UK House prices: News & Views

[G0ldfinger]

It took a once in a lifetime global meltdown to cause the last crash.

Last crash? Do you mean 1990?

 

In my book, we are still in the midst of global meltdown. It has never stopped since it started in 2007.

[John Doe]

Last crash? Do you mean 1990?

 

In my book, we are still in the midst of global meltdown. It has never stopped since it started in 2007.

Haha, yes I know what you mean. It probably started way earlier than that (they just didn't let us all about it before then), and it will probably continue for a good 10 to 15 years yet!

 

No, I meant the 90-96 uk crash as you well know.

 

Besides, as I had eluded to on another post, it seems the debt forgiveness (the nuclear option as I called it then) has already been initiated!

 

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Banks write off debt for landlords

By Tanya Powley

 

Published: January 14 2011 18:26 | Last updated: January 14 2011 18:26

 

Several of the UK and Irish banks that received government bail-outs are offering to write off up to 25 per cent of a mortgage debt for professional landlords and developers – just to encourage them to move to new lenders.

 

Anglo Irish Bank – the institution at the centre of Ireland’s property meltdown and the recipient of €30bn of government money – is one of a number of lenders willing to let certain property owners off a proportion of their debt if they refinance elsewhere.

 

 

Brokers report that Bank of Scotland, part of Lloyds Banking Group, and Royal Bank of Scotland have arranged similar deals – often known as “golden goodbyes” – although Bank of Scotland says it is not “policy” to incentivise a remortgage with another bank.

 

ca commence!

 

Never underestimate the length the PTB will go to.

 

Dr B, this is what I have been trying to let you know about then mindset here! (I hate it, but it is what it is!)

[G0ldfinger]

Several of the UK and Irish banks that received government bail-outs are offering to write off up to 25 per cent of a mortgage debt for professional landlords and developers – just to encourage them to move to new lenders.

WTF??? What kind of retardedness is this? Is it like:

 

"Please, please, go away, otherwise we feel forced to shove another ultra-low interest loan down your throat! Oh, and maybe we will even offer you another 25% discount on the outstanding, so please, go! Otherwise we'll just have to treat you so well as if we were utterly insane morons!"

[John Doe]

WTF??? What kind of retardedness is this? Is it like:

 

"Please, please, go away, otherwise we feel forced to shove another ultra-low interest loan down your throat! Oh, and maybe we will even offer you another 25% discount on the outstanding, so please, go! Otherwise we'll just have to treat you so well as if we were utterly insane morons!"

I know, I know, it is F**kin disgusting! But, sadly, I am not surprised. This is what I have been trying to say, the odds are stacked against us.

[neil324]

Truly sickening.

 

Although how many have or will benefit to have an affect on prices will remain to be seen.

[Meralti]

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Banks write off debt for landlords

By Tanya Powley

 

Published: January 14 2011 18:26 | Last updated: January 14 2011 18:26

 

Several of the UK and Irish banks that received government bail-outs are offering to write off up to 25 per cent of a mortgage debt for professional landlords and developers – just to encourage them to move to new lenders.

 

Anglo Irish Bank – the institution at the centre of Ireland’s property meltdown and the recipient of €30bn of government money – is one of a number of lenders willing to let certain property owners off a proportion of their debt if they refinance elsewhere.

 

Brokers report that Bank of Scotland, part of Lloyds Banking Group, and Royal Bank of Scotland have arranged similar deals – often known as “golden goodbyes” – although Bank of Scotland says it is not “policy” to incentivise a remortgage with another bank.

 

Has anyone thought about what this really means? What sort of loans does this apply to? Sounds like BTL and developer loans secured against property (what else). I would speculate that these are non-performing loans from which the bank in question has accepted it can never make money over the long term. For a BTL loan this would imply that the achievable rents cannot cover the mortgage costs. These are very likely to be interest only loans which will no longer be able to serviced by rental payments alone should interest rates rise (even 1/4 or 1/2 a percent). Should the bank repo then the value of the loan will not be recoverable through sale of the property at current market valuations. Also, I would suspect something similar for developer loans -- the sale repo property won't cover the loan value. The banks mentioned are therefore prepared to take a (limited) write-down in order to get these loans of their books. It also implies that no other lender will touch these loans (for remortgage purposes) at there stated value. In order words no one believes that the collateral is worth the loan value.

 

This simply means that those banks involved are implicitly accepting a 25% fall in the value of the collateral (property) from the time the loan was made.

 

Which looks very bearish to me.

 

 

 

[drbubb]

We are not Ireland or the US, we never had the massive oversupply (I know it's not just about supply demand etc and all about credit, but it still does have some effects) and new building (which wasn’t keeping up even in the boom years) has practically stopped in the UK now. There is a housing shortage in the UK, there has been for years, this is one of the causes of the high rents.

 

The vast majority of people who buy houses in the UK are not investors. They have a simple understanding that you get a mortgage then buy a house, live in the house and then, after ~25 years your house is yours, no landlord, no rent to pay, ever.

 

This is a simple and very effective idea. Unless you are one of the poor soles to lose their jobs, and not be re-employed before your benefits/savings expire, you will not lose your house.

A shortage of Housing? I wonder if that is true...

 

I think this notion has some reality behind it, but it also rests on:

 

+ The UK having enough jobs (or easy benefits) to attract immigration from other countries. I see this changing in a way that will reverse the tide of immigration

 

+ A rising number of households, as the average number of people per household continues to decline - this trend can be reversed too

 

(I have started a new thread about this topic)

[drbubb]

ca commence!

Never underestimate the length the PTB will go to.

Dr B, this is what I have been trying to let you know about then mindset here! (I hate it, but it is what it is!)

Let me get this straight:

UK banks own by taxpayers are going to write off debts FOR LANDLORDS ?

 

It sounds unbelievable.

If I was a Uk taxpayer, I would take to the streets about this... if it is real and widespread

[John Doe]

Let me get this straight:

UK banks own by taxpayers are going to write off debts FOR LANDLORDS ?

 

It sounds unbelievable.

If I was a Uk taxpayer, I would take to the streets about this... if it is real and widespread

Yes, I think the detail needs to be checked before we man the barricades, but I think Meralti might be about right.

 

I would also assume they are referring to Eire as RBS & Lloyds are heavily exposed there. Their Housing Market is generally accepted to be about 50% down from peak and more than 25% of the loans given out by RBS and Lloyds have gone bad.

 

[Joe]

Yes, I think the detail needs to be checked before we man the barricades, but I think Meralti might be about right.

 

I would also assume they are referring to Eire as RBS & Lloyds are heavily exposed there. Their Housing Market is generally accepted to be about 50% down from peak and more than 25% of the loans given out by RBS and Lloyds have gone bad.

 

 

Stepping back from this, surely it is far more efficient and cheaper for the banks to do this rather than, repossess the properties, auction off with all the fees and time lapse, receive the auction funds and sort out where all the money left goes. I know its a win for landlords that overstretched themselves but even at 25% off would anyone else actually buy these properties anyway. What about the idea that the forgiven debt is taxed on the landlords at 50%?

[John Doe]

Stepping back from this, surely it is far more efficient and cheaper for the banks to do this rather than, repossess the properties, auction off with all the fees and time lapse, receive the auction funds and sort out where all the money left goes. I know its a win for landlords that overstretched themselves but even at 25% off would anyone else actually buy these properties anyway. What about the idea that the forgiven debt is taxed on the landlords at 50%?

 

Good points, especially if the loans (assets) are nearer 50% underwater, a 25% discount at least means you get 75% back (rather than maybe less than 50%).

 

I think Northern Rock did a similar thing back when they were in trouble. They then gave existing mortgage customers a 10% discount if they would remortgage with another lender IIRC.

[G0ldfinger]

So, they want them to take their loans to other lenders (after they have given them the 25% bonus)?

 

Where are these lenders? Are these the guys Bubb suspects to be living on Mars?

[John Doe]

So, they want them to take their loans to other lenders (after they have given them the 25% bonus)?

 

Where are these lenders? Are these the guys Bubb suspects to be living on Mars?

So that's where they are! B'stads

[BoldAsBrass]

I don't get this 'I'm a saver and I have a divine right to X% risk free interest on my savings.'

 

If you put your money in a bank - you know the only way you get a return is if the bank lends your money out - so, checks out the borrower, arranges security, collects the monthly interest, pays you your interest etc. - and, of course, takes a risk the borrower may default.

 

I think people's attitudes in this country have been distorted by interest rates that were way too high for decades. Why on earth should someone get (for example) 10% risk free return on their savings?

 

Maybe people who want good returns on their savings should invest their money and take a bit of risk.

[drbubb]

I think people's attitudes in this country have been distorted by interest rates that were way too high for decades. Why on earth should someone get (for example) 10% risk free return on their savings?

 

Maybe people who want good returns on their savings should invest their money and take a bit of risk.

Since when was there a 10% risk free return on savings?

 

You need to compare rates to inflation.

And do not forget that many savers pay tax.

 

The UK government has made property investing rather low risk, but that may be about to change

[BoldAsBrass]

Since when was there a 10% risk free return on savings?

 

1970s and 1980s

 

 

You need to compare rates to inflation.

 

Why? Whatever you invest in you have to compare your return with inflation - to see if you've made any 'real' money. So, whether you stick your money in a bank for a risk-free return of 2% or invest in a business for a risky return of anything from 'lose your capital' to 'the sky's the limit' - whether you compare rates with inflation, or not, is surely irrelevant. You need to compare one investment with another - and compare them all to inflation, or not, depending on whether you want to know real return or are just interested in relative return.

 

 

And do not forget that many savers pay tax.

 

Again, what is the relevance? You pay tax on any investment. I was making the point that savers don't have a divine right to high rates of interest on their savings with no risk to their capital. What's whether they pay tax or not got to do do with it?

 

If savers want/expect high rates of risk free returns on their savings, they must understand that borrowers must pay even higher rates of interest on their borrowings - which means that businesses will have more difficulty borrowing money to expand etc. etc.

 

I think low saving and borrowing rates are a good idea - as long as you don't have a bunch of half-wits in government who allow banks to lend an infinite amount of non-existent money into a housing market.

[drbubb]

Bold,

 

If savers cannot earn a real rate of interest on their savings, they will shift their money elsewhere...

 

Like into buying property. And that will mean less savings for various lending activities.

[ecoface]

I think people's attitudes in this country have been distorted by interest rates that were way too high for decades. Why on earth should someone get (for example) 10% risk free return on their savings?

 

The average borrowing rate on residential property for the last 200 years (since retail banking started etc) has been 5%.

[drbubb]

PUMPING Cold Air into flat tires ? / Rightmove:

 

We begin 2011 with the first increase in new sellers’ average asking prices for three months, as January

prices rose 0.3% (£711) following substantial falls amounting to 6.2% during November and December.

This month’s report provides some early indicators of potential buyer and seller activity, giving a timely

insight into the property market patterns that may emerge in the year ahead. New stock levels this

month are at a two year low, and we expect this lack of property coming to market to assist an upward

trend in new sellers’ average asking prices for the next three months as it coincides with the run in to

the spring moving season.

 

Miles Shipside, director of Rightmove, comments: “The opening skirmish in the 2011 price battle looks

to be going marginally in favour of scarcer sellers, especially in locations preferred by tooled-up cash

buyers or those packing a hefty deposit. With the number of new sellers at a two year record low, prices

are being under-pinned by muted new supply just managing to fight off the downsides of lender

reticence. However, in less popular locations, the smokescreen of New Year price optimism is

temporarily masking the collateral damage that the new era of tighter credit will continue to inflict”.

 

A national rise of 0.3%, while small, is a timely positive sign for some new sellers as it breaks the

downward spiral of falls in five of the previous six months. It is not unusual for traditionally optimistic

January sellers to ask more for their property, though 2008 and 2009, post the Northern Rock and

Lehman Brothers collapses, did record falls of 0.8% and 1.9% respectively. Sufficient confidence had

returned by January 2010 for new sellers to increase their prices by 0.4%.

 

/more: http://www.rightmove.co.uk/news/files/2011...anuary-2011.pdf

 

A 0.3% rise is hardly meaningful after back-to-back drops totaling 6.2% !

[aliveandkicking]

Bold,

 

If savers cannot earn a real rate of interest on their savings, they will shift their money elsewhere...

 

Like into buying property. And that will mean less savings for various lending activities.

 

Bubb

 

You have said this sort of thing before.

 

I have said a few times before that money cannot go into property. The money just passes to the next person and is still available for lending to others apart from a small percentage that is retained for capital adequacy purposes, where only a small amount is required to be retained for capital adequacy on property lending and larger amounts would be required for say an unsecured buisiness loan.

 

The only way you can get significantly less savings available for lending via a purchase is if the new person requires the money in cash and he retains it in a private safe where it cannot be lent to anybody.

 

Fundamentally in our money system today there cannot be a shortage of savings providing there are sufficient assets because the banking system creates our savings when it creates loans. Ie you walk into a bank with your title deeds and get a loan and the bank gets a loan asset and you get some created money savings where the bank only needs a small amount of capital to legally create that loan for you. Once you spend the money you have only a debt to the bank and the bank owes somebody else those savings it just created for you when it created your equal amount of debt.

 

We just do not live in a world where there can be a shortage of savings providing there are good ideas or good assets. The only thing constraining savings creation is the rate of inflation that can be allowed or tolerated.

[drbubb]

Bubb

 

You have said this sort of thing before.

 

I have said a few times before that money cannot go into property. The money just passes to the next person and is still available for lending to others apart from a small percentage that is retained for capital adequacy purposes, where only a small amount is required to be retained for capital adequacy on property lending and larger amounts would be required for say an unsecured buisiness loan.

You are confused.

 

If people have money in savings, and use it to go out and buy Property,

that pushes up Property prices.

 

Indeed, we say that in 2009, and the early part of 2010.

[aliveandkicking]

You are confused.

 

If people have money in savings, and use it to go out and buy Property,

that pushes up Property prices.

 

Indeed, we say that in 2009, and the early part of 2010.

 

You are now mixing apples with pears. Earlier you were saying that property lending reduces lending for other projects. The reduction in lending is very small as i explained.

 

Now you are talking about how purchases with cash or even with debt can push up prices. Which really is an issue related to velocity of money as much as anything else. Clearly if there is easy credit or large amounts of 'cash' then the velocity of money is likely to be increased. But in deflation there can be vast amounts of cash and no velocity.

 

But back to the earlier point money cannot go into gold or any purchase. The seller of gold does not get their money out of gold but rather from the purchasor of gold. They may however say 'i took my money out of gold'

 

Also when you say people have 'money in savings' you are saying that these people are bank creditors. These people are investing in a bank to take advantage of the banks money making activities and doing so in a speculative manner. If these 'cash buyers' buy property somebody else becomes the bank creditor or investor.

[John Doe]

The average borrowing rate on residential property for the last 200 years (since retail banking started etc) has been 5%.

Wow, thats a lot lower than I would have thought, but I guess until the last 100 years there wasn't too much inflation?

 

What was the average over the last 50 years? I would wager much much higher.

[John Doe]

Since when was there a 10% risk free return on savings?

 

Since now, right here

 

http://www.lovemoney.com/news/grow-your-we...?source=1000571

 

[ecoface]

Wow, thats a lot lower than I would have thought, but I guess until the last 100 years there wasn't too much inflation?

 

What was the average over the last 50 years? I would wager much much higher.

 

IMO it's not about inflation, but the amount of return a bank / mortagagor can realistically achieve for the level of risk etc. of the loan for the loan period (average 11 years for a home before someone moves) vs the spread with the rate it borrows from the BoE. Obviously over time the balancing point is 5% - too much over and no one borrows, too much under and the banks don't make enough. 5% is the figure for mortgages (I hope your not confusing this with Central Bank rates- sorry if I wasn't clear.)

 

Interest rates have only been used as a method to control inflation since monetarism appeared in the late 70s-early 80s.