with 'CRASH' 'RECESSION' 'CRISIS' etc landing on the doorstep every day...

In reply to Cerulean: Very true, I'm still interested in buying although lending has tightened and interest rates have increased since I started looking.

In reply to grumpybearpantsclimbinggoat:

As for buying now, if you can raise the funds and afford the payments why not, however personally I would sit and wait for another 12 months or so. Judging the news from Bradford and Bingley and the buy to let market coupled with the news that Northern Rock are doubling the number of people working in their repo / customer services department it might not be a wise time. I suspect your pound will go considerably further in 12 months time, even if interest rates do rise the price decrease in the housing market will offset this, it’s the old adage buy low sell high, prices are still out of proportion to earnings.

If you have a AAA credit rating and a reasonable deposit, bank the deposit with the N.R. and get a decent rate of return sit tight and grab a bargain when things have bottomed out and the ‘liquidity’ issues have calmed down.

But it’s your choice your money and your debt.

In reply to Fat Elvis: and my company support that circumvents the costs of surveys/stamp duty/conveyancing/moving costs/carpets/curtains/school uniforms (although the missus won't be convinced to buy one for the bedroom) outweighs the loss in value of the property in the short term - I'm also not nice when it comes to offers on houses (25% below asking price is typical of me).

In reply to grumpybearpantsclimbinggoat:

That's why you are still renting.

In reply to grumpybearpantsclimbinggoat:

"and my company support that circumvents the costs of surveys/stamp duty/conveyancing/moving costs/carpets/curtains/school uniforms"

I take it from that your company is picking up the tab for the above costs or have I read that wrong ?

Even so, if that is the case the costs associated with that are modest when compared to the overall cost of ownership, i.e. repayment of the principle and interest.

Rental prices contrary to what people have said have not kept pace with the inflation in house prices, it was an every decreasing circle (ok will grant you that people argue that the increase in the value of the property is the real profit, but that is about to evaporate). If you rent sit tight, I suspect the rental prices will start to increase as the landlords pass on their costs and try to balance their books.

I have some sympathy for ‘professional’ landlords (as opposed to the punters who figured on making a quick buck) at the moment; I really wouldn’t like to be in their shoes, especially if they pushed the loans to the limit of what they can cope with.

In reply to subtle:

Strangely the vendors are still willing to discuss.

In reply to Fat Elvis:

You are correct, factoring the way the housing is going it would only eat into our deposit so negative equity wouldn't be such an issue if I had to move quickly.

I have a time limit on the support so once that is gone then the deposit goes down as we use it for the legal stuff etc. My sums still say it is worth buying (obviously at the right price).

In reply to Cerulean:
"Often forgotten with 'CRASH' 'RECESSION' 'CRISIS' etc landing on the doorstep every day..."

Too true. I think that the media are in danger of making things worse by panicking consumers into a recession. As is evidenced by this thread.
Houses have been too expensive for people to afford without borrowing a lot of money. Banks have been too keen to lend money left right and centre and make a quick buck. Building comapnies have been happy to sell houses at waaaaaaaay over cost. It seems as though a lot of chickens are coming home to roost.
On a brighter note manufacturing is picking up, engineering sector looks OK, and we (landscape architects) have so much work we don't know what to do with it.

In reply to fijibaby:

My two examples in the OP are polemic if you read them. The thread is to stick in one place what is happening in said month - positive and negative - all are welcome to contribute.

In reply to grumpybearpantsclimbinggoat:
"The thread is to stick in one place what is happening in said month - positive and negative - all are welcome to contribute."

Fair enough. It does seem that in the media at least the outlook is relentlessly bleak. There are other parts to the UK economy that don't rely on an overinflated market. I don't believe that we are likely to see a recession. A down turn maybe. I'm tempting fate now.
The recent news that Nissan are producing a new car in the UK is this months positive spin. I'll find some more.

In reply to fijibaby:

Cool, thank you.

In reply to grumpybearpantsclimbinggoat:

make haste, slowly.

Elvis.

In reply to fijibaby: I met with our group's economist today, a wise old bloke who's generally pretty realistic. He was talking about the fact that you can't get consensus from economists, even though they all have the same data, because they all have an agenda of some sort - and what he gets pissed off with is the new(ish) breed of sensationalists who release stuff because they know it'll make headlines not because they really believe it.

I can't find anyone who thinks UK GDP is going to go negative this year or next. I can't find anyone who thinks that unemployment will climb significantly this year or next. So why can I find any number of firms of economists who are prepared to predict catastrophic house price deflation for several years to come, despite the fact that they all agree that liquidity will return to the market, that there is a shortage of supply and that interest rates are still generally pretty low?

I'm now much closer to mr nose on this year's likely out-turn - I wouldn't be surprised to see average prices down 9 or 10% on the peak by the end - but I still reckon that unless something changes dramatically it'll be flat +/-3% in 09 and up a bit (<5%) in 2010.

Interesting suggestion from our bloke though - if commodities prices fall back some time this year then inflationary pressure reduces and the BoE could cut rates more dramatically without risking inflation - in which case he reckons the downturn could be less severe. Not sure I'm that brave...

HBOS figures are out, they show a 2.4% fall during May.

http://www.hbosplc.com/economy/includes/05_06_08HousePriceIndexMay2008.pdf

May 07 196,636
Aug 07 199,600
May 08 184,111

The figures also show a YoY fall of 6.4%, and a fall of 7.8% since their August peak.

Prices only have to fall two and a bit per cent in total over June, July and August for the falls to exceed 10%.

lsn

In reply to lowersharpnose: Have to say I'm becoming one of the more bearish at work - CML are saying 7% down this year, which I think is soft. I think the main difference between me and thee is how fast it'll recover once liquidity returns - I still reckon there's a fair bit of demand that willkick in with cheaper houses and cheaper mnoney - not as convinced as you that the reposession numbers will be so scary as to put people off for any length of time.

Quarterly rolling average (ie the accepted methodology) is of course only 3.8% down - so I think on that basis 9% or 10% for the year feels about right.

In reply to andy:

I'll happily buy you a pint if house prices go up in 2010.

lsn

In reply to lowersharpnose: Done. Halifax numbers, quarterly average, Dec 10 c/w Dec 09. Taylor's Landlord or Goose Eye No Eye Deer.

Halifax numbers on the economy are still pretty good, and I saw a graph yesterday of the affordability for FTBs - a combination of reducing prices, increased earnings and lower mortgage rates mean that houses get a LOT more affordable over the next 18 months - I live in hope...

In reply to grumpybearpantsclimbinggoat:

Well, whoever wrote that really doesn't understand securitisation.

Or what happened with Enron.

There's some good points, but some of the facts they state are incorrect, so the argument is based on sand.

In reply to andy:

I keep having to remind people that matters are both specific to type of property and region - i.e. lots of new build flats are dropping fast, lots of London properties are dropping, and its pulling down the average.

In terms of traditional properties in the regions (which is what we are about to buy with a bit of luck) I am seeing 1-3% drops since Jan 08, probably looking at 5-7% by year end (say £15-20k on a 300k house). I also think flat-ish in 2009 and up in 2010.

There is a lot of stoked demand, IMHO, and I think if IR drops then it could take off upwards with little warning.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/05/bcnhalifa...

house price drop from telegraph.

In reply to John_Hat:

Actually re-reading it you are right a couple of the points are not strictly accurate but the underlying theme is correct, I am a lawyer not an accountant and you know what they say accountants make bad lawyers and lawyers bad accountants.

But securitisation and the creation of SPV’s (shell companies, trusts etc) and bankruptcy remote entities have been around for donkey years, but in 70’s it was the movement of these in to the financial markets which helped cause the booms, and of course the derivative markets.

Is wasn’t an argument more of an observation, with a question tagged on the end.

As for Enron, made a business out of booking revenue without disclosing liabilities concealed by the use of SPVs, its what happens when the tail starts wagging the dog, Andersen where to occupied with keeping the auditing business than actually doing what they are supposed to do, offering a realistic appraisal of the business, they put the management at Enron and themselves before the investors.

Very naughty and not ethical, and they got found out they broke the 11th commandment, and paid the price or did they, the investors staff and pensions where the real losers.

In reply to grumpybearpantsclimbinggoat:

"the Government for letting the big banks create their own ‘mini’ central banks by letting them recycle debt via securitisation and other exotic financial tools, those of you with slightly longer term memories will remember the Enron debacle several years ago. Letting the banks move assets off balance sheet enables them to lend more as this circumvents or at least modify the minimum capital requirements and other key ratios which are in place for a very good reason."

1. Enron was not a securitisation-related issue.

2. Securitisations work like this;

Bank has a mortgage book. The amount banks are allowed to lend depends on the reserve asset requirement, which is effectively the multiple of cash reserves they are allowed to lend. this is set by the BOE for each bank, and is a cloesely guarded and sensitive figure.

When a bank has lent up to its maximum it cannot lend any more, as the exisitng loans will sit on the balance sheet for the next thirty years.

A secutitisation is a bank selling its debts - i.e. the mortgages.

A SPV is set up, NOT under the control of the bank. The mortgages are transferred to the SPV. The bank administers the loans, so from the borrowers point of view they still pay the same person, but the funds are passed to the SPV. The bank generally creams off an administration fee.

The SPV issues bonds, generally in tranches, set up so the A bonds are paid first, then the B bonds, then the C bonds, etc. There's generally a sub-loan somewhere as well.

As the money comes in from the mortgages (interest and principal), the SPV pays the A bondholders first, then the B, etc. A typical £1bn securitisation might have £400m A notes, £400m B, £200m C and a reserve. These are paid in order.

If the mortgages default, then the C bondholders don't get their money back - however they are usually being paid well over the going interest rate to cover that risk. I've seen 25% on some high risk securitisations.

In order for the A notes not to be paid, over 60% of the mortgage book has to not pay AT ALL.

The amount paid by the bondholders to buy the notes is paid to the bank.

The bank has then effectively factored the debts. It has nothing to do with the mortgages except collect the money and pass it to the SPV. The SPV collects this cash and passes it to the bondholders. The bank gets the principal amount of the mortgages up front in cash, which means its cash reserves go up and it can lend more.

Money has not been "created" - effectively the right to the debt has been sold. For the bank it receives the money from the mortgages immediately rather than waiting 30 years for it.

It does not "circumvent" key ratios, it is fully compliant with them. The bank has lost a long term income stream in exchange for the cash now. **It no longer owns the mortgages**. If you sell something then its perfectly sensible that its not on your balance sheet anymore.

I would hardly call a securitisation "exotic".

Cheers! JH.

In reply to Fat Elvis:

" I am a lawyer not an accountant and you know what they say accountants make bad lawyers and lawyers bad accountants. "

**grins**

Also, Enron were recognising income they had not actually received yet, a practice which Anderson should have not let them get away with. But, as you say, they were more interested in keeping the business.

In reply to lowersharpnose: i was predicting down 40% from the highs a few months back and got laughed at.

bubbles are bubbles and always return to trend.

In reply to John_Hat:
>

Yes it was, they where booking the revenues generated by the SPV and not declaring the underlying liabilities, from the way I understand it the method that they used was not based on true sale, which caught up with them


Or credit cards or loans, in fact you can securities almost anything as long as it produces a revenue stream, for example.
David Bowie and Rod Stewart secritising thier back royalties
Portugal securitising their tax arrears
Real Madrid securitising their season tickets.


Err yes but no, depends if it qualifies as a true sale etc, this is a bit of grey area, this is an area I am currently trying to get my head around.


Aye, with you on this one, risk v return


You negate to mention the role of the rating agencies and the monoline insurers, who are also on shaky ground.


And used to pay off any loans incurred by the originator, in supplying the loan to the customer, the revenue of which is in-turn transfered to the SPV.
But do they ?


Sorry disagree with you on this one, factoring is different to securitisation,


‘Created’ ‘recylced’, errr another grey murky area. trying to get my head around this bit to.



But is does, hello Mr Bank of England we have run out of money, please sir can I have some more ?

I like the word ‘exotic’ reminds me of a sunny beach and palms trees, all this money stuff is depressing enough.


>Elvis.

In reply to Tobias at Home:

And I have to say - ho ho ho. Even in an absolutely crashing recession the scenarios show 20-25% down. And nobody's seriously predicting a recession yet - it's <10% probability in all the work I've seen. depending on the index, the peak to trough fall in the 1990s was between 12 and 20% - d'you really think that in an economy with low unemployment, low interest rates and fairly low inflation you're going to see falls of double the worst?

Why?

In reply to Fat Elvis: "But is does, hello Mr Bank of England we have run out of money, please sir can I have some more ?"

Rock's problems weren't securitisations - it was the other wholesale debt it had on its balance sheet. Lenders raise money from a number of sources:

Savers (Rock didn't have many)
Securitisations (SPV called "Granite" - doing very nicely, thanks.
Short term wholesale (available but very expensive)
Long term wholesale (very, very, very expensive and difficult to come by).

Their initial problems were an inability to refinance some big long term debt maturities - which are on the balance sheet.

In reply to Fat Elvis:

Sorry, not time to chat on this one, If I see you in a pub at some time then we can have a full and frank discussion over a pint!

Have to go and do some work.... **sigh**, however:

"You negate to mention the role of the rating agencies and the monoline insurers, who are also on shaky ground."

No I didn't, not really relevant to the financial mechanics.

"And used to pay off any loans incurred by the originator, in supplying the loan to the customer, the revenue of which is in-turn transfered to the SPV."

What they do with it is up to them.

"Sorry disagree with you on this one, factoring is different to securitisation, "

The essence is the same - selling off money owed to you over a time period in the future for money now.

"But is does, hello Mr Bank of England we have run out of money, please sir can I have some more ?"

Spoilt it a bit here. Thought you were a sensible person!

JH

In reply to andy:

Yes you are right, it was the liquidity issues and the drying up of short term loans, which they used to fund long term lending. Borrow short to lend loan.

Not being an accountant and perhaps you could explain (guessing you are an accountant) the difference between a ‘liquidity’ crisis and an ‘insolvency’ crisis. From my point of view they seem to be the same. I could be wrong but I always thought insolvency was when you where unable to meet your financial commitments. E.g. make your loan payments.

Definitions of words mean different, things to different professions and words can have a powerful effect on confidence, hence the use of the softer less scary word ‘liquidity’.

Take securitisation for example I have found 3 differing definitions of the word, which does not bode well, because if the parties think it means something different how can there be a meeting of minds.

In reply to John_Hat:

Might hold you to the offer of a pint, if you ever find yourself in Leeds.

Enjoy.

In reply to Fat Elvis:

Indeed! I am in Leeds on a regular basis (used to live there...) so quite happy to chew the fat with regard to climbing or anything else! You can get the second round or the crisps!

**grins**

In reply to John_Hat:

In Leeds a few days each week if you fancy a non serious verbal joust over a pint or two.

Try not to work to hard !!

Have fun and enjoy.

Elvis.

In reply to Fat Elvis: I'm very much not an accountant, I'm a farty marketing type, but I'm guessing banks are different to many other businesses in that they have a lot of non-liquid assets (and liquidity ratios set by regulators). Lots of other businesses go bust when they are profitable and solvent (ie assets cover liabilities) but cashflow means that they can't meet their short term liabilities (like the milkman who wants paying every week) because they have cash tied up in stock or debtors (like Tesco who make them wait 3 months to get paid). Rock had a super version of this problem, from what I understand. They were technically solvent, reasonably profitable but had the mother of all cashflow problems...

In reply to andy:

Pretty much the case (NR, that is). They couldn't turn their assets into cash fast enough to give the people who had applied for mortgages the cash to give to the vendors, and they couldn't get cash from elsewhere to fund the short-term problem, hence they went to their lendor of last resort (BOE).

FWIW, I'm an accountant, working in the financial sector for a large multinational. Used to specialise in securitisations, and still give a lot of help to that department, but these days mainly work in general bank financing/performance rather than specifically securitisations (good thing too - there's hardly any securitisations going on at present...!).

I tend to see insolvent as knacked after you've done everything that can be done, including selling the factory and the office typewriter. Illiquid tends to be short term, often caused by overtrading (as in NR's case). However that's my own view, and may not meet the dictionary definition!

Unfortunately once the media got hold of it (NR) and caused the run, a minor problem got a lot worse (lots of people withdrawing cash) causing the situation now.

Generally, in these kind of threads, I tend to agree with you Andy on most points, as you've got a very good handle on matters, IMHO.

In reply to John_Hat:

Just been pondering your comparison of factoring and securitisation and I mentioned that the two are different, securitisation involves the actual use of those receivables in order to raise funds to the purchase the receivables, i.e. to buy the underlying asset which generates the cashflow. E.g. mortgages the actual loan to the customer to buy the house.

Securitisation is the sale of future cash flows, which emanate from the underlying asset which produces these cash flows and as long as the asset produces a cash flow it can be securitised. Hence the examples I gave football season tickets, mortgages and future royalties on record sales. Just found a check list from standard and poor’s which lists the characteristics which need to be fulfilled for an asset to be suitable for securitisation.

The SPV has title to the cash flows but not the actual underlying asset itself, which is still owned by the Originator.
From what I understand there are three phases to the transaction.
1) The originator pledges intangible assets to the SPV (which a separate legal entity which can own property a company of a trust for example.
2) The SPV then issues bonds or certificates in the capital market, so it can raise funds to purchase these intangible assets from the originator or in deed lend the funds to the originator, depending on how it is set up.
3) The SPV once it has raised the money purchases or then gives a loan from these proceeds to the originator.

Therefore it separates the asset which generates the cash flow, from the underlying asset. If the customer who has the loan defaults, the SPV takes the loss not the originator. Unless they have a guarantee from the originator or some other ‘insurance’ in place, hence the reason for the credit rating (which if this is higher than the originator makes it more attractive to the SPV investor) and therefore the enabling the possibility of attracting market insurance e.g. from the monoline companies, thereby reducing the end risk to the SPV and its investors.

Is this right ?

In reply to Fat Elvis:

"securitisation involves the actual use of those receivables in order to raise funds to the purchase the receivables"

Not quite. The transactions are different. If NR takes out a loan to fund mortgages originated that is one thing, but different from the securitisation.

NR - centric.

They have an asset, they sell to an SPV for a price (normally face valus of the mortgages, though a slight degree of over-collateralisation is normal). They lose the mortgages off their balance sheet, but they also lose the right to future income. ALL the (>100) securitisations I have dealt with the owever of the debt is the SPV, NOT the originator - i.e the underlying asset is owned by the SPV.

They lose £1bn of mortgages, they gain £1bn of cash. They then either use this to originate more mortgages or pay off the orgiginal loan paid to acquire the cash to originate the mortgages.

SPV-centric

Initially the bond-holders pay face value for the Notes (1bn) which is then passed to the bank in exchange for the mortgages. The spv has to pay the bondholders an interest rate and principal, and it uses the receivables from the mortgages (in this case) to pay off the bonds.

With regard to default, these things can either be set up as recourse or non-recourse. with recourse, the SPV can go back to the originator to recoup losses. With non-recourse it cannot. However generally the people who bear the losses are the lowest rated bondholders.

With factoring, the debt is sold, in the same way as the mortgage is sold. Obviously the factor can then "send the boys round" to the debtor, and generally does! It could be argued that the money received from the debtor could then be used to pay off the overdraft caused by the purchase of materials to make the widgets, or is could be used to fund the making of more widgets to sell to another buyer, whose debt could then be factored, and so on.

(sorry, really really need to do some work here!!)

In reply to John_Hat: sorry - "money received from factor" not "money received from debtor". typing too fast...

In reply to John_Hat:

This is really interesting and I would like to get involved in the debate from the property perspecitve, as someone who sells, acquires and values commercial property and gets involved in JVs' M&A and securitisation.

I have a presentation to do in an hour to a credit committee at one of the big banks and the view we are taking is that even 10% fall in "values" is a soft landing.

In a commercial property perspective, investment is drying up and yields have moved out, but, it means that if liquidity can return to the market then their will be a sharp up take of investments as purchasers seek to acquire at a softer yield with the hope of hardening back to late 2006 /07 levels. this is what happened in the last recession (I dont't think we are in recessaion) when the Germans, Swedes and Icelandics moved into our market. THe yanks are out due to currency but opportunities for US investment are somewhat overdue.

In my specialsit market which is leisure, we are finding that values are holding up very well and that spending in the sector is still stong. UK holiday and short break market is getting stronger for a vaeriety of reasons and this is supporting value in the hotel and wider leisure sectors. we are also finding PE money and JV's are still moving in so the claims of the media that all is woe are not entirely true, and I sometimes despair at the lack of knowledge about the property market and how it works. for a 64 year old times are bad, for a 30 year old times are good as it opens up investment opportunities into property assets.

I could go on but I have to dash

toodle pip

In reply to John_Hat:
Yeah, ok got you, but the securitisation, is dependant on the underlying contract, e.g. the originator has to have title over the underlying asset which is to generate the future cash flow. The securitisation is derived from the underlying contract / asset purchase.

For example (a simple one), I buy a car which I am going to lease out and I borrow 10k from a finance company. (Presumably the finance company will have a clause which says I can’t dispose of the asset (the car until it paid for in full)). Say in this example the car will generate me 1K per month of revenue over three years (36K) but I want to expand my business, so I set up an SPV and offer the future revenues for sale to the SPV for 25k.

The SPV raises 25k in the markets and the cash flows are credit rated (for example the company leasing the car is in good financial shape therefore the cash flows are less risky) so Standard and Poors give a AAA rating and they get insurance to cover the default risk. Now assuming that the contract is of a non-recourse nature (by that I take it they can not go after the originator in the case of default by the company which has leased the car).

The originator then takes the 25k from the SPV and pays off the finance on the car, the Originator then ends up with a paid for car and 15k in cash, which in turn they can go out and buy another car for cash this time. So they end up with two assets both of which they own outright, one which generates them a nice tidy 1K per month but the other brings them in nothing. But presumably they still handle the collection of the monthly payments for the SPV and forward these to the SPV for a fee.

Right, you mentioned tranches, which reflect the level of risk associated with the bonds. These tranches are essentially a risk v reward thing, the lower tranches receive a higher interest rate to reflect that they are the first to lose out as the revenue stream dries up in case of default.

Now the SPV offers me the originator a level of bankruptcy protection, i.e. the car is safe but the SPV carries the entire risk (assuming a non-recourse setup). Now is this is where the true sale, non true sale and structured finance issues arises. In the case of a true sale there will be no recourse to the originator.

So in the case of NR they actually moved the entire asset and future revenue stream to the SPV and basically just lived off the fees, they charged the SPV for collection of the monthly payments etc.

In the contract between the Originator and the SPV contain a clause that, if default occurred the SPV would continue to pay out to the investors in the case of default, and essentially increase the gearing of the SPV (my terminology may be off here so I apologise), until it reaches the point where the SPV is in the situation where its debt = or exceed’s the value of the revenue. (not sure if this makes sense), in other words use the SPV as debt sink while bolstering the originators cash flow (i.e. the initial payment from the SPV to the Originator).

Elvis.

In reply to John_Hat:

Just read that the SPV is limited to what it can do. I.e. It is not allowed to take on additional debt, in order for it to become bankrupt remote (a point which I had forgot about). In the Enron case they pledged to maintain the value level in the SPV (Raptor) by issuing shares to it via a kind of price swap derivative scheme. But as they issued more shares to cover the losses, their share price declined as the stock was diluted. Therefore they needed to pump in more Enron stock to maintain the value in the SPV
Enron’s mistake is they didn’t declare these losses.
If you sell your future revenues, this means you have no cash to pay your bills as they come in month by month, if you don’t reinvest in other revenue producing assets at the end of the day you are stuffed. Sure you get a cash injection and your immediate cash flows and profit looks good, but once you have received the initial payment from the SPV that’s it, unless the fees you charge the SPV for collection cover your on going costs.
For example Leeds Utd spent the money from the SPV’s on crap players, with the hope of winning promotion etc and therefore increasing their revenue, which they didn’t manage to do, their cash flow dried up.


Is this correct ?

Journalistic hyperbole or sound analysis...

http://www.newstatesman.com/economy/2008/06/house-prices-housing-british

Kingston Quay in Glasgow is one of the smart dockside developments that were supposed to help regenerate Britain's older industrial cities. The blocks don't look bad, with generous balconies and double-height penthouses. But the truth is that you can hardly give these flats away. A two-bedroom flat, bought for £215,000 in September 2005, recently sold at auction for £79,000; another went for £86,000. Nine others did not sell at all. "Live the dream," said the promotion for these developments; wake up to the nightmare of negative equity....

This is going to be far, far worse than the housing recession of 1990-92. Fuelled by irresponsible bank lending, UK house prices nearly tripled in the decade to 2007 - a more lunatic rise even than in America. British prices have been running at nearly eight times average earnings against a historic average of 3.5. This was never going to be sustainable. But right at the moment the bubble burst, in August 2007, a combination of related events conspired to turn this boom into an epic bust that is likely to consume the British economy and lead to a depression. You may think the credit crisis is over, but the real crisis is just beginning. Unfortunately, tomorrow has arrived and consumers are sitting on £1.4trn of debt, the highest for any country in the world. No wonder Gordon Brown is looking gloomy. He once joked that there are two kinds of chancellors: failures and those who get out in time. He is no longer chancellor, but as First Lord of the Treasury, the Prime Minister is still in the firing line. The great housing bust of 2008, and the recession that follows it, will be Brown's lasting monument. And poor old prudence never got a look-in....

etc

lsn

In reply to lowersharpnose:

Journalistic hyperbole I'm afraid.

Look at it this way. If some flats in Glasgow are "plunging" 60%-70%, but Scottish house prices overall are up by 0.2% (Halifax house price indicies - however won't let me post the link - google will find it in ten seconds - I did) then does it not suggest that some houses are not only not falling, but might actually be going UP? Possibly by quite a lot.

Usual journalistic scaremongering. Choose the worst set of figures possible, add some ill-informed scary words, mix and serve to the public. Move on, nothing to see here...

The only thing is that this could be self-fufilling. Buyers, hearing that everything if falling by 40%, offer 40% below asking price, and vendors, also scared, think they have to take it. Result, you DO get a 40% house price drop!

(we are literally banking on the last paragraph on our new house - we've got a massive reduction on asking as the lenders are scared they will never get another buyer...)

In reply to John_Hat:

In all things, house prices and behavioural economics are no exceptions, perception does affect reality and vice-versa.

So I post both factual data based stuff as well as more woolly sentiment hand-waving articles, as I think they are both signs of the times and feed off each other.

ISTR your low offer had been rejected, has the vendor/lender changed their mind?

lsn

In reply to lowersharpnose:

We have an offer on another property which has been accepted at 20% below asking. Sorry, I should have said "vendor" not "lender" in my previous post.

This is actually a different house to the first one I was ranting about where the bank was rejecting anything below asking price (which was unrealistically high). That other house is, unsurprisingly, still on the market.

If we can get this one (fingers, toes, eyes crossed, etc) then I think we have a good deal. Not that we are particularly stressed about the value dropping as we are planning on holding this house for likely the rest of our lives. Needs a lot of work though - we're looking at it as a 20 year project! **grins**

Thanks for asking! we are slightly excited but refusing to get too excited until contracts exchange....

JHx

In reply to John_Hat: I'd agree - and with new build flats you have to look at the tiny proportion of the market they represent and also the massive (and deliberate) over-valuing that went on (that means you'll get a number of high profile cases like this), with collusion between developers, valuers, mortgage brokers and (more by way of looking the other way) lenders. Scam worked this way:

Flats on the market for £250k. Never going to be worth that, especially when "Nelson Mandela House II" is built next door etc etc. A few dumb punters do buy them at that, but a lot are bought up by an investment club on behalf of their members at (say) £200k, with gifted deposits, discounts and all the other things that developers use to hide the true purchase price.

These are bought with bridging loans. At the same time, the brokers arranges a BTL remortgage based on the "market value" of £250k. Bank lends 85% or £212k. Landlord has 100% mortgage and walks away with £12k. Now throw in a few bent individuals (mainly valuers and brokers) and the same thing works with a flat that's over-valued by 40-50% (there was a Panorama prog about a firm in Leeds that was accused of doing this).

This has now been stopped, with "day 1 remortgage" as it's called being stopped, and valuers, developers and lawyers being instructed they have to disclose all discounts. But you'll get stories like this continuing - but it's a tiny, tiny drop in the ocean.

In reply to John_Hat:
So just to make sure I have got this right.
As I have showed yes it was a major issue for Enron, it forced thier stock price down as they where pumping in Enron stock (thereby diluting the stock) in to the Raptor SPV, to bolster its value and maintain its rating and the Proverbial chickens came home to roost.

Securitisation is not the same as factoring as you have permanently lost the right to the future income derived from the underlying asset, where as with factoring you still own the cash flows but the factoring company just takes a percentage and a fee from the revenues, in-exchange for providing you an advance on the outstanding amounts for an agreed period of time with the balance (less the interest on the advance and any fees depending on the agreement you have reached).

That is how I understand factoring, however I am not an accountant but I have used factoring companies.

In reply to Fat Elvis:

Ah, I see how the disagreement has arisen! Yes, there are two types of factors. One works pretty much as you say (and I must admit I wasn't thinking about them!), the other works where you lose the right to the cash flows - basically you simply sell the debt for an amount and any further cashflows go to the factor.

Sorreee! Ach well, that's cleared up! **grins**

In reply to John_Hat:

Ah, I didn't know there where two types of factoring what’s it called so I can look it up. Invoice discounting that is the one I was think of ?

I am learning this stuff at the moment (well trying to) and its all rather confusing !!! the terminology is well confused !

Back to my meeting of minds comment earlier.

Cheers
Elvis.

In reply to grumpybearpantsclimbinggoat:

Interest Rates:

http://business.timesonline.co.uk/tol/business/economics/article4076212.ece...

Might be worth bearing in mind before you purchase...

In reply to Fat Elvis:

Yes, I saw that! **grins** We're getting a tracker rate which will go up with interest rates - not ideal, but the best we could get - but to be honest I think the possibility of **significant** (say, >2%) IR rises over the next few years are small.

In any case, we have plenty of headroom in the budget to cope even if that occurred. As I was saying to Lady Blue last night, we may have over-egged the safety margin on this house, and been a lot more conservative than we actually needed to.

Oh well, better that way than the other!! **laughs**

In reply to John_Hat:

Yeah your right a couple of % tops. If indeed they do raise rates.

Its like anything if your comfortable with it do it, whatevers happens over the next 18 months or so it will always bounce back, people have short term memories when it comes to these things.

Land is always a solid long term thing, they don't make it any more.

In reply to grumpybearpantsclimbinggoat:

Just had a phone call from a friend who has two house’s one she lives in one she rents out, she put the rental house on the market via one of the property web sites. She got an email from an English chap living in Greece who wanted to buy it for cash (because it the area in which he grew up allegedly and he wants to move back). Any way he said he would either send a bank transfer for the house, I said don’t give out any details just go and see a solicitor and get them to handle it.

They sent her a cheque for £70k as deposit, she banked it as it appeared to have been issued by a well known British Power company bit strange but hey seemed Kosher.

It bounced; the bank has said the cheque was a fake, suspect the police might get involved.

No harm done but still worth bearing in mind.
Elvis.

In reply to Fat Elvis: "No harm done but still worth bearing in mind."

No harm done until she gets nicked for money laundering...

In reply to andy:


She won't.

The only crime committed is attempted fraud and she was the potential victim.

In reply to grumpybearpantsclimbinggoat:

THE CRISIS hitting the region’s house builders sector has gathered pace with four major firms looking to shed jobs in order to survive the credit crunch.

Good news for me and anyone else needing building work of any sort done. I need a new central heating boiler but got a series of ridiculous quotes over the winter. With work becoming scarcer I think I'll get a few more quotes in a month's time or so. I expect they'll be a bit more reasonable.

In reply to grumpybearpantsclimbinggoat:

The Scottish Government's target of increasing housing supply to combat shortages and affordability issues is being put in serious jeopardy by cuts in lending by mortgage providers, according to Homes for Scotland.

The message was delivered by home building industry leaders following a meeting of the Board of Homes for Scotland.

Chief Executive, Jonathan Fair said: "While Scotland remains in better shape than the rest of the UK (with research continuing to show static or moderate increases in house prices), no-one should be in any doubt. The fundamental problem is a lack of mortgage finance. This lack of funding is a serious problem for potential buyers and is placing great strain on production for companies within the home building industry.

"Demand for new homes remains high. This can be measured by the Government's commitment to increase production to 35,000 new homes per annum. However, securing mortgage funding on acceptable terms makes it very difficult for people, especially first time buyers, to access the market and this is having marked and obvious knock-on effects."

Talking on behalf of an industry which employs 100,000 throughout Scotland and annually contributes £6bn to the wider economy.

"MSPs need to realise that precious few new homes of any tenure will be delivered without a buoyant home building sector. Unless the Scottish Government addresses this situation as a matter of urgency, the consequences could be severe: both mainstream and affordable housing targets will be in tatters. The spectre of rising unemployment and the weakening in long-term capacity within the industry will become major issues for Corporate Scotland."

The Board of Homes for Scotland agreed today to call on the SNP Government to take action now."

Fair concluded: "We need the Government to meet with the industry and lending institutions to find ways of improving access to commercial funding and consumer mortgage products, particularly for those without large deposits such as first time buyers and key workers. There is a pressing need to restore confidence in the market. This is the only way to ensure that those who want to buy a new home can do so."

www.homesforscotland.com

In reply to subtle: It would help if the developers didn't insist on sticking a huge "new build premium" on their askign prices - makes it very difficult to provide mortgage finance when the asset securing the debt is depreciating like a second hand car...

In reply to Fat Elvis:

Sure you're right of course - but a woman did get done for accepting a cheque for an ebay item above the sale valueand then refunding the difference once it had cleared. The court's view was that anyone would realise it wasn't a normal transaction.

Not sure what the attempted fraud was here though - they could hardly expect to get title to the house, so there must've been something else going on that would have happened had the cheque gone through.

Amazed that a bank wouldn't ask more questions about a private individual paying a cheque of that size from n-power or whoever into an account though.

In reply to grumpybearpantsclimbinggoat: We had Roger Bootle of Capital Economics (writes for the Torygraph amongst his many activities) in the other day as he advises us on the state of the world economy; we use his information to help us with our investment decisions.

Roger provides a lot of highly technical and wide ranging information to us but I thoguht I'd sum up his predictions on two araes namely house pirces and interest rates: house prices will fall by 20% by the end of 2009 and interest rates will fall to 3.5% by the same point possibly even to as low as 2%. Interest rates might rise this year to keep inflation under control.

So, wait until the end of 2009, buy properties to let on the cheap with low interest rate deals and set the whole cycle off again!

And finally....buy Chinese pigs; evidently there is a massive demand for pork in China and prices have been soaring.

In reply to michael lawrence: Capital Economics are the ultimate bears on house prices though, aren't they? They've been predicting a colapse since at least 2005. 20% seems pretty mild for them. Can't see why he would reckon HPI of that size AND very low interest rates though - unless they're convinced that the BoE will fart about for another 12 months, liquidity stays absent and then suddenly wake up and start slashing interest rates.

In reply to andy:
Not sure I understand this ? 'normal transaction' ? paying some one back for a over payment is common and not illegal hanging on to the over payment may be.

Very true, they wouldn't have got the title to the house.

Thats why I told her to do it via a solicitor. It was a cheque if the dude had turned up with cash, that would have been a different issue, questions would have been asked especially if they had been in small demoninations.

I did get 20 questions from a bank once when paying 900 quid in 5 pound notes, apparently it was the standard rate for a wrap of smack at the time. Was total legit though.

I have paid large cheques in to my personal account in the past (ah those were the days) , never got asked any questions, bona fide cheques are easy to trace if required.

Simple thing is she has done nowt wrong, someone just trying it on who's a little on the thick side when it comes to house transactions.

In reply to andy:

Also, I don't think the BOE are that dumb (yes I know...!). Interest rates are actually historically fairly low (Base Rate) already, the problem being that because of liquidity problems banks are throttling their new mortgage intake by increasing the difference between the interest rate they charge and the Base Rate.

(Insert Happy Dance Here - our new mortgage is base rate plus 34 bp)

Hence if the bank wants to reduce the house price fun and games it needs to address liquidity not rates.

The last thing the bank is going to do is plunge interest rates down to 2% without addressing liquidity because that would both fuel inflation - probably out of control at that level - AND not necessarily help the housing situation - worst of both worlds - AND cause Sterling to drop like a stone.

I really don't think they are that dumb. Capital Economics may think so, but I have to say I disagree.

In reply to Fat Elvis: "Not sure I understand this ? 'normal transaction' ? paying some one back for a over payment is common and not illegal hanging on to the over payment may be."

Blokes agree to buy car (say) off ebay for £5k. Send the woman a cheque for £10k with some excuse and she pays them the £5k overpayment. They've laundered the money, and she got done for being involved, with the prosecution case that it was so obviously dodgy she must have known.

I'm sure we've all paid big cheques in, but a £70k cheque from Norweb going into a private account should raise some questions - or every bit of money laundering training I've had says it should, anyway!

In reply to John_Hat:

Further to that, What I actually suspect the bank will do is very little. Keep rates around 5%, possibly a quarter of a percent higher or lower, for the next year or so, and wait for the liquidity situation to sort itself out while praying on their knees every morning, noon, and night, that inflation doesn't go too high.

If inflation takes off they will **have** to raise interest rates.

I would suspect if inflation starts to rise they will try more liquidity injections, possible on an industrial scale, to try and deflate mortgage rates, plus raising base rate to about 6%-6.5% in quarter point increments every couple of months...not sure what the inflation elasticity of interest rates is, so possibly that would be overkill though.

Just my twopennyworth

In reply to John_Hat: Yes, CE have been bearish for some while and it is in fact something we take the mickey out of them for. Their response is "timing might be a little out but we're usually proved right in the end".

Bootle believes that the liquidity crisis, or at least the very worst of it, has eased now. The cause of difficulties for homeowners is likely to be lenders' reluctance to take on high LTV's. If the lenders think that house prices will fall by 20% they will wish to underwrite accordingly.

As one would expect, any issues with liquidity are likley to affect those borrowers who are anything other than prime and indeed prime plus. Your own experience John shows that decent deals are available.

By the way, have you seen the cricket score?!!!!

In reply to John_Hat: The reason banks are holding rates high are twofold - one, liquidity but two (and the reason jouranlists just don't get it) is most interbank lending is priced off LIBOR (eg the BoE liquidity facility) and LIBOR is stubbornly holding out at c85bps above base. Also, one of the (now) most important wopurces of funding is retail savings and the Norwegians and the Nigerians are coming over offering instant access rates of base+150bps. best buy tables are what drive savings balances, so to compete you're paying out probably 100bps more than you were a year ago.

In reply to andy:

Yes, this is why I am bouncing with great happiness that my mortgage is priced off base rather than LIBOR or (worse) a bank's SVR! **bounce** **bounce** **bounce**

In reply to John_Hat: I wonder how much longer banks will price trackers off base - it used to be that you could just stick base + 15 in your pricing model and live with the minor ups and downs.

Your own experience John shows that decent deals are available.

Cricket scrore? nope. Not a follower, sorry!

To be honest, I cannot see how a life tracker at 34bps above base (and a low (£300) arrangement fee and no redemption fee) can ever make the bank any money....

I would point out that that deal is no longer available... **grins**

In reply to andy:

Aye. I would imagine either Not Very Long At All, or they will price at **way** above base. That +34 bps mortgage is now a +99bps mortgage - we just got in in time before they lifted it.

In reply to John_Hat: "To be honest, I cannot see how a life tracker at 34bps above base (and a low (£300) arrangement fee and no redemption fee) can ever make the bank any money...."

It can't. And never could. And is living proof why Barclays mortgage business is run by buffoons (assume it's Woolwich?). They must just have unshakeable faith in their ability to sell you insurance.

In reply to andy:

Nah, not woolwich. HSBC.

They may work on living off the stupendous interest they are charging me on my current account - (well, if I was in overdraft, they would be...)

In reply to John_Hat: HSBC's mortgage business is run by a very clever man. Who knows almost nothing about running a mortgage business.

In reply to andy:

Not complaining here. **grins**

In reply to andy:

a good number of analysts think 20-25% down is an optimistic number and
the price increase over the last 7yrs is more dramatic than that seen in the 90s.

the interbank lending market is 100% fooked. there's no trust between banks and there's going to be no return to the aggressive creativity of the last decade - risk managers are in control now.

every bubble in history has had people claiming it was a paradigm shift and the valuations were fair.

the fact that interest rates are low is also a reason to be negative. a 1% increase from 5% to 6% is a greater increase proportionally than from 10%-11%. and also, there is less leeway to reduce interest rates to save mortgage holders.

finally, i'd argue that interest rates are artifically low at the moment and that the quoted inflation rates are bollocks. with oil at $130/barrel and food so expensive are you telling me that the average person's expenses have only increased by 4% or whatever the rpi is? i would say real interest rates are already -4%.

In reply to Tobias at Home: "a good number of analysts think 20-25% down is an optimistic number"

Do they? Who? As stated above, Capital Economics, the grizzliest of the grizzly bears are saying 20% down. Haven't seen anyone say 25% is "optimistic".

I agree that there won't be a return to the massive securitisations we've seen before, but German banks have no prblem selling debt on to German insurers. Liquidity will return, albeit at lower levels, and the underlying economy is ok - the risk managers are indeed having their voices heard, but banks also need to make a profit - they can't sit on cash forever, so prudent, sensible lending, combined with lower rates and higher wages will see the balance shift in the UK before wee see anywhere near the sort of levels you're talking about - I could just about see 20% falls in a worst case scenario, but if that happens the UK punter's need to buy, added to better affordability will see prices start to recover - slowly, and imho more healthily.

In reply to andy: Ah see what you mean, but…

As far as my friend is concerned it was done in good faith with correspondence to verify the potential transaction and the above example is not really applicable as it sort of fails on several points, namely no fraud had taken place (on her part) except for the cheque which was not issued by her, and seeming it was from a large reputable company and I suspect banks are used to seeing large cheques from well know public companies (and you still havn’t got the right company, and I am not telling who is was allegedly from). So it would be reasonable to assume a cheque of that value was not an unusual amount from such a large organisation.

Also my friend, was the potential victim of the fraud and merely acted upon the information provided by the potential fraudster. Besides for there to be criminal action you have to establish mens rea etc, which would be very difficult to do as there wasn’t any on her part.
Her solicitor didn’t seem to have a problem with it !!!

So basically every time you pay a large cheque in to your account from a large company say your pension payout cheque from Norwich Union of 250k sends the banking industry in fits of panic.

I was told once that cheques above 5k (drawn on business accounts) are automatically sent to the issuing bank branch for signature verification etc.

No doubt she will get a visit from the plod at some point but she has nothing to hide.

What’s the name of the case you mentioned I will look it up and have a read.

In reply to Fat Elvis: I can't remember the case - in fact I think it was someone I know who was on the jury that meant I heard about it! Have had a look but couldn't find the name.

I think the defence in the ebay case was that she accepted the cheque in good faith, but that the jury found it impossible to believe that she wouldn't assume something was dodgy.

I wasn't really saying it's the same (merely being flippant, really) but there is a degree of "presumed guilty" with stuff like money laundering. And i'm not trying to guess the lecky company (could hardly be - Norweb disappeared years ago!) - but if I worked in a branch and a customer said they were depositing a cheque for £70k as a deposit on a house (especially as that sort of thing would normally go via a solicitor's client account) then my money laundering training would kick in and i'd certainly ask the question - I suspect the person that banked it would have got as right bollocking. And yes - big deposits do tend to make people ask questions as the training starts off by telling you you can get sent to jail!

In reply to andy:

Nah its cool fella,

Got a buddy who was quite senior in one of the big four banks, he has told me some right horror stories concerning, carousel trading and other seriously dodgy transactions, like you said they have to be careful as the bankers can end up in the dock.

Like little shops which turnover 10k a month and then rocket to a balance of 2 million over night, then the alarm bells ring accounts get frozen etc.

As with most things if it seems too good to be true… it usually is.

Today...

http://business.timesonline.co.uk/tol/business/money/property_and_mortgages...

Troubled Bradford & Bingley raises mortgage rates

Bradford & Bingley, the UK's biggest buy-to-let lender, has raised the rates on its mortgage deals by 0.55 per cent today.

The move will come as a further blow to buy-to-let landlords who have seen the number of deals on offer whittled away during the credit crunch.

Many landlords have also seen the value of their investment property tumble, as city centre flats - the popular choice of investment - have fallen faster in value than other types of properties.

Cheltenham & Gloucester, another lender that offers buy-to-let deals, increased its rates twice last month, while CHL stopped offering new mortgages altogether yesterday....

BTL is not merely an isolated sideshow. A lot of recent BTL entrants have MEWed their deposits from their own houses, so tying the two segments together.

Consider the dimwits who recently bought flats in Liverpool/Nottingham/Leeds/Sheffield/etc and are currently funding the gap between mortgage payments and piddly rents. If they decide to give up in the face of falling capital values, they will have to remortgage or sell their PPR to cover the capital loss.

lsn

In reply to Tobias at Home:

That is an oxymoron. Risk mangers were instrumental in getting the banks into this mess.

As for this thread, you are all talking like people in the US two years ago. We are still dropping and it is getting worse. Unemployment just jumped 0.5%, biggest jump on record. My suspicion is that it will get a lot worse in the UK than US, at least teh fed takes grwoth into account before deciding interest rates.

In reply to lowersharpnose:

Is your beer bet for 2010 going to be in 'real' or 'nominal' values. You should probably get that clear...

In reply to lowersharpnose: "City centre flats - the popular choice of investment" is so far off the mark it's laughable (and the journalist in question should know that too) - new build makes up under 10% of new BTL, and new build flats less than half that. City centre new build flats are a minor % of that again - once more for the tape: THEY ARE NOT SIGNIFICANT. They make good headlines for people like Grainne Gilmore when they can't be arsed to do their research properly.

70% of new BTL lending is on 2/3 bed houses, that landlords have often bought pretty cheap and done up - so the asset cover (and rental income) is good.

In reply to wilding: I think it's the Halifax index number - comparing Dec 10 with Dec 09 on their normal 3 month average basis.

In reply to wilding:

Real.

lsn

In reply to lowersharpnose:

A general point on The Times - most papers don't know what they are talking about and make most of it up. The Times appears to make all of it up. It has gone from my paper of choice and a paper I respected to a rag end of abysmal journalism which spends most of its time producing articles on "top 10 things to do on holiday" and "top ten beauty treatments".

Their business editor is a clown, most of the journalism on financial matters is pure scaremongering based on Wot The Bloke Down The Pub Said, and in terms of real facts I would trust it on a par with The Daily Mail.

I'm incidentally now banned from commenting on the Times website under my own name. You can probably guess why. It was a constructive critical comment and they didn't like their article being torn to shreds, so they banned me.

I've got sick and bored of pointing out the numerous factual errors in their coverage of banking and finance (under various assumed names). Not going to bother here either! **grins**

In reply to Fat Elvis:

OOPS! Triggered CIFAS and JMLSG. Try getting a mortgage/load/any credit now....

In reply to Kipper:

Whats these anti money laundering things I take it ?

In reply to Kipper:

Oh dear just done some reading up on this err, think the pooh will hit the fan !

In reply to andy:

Considering the HBOS data, how low do you think their figures will go?

The peak was Aug 07 at £199,600 and we are now at £184,111.

I reckon £150,000 is more likely than £160,000 as a bottom.

lsn

In reply to lowersharpnose: Hadn't really considered it! Don't really think about the actual number - I guess I'd be surprised to see it go below £165k before it starts climbing again.

In reply to grumpybearpantsclimbinggoat:

Not read any of this thread, just love your user name!

I salute you mr grumpybearpantsclimbinggoat

ARLA: Average rent down 9%

http://tinyurl.com/6f4hsu

The price of rented accommodation in the UK property market has experienced a sharp downward correction, despite ongoing turmoil caused by the liquidity crisis.

While potential property buyers defer purchases – waiting to see if prices will fall further – and remain in rented accommodation demand for rental accommodation has been on the increase.

As such rent has been peaking at record high levels.

However, this trend appears now to be reversing with the average cost of a rented house down seven per cent, and the average apartment nine per cent, according to new research from the Association of Residential Letting Agents (ARLA).

"We are seeing corrections in individual locations throughout the country," said Ian Potter, head of operations for ARLA.

"The main cause of these is the developments of new blocks of two-bedroomed flats coming on-stream. In many places this has had a positive effect as it has allowed the rental market to provide stability in housing at a time of volatility in the sales market....

A further illustration of BTL problems. In my view the severe problems in the market for flats will affect the wider residential picture as landlords decide to cut their losses and sell.

lsn

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=...

The number of houses changing hands has "collapsed" to the lowest level in 30 years, an influential housing market survey shows today.

The fall in sales far exceeds the depths of the last housing crash in the 1990s and is the lowest since records began in 1978.

The average number of houses that estate agents sold in the past three months was 17.4 - almost a third lower than a year ago, says the Royal Institution of Chartered Surveyors (RICS).

Its report also says that gazundering, the controversial practice of buyers dropping their offer price after they have agreed to purchase a property, has returned.

While prices have started to fall in earnest only in the past two months, the report makes clear that the property market is in a dire state.

Buyers are refusing, or unable, to hand over any money to purchase a house.

"The continuing lack of demand in the housing market is reflected in the collapse in transactions," says the report."

Tim Edmonds, an estate agent and RICS member, said: "Transactions have virtually halted. Where sales have been agreed, it is very difficult to get them through to exchange."

Neil Hunt, a Derbyshire-based estate agent, said: "Demand has plummeted to a crisis point with sales at their lowest May level in memory.

"An avalanche of job losses in the housing industry is beginning to materialise which could make current media stories look like the good old days."

The credit crisis has pushed up the cost of mortgages and first-time buyers need to find deposits of 10 or even 25 per cent to get the best rates from some lenders - equating to more than £30,000.

The report comes after economists warned yesterday that the Bank of England may increase interest rates later in the year because of rising inflation. Rates on the swap market - where banks borrow to fund fixed-rate mortgages - jumped yesterday. Those used to fund two-year mortgages rose from 6 per cent to 6.3 per cent.

It was the biggest one-day increase since 1992 and some specialists predict lenders will have to increase mortgage rates as a result.

The drought in housing transactions is starting to cause substantial problems for the economy, the RICS warns, as estate agents, lawyers, mortgage brokers and removal men suffer their quiet­est period in a generation.

Even during the depths of the housing crash in 1991, agents sold 26 properties in any three-month period - almost 50 per cent higher than last month's figure.

Jeremy Leaf, a north London estate agent and RICS spokesman, said: "House price falls in themselves are awful, but only for those that have bought recently and need to sell.

"However, for the wider market they are not a problem. What really is serious is when buyers stop walking in through the door."...

I have been reading anecdotals of estate agent closures and large nominal price falls.

lsn

In reply to lowersharpnose: Heard this on radio 4 this morning. Not to worry, I'm wearing rose tinted glasses today so all is well in the world!

;0)

In reply to lowersharpnose:
Traders are gambling on a 75 basis point rise before 09. Added to this:

http://news.bbc.co.uk/1/hi/business/7445324.stm

Doesn't look good for many people.

Maybe the house will revert back to a shelter for dwelling as opposed to a guaranteed long term equity investment vehicle...

In reply to Cerulean:

Well, estate agents and builders anyway, but then if a reporter wants a quote who's he going to ask? I was just reflecting upon this today and imagining the headlines if the price of fish dropped. One could either report it as good news for the consumer or bad news for the fishermen...


Forgotten lessons being re learnt.

In reply to Removed User:

For those who plan to be net buyers of property over the next decade or so, price falls are a good thing.

For those who have borrowed large amounts to buy a house with little equity, falls are a bad thing.

I'd be happy to read headlines along the lines of "Good News : Further House Price Falls".

lsn

In reply to Removed User:
I think all-in-all its good news because the price of a basic dwelling in this country is artificially high (which has created so many knock-on problems), and the fishermen have had it very good for a good long time now. The inevitable needed to happen (if indeed it is happening) for them to be guaranteed to have it good again.

[CAUTION: Philosophy] Balloons can only be inflated so far before they burst (or you let them down), and then you can't have another party without more balloons...

In terms of bad news I was thinking along the lines of people who've gone in over 90% LTV in the last few years, and the bulging amateur BTL market. There's going to be some red faces along the way.

In reply to Removed User: Problem is the majority of people are house owners but not fishermen

In reply to Cerulean:

What I just don't get is why the rampant house prices increases up to last year never appeared to cause concern to the government, Bank of England or the media. Surely it has been widely accepted for a long time that inflation is a 'Bad Thing'? So why was inflation in one particular area - namely housing - a 'Good Thing'? Why did I hear no economists saying that HPI should be checked years ago?

The problem is not really that house prices are crashing but that they were allowed to get high in the first place.

In reply to El Greyo:
No-one ever really focuses on the bad side of a sure-fire bet...

On a related topic: Hot (well, warm) off the City press:

"...

Reuters reports that Oppenheimer analyst Meredith Whitney says that she expects Citi, Merrill Lynch and UBS to take more writedowns due to their exposure to monoline insurers.
Ms Whitney wrote in a research note out this week: 'The limited earnings potential of monolines poses a risk to the value of the insurance and hedges on the subprime-related securities provided to the banks and brokers. The collateral damage could be in excess of an additional $10bn.

The news agency also reports that shares in UBS came under pressure Monday, after rumours of additional asset writedowns and a less than enthusiastic response to the company's $16bn rights issue, required to beef up the firm's balance sheet following $37bn in writedown sustained over the last year or so. Reuters quotes Helvea analyst Peter Thorne, who said: 'All the people I know are so unhappy with what's happened. There is no confidence in the management, or the company's strategy. I cannot see them investing more money in UBS'.

The Financial Times reports that European firms have suffered more than their US counterparts in terms of credit losses. European financial institutions have sustained losses of $200bn, against the $166bn suffered by US firms. Having said this, US financial institutions have strengthened their balance sheets to the tune of some $125.5bn, compared to the $141bn raised by their US rivals.

Bloomberg reports that, according to the European Central Bank's June Financial Stability Report, the fact that European banks are facing the prospect of 'dampened' profits and additional asset writedowns puts the financial system more at risk now than it was 6 months ago.

In the meantime, speculation is mounting that Barclays may soon be coming to the well and beefing up its balance sheet. Bloomberg reports 'two (unnamed) people with knowledge of the matter', who suggest that a share issue may be on the cards. The news agency quotes Royal London Asset Management CIO Robert Talbut, who says that 'many people are surprised they haven't pushed the button by now'.

Reuters reports that HSBC chairman Stephen Green has come out and said that he thinks that the game is up for firms seeking to achieve higher returns from increased leverage. He said: 'The huge build up of leverage in the system over the last 5 years, where profit depended on high and ever-increasing leverage - that model is gone, and that model is gone because it is bankrupt. This isn't the end of a bubble, it's the end of the business model'.

Finally, The Financial Times reports that London-based hedge fund Odey Asset Management is to close its Japan hedge fund. The fund is said to have seen assets fall away from $1.2bn to just $40m in the last 2 years, following poor performance and investor withdrawals.

..."

So, everybody is still losing money, and trying to raise more...

A plethora of times articles

http://business.timesonline.co.uk/tol/business/money/property_and_mortgages...

http://business.timesonline.co.uk/tol/business/industry_sectors/constructio...

http://business.timesonline.co.uk/tol/business/industry_sectors/constructio...

I like this one about hard times for the major house builders.
http://business.timesonline.co.uk/tol/business/industry_sectors/constructio...

Oh and this may point (politics of the situation not withstanding) to housing issues at the moment.

http://business.timesonline.co.uk/tol/business/industry_sectors/constructio...

In reply to lowersharpnose:

Yes agreed, or at least agreed if they need to move while the price has dropped.

What annoys me is that some arse in a sharp suit lent the first time buyer all that money and in all likelihood didn't point out the possible pitfalls of negative equity even when it has been apparent for well over a year that prices were unsustainably high. But then why would they? They don't earn any money if they don't lend any so it's not in their interest to urge caution.

In reply to Removed User:

But then why would they?

Why should they?

caveat emptor and all that.

lsn

In reply to lowersharpnose:


Very true. However I think it a little dishonest for these people to call themselves "advisors" and "consultants" which leads the naive and financially dyslexic among us to think that these characters are working the customers best interests and not their own.

Sad news today chaps and chapess's

http://business.timesonline.co.uk/tol/business/money/property_and_mortgages...

Seems house builders are losing value like a hole in the pocket. Interestingly, went to see a Wimpey (don't ask) house back in December. They were very bullish. We couldn't agree a price on the property. They even announced in January that they would cut costs by reducing the contract values to the people building houses for them and would categorically not reduce house prices to buyers. In May, the type of house we looked at dropped £20K. Now they have dropped it a further £5K.

This means that the current asking price is now less than what we were prepared to go up to in the the original discussions. Oh and they'll throw in a free bbq and carpets too.

Hey ho!

In reply to grumpybearpantsclimbinggoat:

That article provides more evidence that those running property related companies have no special knowledge about property cycles and risk. Indeed, their collective judgement is biased by herd following and often plain wrong. That applies to mortgage lenders as well as house builders.

A year ago Barratt shares were changing hands for nearly £11, valuing the company at £3.8 billion. It had just completed a £2.2 billion cash acquisition of Wilson Bowden at the height of the housing boom.

The shares are 77p now.

lsn

In reply to lowersharpnose: However, people still need somewhere to live so inevitably:

http://news.bbc.co.uk/1/hi/business/7443439.stm

which will translate into reduced voids, increased rents and (combined with reduced prices) ultimately improved yield. Within 2 years it will be a good time to look at BTL again I would have thought.

In reply to Rob Exile Ward:

which will translate into reduced voids, increased rents...

The Beeb is quoting selectively from the ARLA survey.

Repeating a post from earlier on the thread...

ARLA: Average rent down 9%

http://tinyurl.com/6f4hsu

The price of rented accommodation in the UK property market has experienced a sharp downward correction, despite ongoing turmoil caused by the liquidity crisis.

While potential property buyers defer purchases – waiting to see if prices will fall further – and remain in rented accommodation demand for rental accommodation has been on the increase.

As such rent has been peaking at record high levels.

However, this trend appears now to be reversing with the average cost of a rented house down seven per cent, and the average apartment nine per cent, according to new research from the Association of Residential Letting Agents (ARLA).

"We are seeing corrections in individual locations throughout the country," said Ian Potter, head of operations for ARLA.

"The main cause of these is the developments of new blocks of two-bedroomed flats coming on-stream. In many places this has had a positive effect as it has allowed the rental market to provide stability in housing at a time of volatility in the sales market....

A further illustration of BTL problems. In my view the severe problems in the market for flats will affect the wider residential picture as landlords decide to cut their losses and sell.

Last time around yields rose to 10%-12% in London. I bought properties at 10% in Bristol.

For yields to reach such levels again, prices will have to fall a lot more than a mere 25%.

lsn

UK unemployment rises by 38,000

http://news.bbc.co.uk/1/hi/business/7447791.stm

Unemployment in the UK rose by 38,000 to 1.64 million in the three months to April, the Office for National Statistics has said.

That increased the unemployment rate to 5.3% from the previous rate of 5.2%. ...

lsn

In reply to lowersharpnose: cool daily mail article

http://www.dailymail.co.uk/news/article-1025438/Pictured-The-luxury-council...

Another turn of the screw. This is one area that should have been sorted years ago, doing it now will just add to the downward pressure on the prices of new builds.

UK lenders tighten valuation criteria on new homes

http://www.reuters.com/article/bondsNews/idUSL1145719320080611

Britain's mortgage banks and property valuers are to tighten up their conveyancing procedures in the wake of a housing downturn that has exposed some sharp practices on newly built homes.

"Some lenders have been concerned that the valuation and conveyancing processes do not always capture discounts and other incentives that buyers may be able to negotiate with developers when purchasing newly built property," the Council of Mortgage Lenders (CML) said in a statement.

"This may mean that, in some instances, lenders might unintentionally offer a mortgage based on a valuation of a property that is higher than the true price paid for it."

That has left some buyers of newly built properties more exposed to the risk of negative equity as house prices have tumbled and increased the potential for repossessions.

From Sept. 1, lenders will require builders of any newly built, converted or renovated property to disclose any buyer incentives so that the decision to offer a mortgage is based on a reliable valuation of the property, the CML said....

lsn

In reply to grumpybearpantsclimbinggoat:

Can someone answer a question for me.

Houses sell for about three times as much now as they did a decade ago.

As far as I'm aware bricks, mortar, glass, plumbing and labour has increased in price roughly in line with inflation i.e. ~30% over the decade.

So why is it that Wimpey could build and sell a house for £70K a decade ago and make a profit but now have to sell the same size house for £200K to make a profit? Has land increased in price that much?

In reply to Removed User:

Yes, put simply. Land value has increased over the cost of materials.

The building materials are only part of the picture. The acquisition price of the land is calculated as being the residual element of the sale price, less the building cost and developer's profit.

As demand for housing grows, the value of undeveloped land especially land with planning permission or significant hope value increases

Example, assuming you live in a house (rather than a flat) your home insurance is less than you paid for your house. The balance is the value of the land (les other costs such as Stamp etc) since if your house burned to a frazzle, the land would remain - be the residual element of value.

In reply to Nevis-the-cat:

All comes back to the question. Has demand really risen? Or has it all been speculation? Answers on a postcard

In reply to wilding:

The two are, to a greater extent, the same.

In reply to grumpybearpantsclimbinggoat: Thank you for that. That is one of the best Daily Mail links I have seen for a long time - it has everything! Fear of 'the underclass' - envy - righteous indignation... Excellent!

What sh*ts Daily Wail journalists are.

In reply to wilding:

We've recently had an ingress of about half a million new workers who need somewhere to live, so this new almost 1% population increase (also producing offspring) would increase demand for homes.

In reply to Cerulean: We've recently had an ingress of about half a million new workers who need somewhere to live, so this new almost 1% population increase (also producing offspring) would increase demand for homes.


I was wondering whether this trend will reverse as the economy declines. Mind you if its a world recession then no country is going to be more attracrtive than the orther for migrant workers. I gather that last months UK unemployment figures showed a marked upward trend. Virtually full employemnt was the key prop to the housing market.

In reply to Cerulean:

I just don't see the new low-paid workers being responsible for pushing the prices up...

Who on this website could afford an average house at 3.5x salary?

Anyway, this argument has been done to death - i suspect a fall of 40% in the UK in nominal terms - larger in real terms.

In reply to the thread: The Chairman of HSBC summed it up after the bank big wig meeting held earlier this week when he said protecting balance sheets was the most important factor in the way lenders were behaving. They had refocussed on increasing margins rather than market share to achieve this. They aren't interested in demand. Many lenders have dropped out of the market and some are actively discouraging borrowing with high rates and fees and low LTVs.

In reply to Tiggs:

In english i guess he means

"We are no longer going to give our money away to people with no chance of repaying it"

In reply to wilding:

not forgetting 'and we've shifted the goal posts too'

Its not just borrowers who had 'no chance' of repaying who are affected by what is happening in the market.

In reply to Tiggs:

HSBC is in a different league to all its rivals.

IMHO, it did not lend as much relative to its capital base and what it did lend was, on the whole, to less risky borrowers.

That's why the market cap of HSBC is greater than that of Standard Chartered, Royal Bank Of Scotland, Lloyds TSB, Halifax Bank Of Scotland, Alliance and Leicester and Bradford & Bingley combined.

lsn

In reply to Tiggs:

I think they have just returned the goal posts back to their pre-2001 position.

Zoopla is still in its infancy but comes up with this about house value

http://news.sky.com/skynews/article/0,,30400-1318845,00.html

Average house price fall last month at £1000 - hmm!

http://firstrung.co.uk/articles.asp?pageid=NEWS&articlekey=9779&cat...

Some good news, well a comment on economics and oil prices

http://money.cnn.com/2008/06/06/news/economy/tully_oil_bust.fortune/index.h...

An estate agent turns bearish and expects 20% falls by 2009/10...

Knight Frank Residential Research Monthly residential market update

http://www.knightfrank.co.uk/press/2008-News-Stories/Monthly-residential-ma...

The UK housing market is experiencing a significant downturn. On several measures the speed and severity of this downturn is worse than the one seen in the early 1990s. Across the prime and mainstream markets, together with the new build sector, there has been worsening performance since October last year. The weak sentiment in the housing market is reflected across the wider economy, with consumer confidence, as measured by the NOP Index, at its lowest level since 1992.

With some regional and local market variations, house prices across the UK have been falling since the Autumn, with prices in May approximately 8% below their Autumn peak. More noticeable has been the impact of the market downturn on sales activity, with mortgage approvals and sales volumes in April and May almost 50% below their long term average.

The most significant driver behind weak market conditions has been the fallout from the credit crunch. Access to mortgage finance has been severely restricted, and the cost of finance has risen at the same time. This is the most significant issue facing the market at the current time, and despite recent efforts by the Bank of England there is little prospect of a significant easing of conditions in the mortgage market in the near future.

The speed of market change has meant that it has become an increasingly hard task to place forecasts on future price movements. Despite the difficulties, our view is that prices will come under continued pressure through 2008, and in all probability into 2009. From the peak in autumn last year to a low in either 2009 or at worst 2010, prices are likely to fall by around 20% in total. This is our central scenario; in the unlikely event that lower inflation pressures mean the Bank can reduce interest rates sharply, we could see a marginally better outcome for home owners, alternatively a long term drought of mortgage finance could easily lead to a noticeably higher overall fall in prices. ....

lsn

The Woolwich building society pulls deals and the Nationwide increases its rates...

http://business.timesonline.co.uk/tol/business/money/article4147412.ece

The Woolwich, the lending arm of Barclays, will tomorrow withdraw all of its two-year fixed rates from the market, citing the need to control customer volumes.

The lender has also increased fees from £595 to £995 on tracker rate deals....

The Woolwich announcement comes on the same day that the Nationwide Building Society, the UK's second largest mortgage lender, ramped up rates by up to half a percentage point for the second time in two weeks.

...Nationwide reserved its most punitive increases for borrowers with the least equity. Anyone seeking a two-year fixed-rate loan for up to 90 per cent now faces interest of 6.95 per cent, up from 6.45 per cent.

On a £150,000 home loan, the difference in monthly repayments would be £47.

But even the most secure borrowers were not spared, as those with equity worth at least 25 per cent of their property's value were hit with a 0.3 percentage point rise in the cost of a two-year fix, up from 6.25 to 6.55 per cent.

For those who have a deposit of just 5 per cent, rates are now edging dangerously close to 8 per cent...

lsn

In reply to grumpybearpantsclimbinggoat:

There is a glimmer of life appearing on the dead housing market horizon.

Estate agents are reporting that homeowners trying to sell are now very aware that values have fallen which makes them more likely to accept an offer than they would have been even a month ago. This is resulting in a trickle of more deals being made.

In reply to lowersharpnose: Swaps have gone nuts - this will almost certainly be pricing in response to the last lot of rises - there'll be another 20bps at least to come on this lot unless the markets regain a little common sense. 2 year swap at 6.40% today.

In reply to all:

Whilst I'm sure everyone appreciates that looking at inflation is a bit like looking through whatever pair of glasses with any particular shade of 'rose' the governement decides to show us the inflationary world through 'The Bank' are releasing data that can't really be argued with.

If you take the Consumer Price Index (CPI) which has just been reported as 3.3% (prompting another letter from Merv to Alistair)

http://news.bbc.co.uk/1/hi/business/7458209.stm

...we can see that inflation has risen by 30% since March - from 2.5 to 3.3% - meaning that significant changes are actually happening to the man in the street (no shit...). In fact as everybody loves a graph people might want to review some of this too:

http://www.bankofengland.co.uk/publications/inflationreport/ir08may4.pdf

With the banks putting rates and mortgage costs up at the same time - regardless of whether Merv does - things aren't looking good for the commonly stretched denizen of the UK. This wandering hand in hand with tightening loan and remortgage criteria the curtains really are beginning to close on the golden years of credit we've been enjoying over the last decade.

Save save save...

In reply to lowersharpnose: That's why the market cap of HSBC is greater than that of Standard Chartered, Royal Bank Of Scotland, Lloyds TSB, Halifax Bank Of Scotland, Alliance and Leicester and Bradford & Bingley combined.

HSBC, it should be pointed out, was always much bigger before the credit crunch - a giant even by global standards.

The shareholder activism of the Childrens Investment Fund to make HSBC more enterprising isnt going to make as much headway now I guess.

My heart bleeds for them! Well, the builders themselves (that do a good job I genuinely have concern for their livelihood).

Barratt Developments, Britain's most prolific builder, enjoyed 14 consecutive years of rising profits, as it pushed operating margins above 16pc. Only last year, its chairman, Charles Toner, told investors: "We have strengthened our landbank and have achieved a record forward sales position… the housing market is sound and the underlying business is strong."

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/18/ccjeff118...

An interesting question in the following article

http://www.citywire.co.uk/personal/-/diversions/the-money-blog/content.aspx...

For the Scottish contingent that say the house price drop is local to England, not a definitive answer obviously.

http://www.pressandjournal.co.uk/Article.aspx/693749/?UserKey=0

House prices 'to fall 9% in 2008'

http://news.bbc.co.uk/1/hi/business/7462773.stm

HBOS, the UK's biggest mortgage lender, has forecast that UK house prices are set to fall by 9% this year.

The banking group, which owns the Halifax, had earlier predicted that the decline would be less severe.

In a trading update, HBOS said the housing market remained "subdued" and the number of transactions this year would be down by 45% on 2007's level.

...In February, HBOS said house prices would be "flat" in 2008. Then, in April, the Halifax house price survey predicted "a mid single digit percentage decline"....

IMHO, the chances are that the HBOS are still behind the market.

lsn

In reply to thread:

The damned fools!

http://news.bbc.co.uk/1/hi/business/7460452.stm

This is exactly what happened last time. You don't fight inflation by agreeing to inflate. Next thing you know when the squeeze really bites the public sector will have to follow the private sector in their bid for higher wages and we'll all be out on strike...

http://www.ft.com/cms/s/0/62bed080-3dcb-11dd-b16d-0000779fd2ac.html?nclick_...

Everybody's going to feel it before long:

http://www.ft.com/cms/s/0/46b2e288-3d75-11dd-bbb5-0000779fd2ac.html

http://news.bbc.co.uk/1/hi/business/7461635.stm

http://news.bbc.co.uk/1/hi/business/7462773.stm

In reply to grumpybearpantsclimbinggoat:

Just to illuminate the other side of the coin. I heard a report on R4 this morning that housing associations see the current downturn in house prices as an excellent opportunity to buy property. Tried to find a link to it on the BBC website but strangely enough there was nothing there.

In reply to Removed User:

Oh yes, there's a lot of people around with a lot of money still who have been waiting for this sort of thing. However they're not immune to fuel and food costs either and now that Merv has said he won't hesitate to bang rates up to fight the inflation they too may think about spending that money on a limp horse...

The next couple of years will find out exactly how much money there is in our over-inflated system.

Some comment on the the HBOS statement.

http://ftalphaville.ft.com/blog/2008/06/19/13900/markets-live/

...
NH: Mortgage arrears rose 17% to £4,953m (41% annualised) in the
first five months of this year...

NH: now the HBOS mortgage book breaks down as follows
30bn of Buy to Let loans, £31bn Self Cert and
£5bn of other specialist lending, with the remaining
£171bn classified as mainstream lending.

and here’s another worrying stat from the statement around 1/3 of the mortgage portfolio is expected to re-price this year

PM: so that’s a third of the mortgage customers of UK’s biggest mortgage lender facing higher mortgage payments this year...

That will cause some pain.

lsn

http://www.dailymail.co.uk/news/article-1028492/Recession-UK-The-238-000-fl...

...Once seen as a sure-fire way of making a small fortune, newly-built flats have become the worst victims of the housing market meltdown.

Prices of new-builds in city centres have collapsed, with many sold at auction for a fraction of their value only two years ago....

Mr Sandeman said: ‘We are at a stage where there are now flats which are completely unsaleable.’ ...

...The study looked at new-build flats sold at auction between January 2005 and February 2008.

It found that the value of the average new-build flat had plunged by 26 per cent.

Only 20 of the 535 flats sold at auction, which are typically ‘distressed sales’ such as repossessions, were sold for a profit.

Mr Sandeman said the situation is likely to have got even worse since February.

Since then, prices have continued falling and the availability and cost of mortgages, particularly buy-to-let mortgages, has got much worse. ...

I know, yada, yada, yada.

If you think it's only flats, houses wont be affected, think again.

A lot of these flats are BTLs, if the owner has other assets, then the lender will get the shortfall from these assets - in the majority of cases, I'd expect it to be the owner's home that has to go in a forced sale.

Remortgaging a BTL will soon be impossible for most flats bought with large LTV mortgages. The reason is threefold. First, lenders have reduced the amount they are willing to lend, max LTV values are down from 95 to ~80%. Second, mortgage interest rates have increased sharply, meaning that the required rental coverage is no longer met - lenders stipulate that interest must be at least covered by the rent. Third, prices have fallen so a valuation for a remortgage is showing much reduced equity and hence higher LTV ratios, sometimes over 100%, i.e they current valuatiuon of the property is less than the outstanding loan.

I'm beginning to think that my guess of 25% nominal falls from peak to trough is looking a little rosy.

lsn

In reply to lowersharpnose: All very plausible, and will undoubtedly happen in some cases - but the horror stories still ignore the fact that new build flats, bought by BTL investors, represent a very small proportion of the market over the last few years - it's less than 5% of the BTL market, and repo figures in BTL running at <1% it's a very, very small number.

Another thing you may not be aware of is that, believe it or not, lenders have been aware of the potential issues with these properties for some time (perhaps even longer than some 25 year old ex-art student who's now a "personal finance reporter"), so lending criteria have been different - for example UCB (Nationwide's specialist lender) hasn't done BTL on new build flats AT ALL for three years, and all other lenders have limited either LTV (many to c65%) or exposure to specific developments for a similar amount of time.

Mind you, having said that - I'm beginning to think that unless something changes in the liquidity markets soon we could see significant falls again next year, so your 25%, whilst a bit toppy for me, might not be too far away. Part of the problem seems to be that the government seem to think the BoE special liquidity scheme is the answer, but in fact money raised this way is so expensive any loans written will have to have large margins, keeping the cost of mortgages high.

In reply to lowersharpnose:

2 bedroom city centre flats have been massively over built in the last 5 years. Just drive round Manchester / Sheffield / Leeds / etc. This is a large factor in the arse falling out of that particular market. Whilst undoubtedly there will be significant falls in the housing market, I'd expect the falls in the flats you mention to be much worse and not a valid indication of the market as a whole.

In reply to Wibble Wibble:

I'd expect the falls in the flats you mention to be much worse and not a valid indication of the market as a whole.

Agreed. Though a sharp fall in the value of these flats affect the wider market.

More news today...

Bank mortgage lending falls 20%

http://news.bbc.co.uk/1/hi/business/7470677.stm

Mortgage lending for house purchase by the UK's main banks has fallen to its lowest level on record.

The British Bankers Association (BBA) said that in May, the number of new mortgage approvals to home buyers fell to just 28,000.

That was a 20% fall in just one month and 56% down from May last year.

The BBA said the number of new approvals was the lowest since its records started in 1997 and warned that the market would stay subdued....

The UK property market is going through a rapid and unprecedented slump in activity and sales....

The knock-on effect has been that house prices have been falling for the past few months, with many experts now expecting a fall of more than 10% by the end of the year.

Mortgage approvals are widely seen as a good indicator of sales in the next few months.

The figures from the BBA suggest the most dramatic contraction in lending so far....

Howard Archer, chief UK and European economist at Global Insight, said: "More housing market data, more very worrying news that heighten concern that we are in for an extended, deep correction in the housing market.

"The BBA data graphically highlight that housing market activity is currently being throttled by stretched affordability and tight lending conditions.

"Very low housing market activity seems certain to feed through to further depress already markedly weakening house prices."

rgds
lsn

Land Registry - no change in the house price in May but numbers sold down from May 2007

http://news.bbc.co.uk/2/hi/business/7477149.stm

In reply to grumpybearpantsclimbinggoat:

Great the press isn't it? Read; "No change in house prices" and you think everthing is fine again but look at:

"sales volumes during March were half of the number of March 2007"

And you get the real picture...

In reply to Cerulean: Awe, and I was trying to put a positive spin on things!

In reply to grumpybearpantsclimbinggoat:

Here is the glass half empty version....

House sales tumble as mortgages dry up

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/27/bcnhouse1...

House sales have fallen to half the level of a year ago, according to official data from the Land Registry.

The number of houses sold fell from 106,047 in March 2007 to 53,080 in March this year, as the credit crisis caused the housing market to freeze up....

Economists pointed out that the official figures only went up to the end of March and the situation is likely to have deteriorated significantly since then. It was only in April that the mortgage market went into a complete state of turmoil, with over 2,000 mortgage products pulled during the month...

Gloom restored.

lsn

The volume of mortgages is down by nearly two-thirds in a year. This is an unprecedented collapse.

New low for UK mortgage approvals

http://news.bbc.co.uk/1/hi/business/7480834.stm

The number of new mortgages being approved for house purchase in Britain has dropped heavily for another month.

The Bank of England said 42,000 homes were approved in May, a 28% fall compared with the previous month and 64% down on a year ago.

This is the lowest since the Bank began reporting the figures in 1993 and lower than many analysts' predictions.

Mortgage lending has slumped owing to the credit crunch with institutions reducing their willingness to lend.

The number of home loans approved have now fallen for 13 consecutive months, the Bank's figures show. ...

lsn

In reply to lowersharpnose:

What is the average churn of a house including new builds and how many homes are there ?

If there are 21million homes (as Ive seen quoted) then that means 1 in 500 chnged hands in May and extrapolating forward if that figure became the average the churn would be over 41 years !!!

In reply to grumpybearpantsclimbinggoat:

The housing market in the UK has always suffered from a lack of supply, this is one of the basic fundamentals which differentiates our housing market from that of say, the USA. The UK has historically always had a shortage of affordable housing (well 'space' in general). The free availability of mortgages has skewed this basic economic law.

Affordability, (again) is linked in to this observation, prices which attract a mortgage of 5+ times annual salary are not supportable, the availability of cash in the form of mortgages has been reduced as a result of the ‘credit crunch’, the cost of money will rise, especially if inflation sets to march upwards.

Look at the property market in Japan for an example of what happens when affordability, supply and demand and an economic downturn join forces.

An interesting story,(and topical) which sprung to mind, According to Herodotus the ancient Egyptians, had their own credit crunch and recession, during the reign of Asychis. He passed a law that enabled the people borrow money secured on the corpse of their father. If the person defaulted on the loan the lender became the proprietor of the owner’s burial plot. The result was they where denied the right to be buried there and they also lost the right to visit the plot and pay respects to their dead ancestors. Quite a stiff penalty (no pun intended) considering the Egyptians attitude to death.

Puts a slightly different, spin on the meaning of the term mortgage.

If you look at the Nationwide House price data, the base index figure of 100 is based on house prices in Q4 1952, the index as of Q1 2008 is 9486.4 so not a bad return, or compare the index value over a typical 25 year mortgage say taken out in Q1 1983 1391.4 and Q1 2008 9486.4 or in terms of 'real house' prices Q1 1983 £26,307.00 Q1 2008 £179,363.00

Just think long term, but we don't do we ?

In reply to Fat Elvis: On the basis mortgage comes from latin.....mort = death & gage = Pledge..........i think yr different spin is probably nail on the head!!

In reply to barnaby:

Yep, your right (think it was derived from an old french term, but hey, not very good at either or even English come to think of it.)

Today, the term mortgage should be changed to ‘futgage’ instead, seeming the world runs on future pledges.

For example our Japanese friends who pass their (mortgage) ‘futgage’ on from generation to generation, (is this still true ? used to be the case in Tokyo), and I suspect and indeed is happening here with longer length mortgages. (Got to be careful now talk about the word future as this will inflame the ‘futures markets are evil crowd’ and the ‘doom and gloom’ people start waffling on about the price of oil and all that, kind of stuff.)

But is it a bad thing will encourage people to think longer term and may even add some stability, but alas I doubt it. Mind you if we all start living till we are 130 might seem more plausible (sorry this will now set of the over population people)

Oh Bugger !! So we end back in the same ever decreasing circle, ho hum. (this is where the 'sustainability people' come in)

In reply to grumpybearpantsclimbinggoat:

You might want to watch these three little interview videos from the FT web site.

http://www.ft.com/cms/893ac9c8-757e-11dc-b7cb-0000779fd2ac.html?_i_referral...

If this link is duff, try the following http://www.ft.com/home/uk and then click on the View from the markets link halfwas doen the page, Mr Matt King is the chap in the interview.

Might put things in to perspective.

In reply to Fat Elvis:


Used to be true in the late 80s, then land prices fell 90%. Now mortgages in Japan are normal duration and affordable again.