(Daily Doom) UK on a knife edge

[bogeyman]

The doom scenario begins

Mister Bingley: Hard times ahead I fear Mister Bradford

Mister Bradford: Yep. I think we're as ruinously rogered as an elderly Reeperbahn whore Mister Bingley.

Mister Bingley: Yes, but we're certainly not as balistically buggered as our shareholders Mister Bradford.

Mister Bradford: Hmmm. S'pose not Mister Bingley. Good show!

[Pickle2]

Does anyone here seriously believe we are heading for a late 80's/early 90's style property crash? Not merchants of doom, just honest opinions pls.

Does anybody here seriously believe we are not?

280k for 1 bed flat in zone 2/3, for f00ks sake. Come on, every brain cell in your head must scream that something about it doesnt add up? When people earn around 30k on average-ish in that there london.

Prices have been driven to daft levels with LTVs of 110%, cheap money/silly low interest rates and massive salary multiples / "self cert" mortgages.

What do you think will happen now that mortgages are returning to 4x income, 80-90% LTV and BTLers have headed for the hills?

[PAH]

I still cannot see how this is such a big problem for the average bank. People have a debit with the bank. Sure some of them will not be able to repay and the bank will suffer a lost. But honestly, how many of them will need to have their houses repossesed? Not many, only the ones who foolishly bought a studio flat in London for 400k thinking that next year will go up to 500k or the ones who believed to be rich and bought 7 properties with the minimum deposit and took a variable rate mortgage. Yet I don't see this to be a big scale problem. The majority of people will pay back their debt and the final result will only be that the majority of people are more poor and the banks richer. If there was unemployment perhaps this might have turned nasty, but the economy is doing well and people will be able to pay their debts.

It may depend on what the government does with NR. There was talk on the news last night about the government potentially wanting to persuade mortgage holders to switch mortgages to other lenders so NR can reduce it's debt/exposure.

They also mentioned if the government did this then other lenders may increase their interest rates, with the result that lots more people would be more overstretched so more likely to default.

[BlasterBates]

No the problem is the way banks are financing their mortage businesses like Northern Rock, in other words the old days of savings covering mortgages are long gone; what banks are facing is potential insolvency as in the USA. This means not only house owners get hit, but the savers potentially losing their money or the UK government having to step in. They might be able to afford NR but what happens if it spreads and the Building Socs fall like dominos.

[Moscow Mule]

No the problem is the way banks are financing their mortage businesses like Northern Rock, in other words the old days of savings covering mortgages are long gone;

The old days ended in about 1939...

Saw on Working Lunch today that even building societies only have to cover about 40-50% of their loans with savings. The rest can come from the money market. NR was running on <25% IIRC.

IMHO, the capital adequacy rules in this country need a massive overhaul.

[Stan]

Don't worry we are paying someone 90k/month to come up with a proposal

Gordo is going to have to keep blowing into that bubble to make up for the pointy rock making an ever widening hole.

[Bagpuss]

No the problem is the way banks are financing their mortage businesses like Northern Rock, in other words the old days of savings covering mortgages are long gone; what banks are facing is potential insolvency as in the USA. This means not only house owners get hit, but the savers potentially losing their money or the UK government having to step in. They might be able to afford NR but what happens if it spreads and the Building Socs fall like dominos.

In the early 90s about 10% of what is defined as money actually existed in notes and coins. The credit multiplier used to be determined on sound multiples of assets an establishment should/would borrow, e.g. 10 times actual deposits, which also relies on confidence (no mass withdrawals) or as last resort support from the BofE.
I'd love to know how much the money supply has expanded since then with these looney tunes tactics that have been employed by NR et al and how long the depositors will remain confident and how much the BofE and indeed the taxpayer can bail them out.

Interesting times ahead...

[OwlHoot]

you forget about all the baby boomers who are now hitting retirement age and don't need to move out of their now empty 4 bed detached houses

For some reason most retired people, even very rich ones, get scared of living in a large property on their own. Whether it's worrying about the upkeep (garden, decorating, or whatever) or distance from amenities, or the cost of electricity, most of them downsize before long.

[oracleslave]

For some reason most retired people, even very rich ones, get scared of living in a large property on their own. .

Interesting fact. Link?

[swamp]

I remember the last housing crash. I was young, but my dad ran his own business and we were very well-to-do, so we had alot to lose and I was very conscious of things at the time.

Basically, the house market didn't 'crash' as such in the early 1990's. Everyone had to sell at the same time and no one had any money to buy your house, so everyone who had to sell was in trouble. There was no sentiment that houses were massively 'overvalued', it was just that everyone was in financial trouble. The only winners were the few people who had money to buy.

For example our family house was valued in 1993 at 500-700K. It sold for 360K. Now it would be worth over £2m.