House Prices

[Mailman_1]

Mailman_1, are you the same idiot who was named Mailman on this forum?

The main problem for housing market will existing borrowers (3 mln people) coming of 4.5% interest rates on property that they bought in the last 12-24 months, and they would have to find money to almost double payments - 7.5%+.

No, i am not that person and i would prefer you dont call me an idiot.

Are you saying that all 3mln people who bought in the last 12-24 months over-extended? I doubt it.

[oracleslave]

No, i am not that person and i would prefer you dont call me an idiot.

Forgive AtW. He is bitter that despite the roaring success of SKA he will not be able to afford a house this millenia.

[Mailman_1]

I was wondering why he got so much tulip on this site. I now know why. His social skills need a bit of honing i think.

[AtW]

No, i am not that person and i would prefer you dont call me an idiot.

I was not sure, that's why I asked. That guy was an idiot. I accept that you are not that guy - if I thought the opposite I would not have asked if it was you.

Are you saying that all 3mln people who bought in the last 12-24 months over-extended?

Absolutely overextended - no doubt about it. People in this country have got near zero savings ratio - if their morgage costs suddenly go up by 50% (5% to 7.5% - even higher ratio), then they will have to cut down on expenses - this will be a direct hit into consumer driven economy that was mainly financed by people taking on cheap loans secured on their ever raising property or just having low interest on morgages.

I was not here in the early 90s to see how bad housing was, but from bits that I have read about it and what is happening now I think it will be a lot worse.

[oracleslave]

- if their morgage costs suddenly go up by 50% (5% to 7.5% - even higher ratio)

An increase in interest rate of 50% of the current rate does not equate to a 50% increase in the repayment.

[ctdctd]

People in this country have got near zero savings ratio - if their morgage costs suddenly go up by 50% (5% to 7.5% - even higher ratio), then they will have to cut down on expenses - this will be a direct hit into consumer driven economy that was mainly financed by people taking on cheap loans secured on their ever raising property or just having low interest on morgages.

It's not quite that bad - eg 150K Capital repayment mortgage over 25 years.
5% - £887 per month
7.5% - £1121 per month
So +50% interest is only +27% on the repayments. Still nasty though:-(

[AtW]

It's not quite that bad - eg 150K Capital repayment mortgage over 25 years.
5% - £887 per month
7.5% - £1121 per month
So +50% interest is only +27% on the repayments. Still nasty though:-(

Yes, I agree - if you do capital repayment it won't be 50%, this depends on how much of capital you decided to repay - if you were repaying 20% of capital every year then interest raise won't be noticeable, however a lot of people 2-3 years ago HAD to go for interest only morgages, or longer ones - this means they are not repaying capital or repaying very little, so for them increase will be very very big.

£200 extra a month (after tax) is not small amount - this means same amount will not be spend in real economy, where its effect is multiplied greatly and extra tax and jobs are generated.

Remember - savings ratio on average in this country was almost zero, and now it is certainly going to be negative - there are already signs that people have to borrow on credit cards to pay for things like bills, this is the first sign that people are struggling and they have not yet been hit by really big morgages.

I am not saying all this because I like or dislike it - I'd prefer not to have house price crash as it will hit everyone, however for this to happen lending must have been responsible some years ago, right now we are I think just going past the tipping point but it is not yet obvious.

[Cyberman]

The answer to the crisis of high interest rates is in the government's hands. They must direct the Bank of England to inject a lot more funds(multi-billions) into the money markets. Failure to do that, as they have so far, due to the Governor Mervyn King's argument of 'moral hazard' means that there will continue to be insufficient liquidity and LIBOR will remain high and out of synchronisation with the bank rate.

Solving the liquidity shortage will mean eventually that interest rates will come down with the obvious benefits to the housing market and the economy. Failure means that we are heading into a very painful recession. Unfortunately, inflation is always top of the agenda and this could well be the undoing of New Lie.

[AtW]

The answer to the crisis of high interest rates is in the government's hands. They must direct the Bank of England to inject a lot more funds(multi-billions) into the money markets.

They have already done so. The fundamental issue is that property is very much overinflated, so its value is going down and there was a lot of junk paper issued with the property as collateral - this paper is sold many times and highly leveraged, so any drop in property prices (and such drops are inevitable because prices already reached ridiculous level and no cheap morgages will be available) leads to reduction in value of those junk papers, so in turn banks have to show losses on it and in order to keep up with capital requirements they have sell some other things to get some cash, so this depresses market further and results in drops of value of those other assets. Frankly, is there an asset that was not overinflated in the last 10 years? The only one I can think of is modesty (as in not greed).

[Cyberman]

They have already done so. The fundamental issue is that property is very much overinflated, so its value is going down and there was a lot of junk paper issued with the property as collateral - this paper is sold many times and highly leveraged, so any drop in property prices (and such drops are inevitable because prices already reached ridiculous level and no cheap morgages will be available) leads to reduction in value of those junk papers, so in turn banks have to show losses on it and in order to keep up with capital requirements they have sell some other things to get some cash, so this depresses market further and results in drops of value of those other assets. Frankly, is there an asset that was not overinflated in the last 10 years? The only one I can think of is modesty (as in not greed).

I agree that the BofE has put some money into the markets, but so far not enough, even after pressure from the banks, and that is my point. I'm talking about a much greater sum until we see some improvement in LIBOR.
Our authorities have been totally inept so far. The USA FED were aiding the money markets in June last year and we did not start until after the run on Nortern Rock. The BofE should have been far more proactive but I am sorry to say that they, the FSA and the government have been caught asleep on the watch.