A British subprime mess
Michael Coogan, the director general of the Council of Mortgage Lenders, is grumpy with me (and said so today on the News Channel), because he thinks I implied yesterday that the big surge in repossessions that the CML expects next year will be due to our biggest banks and building societies seizing homes.
I was amazed he drew that implication from yesterday's blog (see "Repossessions 'to rise to 75,000'").
To be honest, it never crossed my mind that I was singling out any particular type of lender as being more responsible than others for the rising trend to repossessions.
I merely pointed out that the CML had briefed the government that it expects repossessions to rise to 75,000 next year, within a whisker of the record number of homes seized in the last recession, in 1991.
But Coogan's explanation of why he's grumpy is jolly interesting. It's that he sees subprime lenders and specialist lenders - those brief-lived corporate creations of the debt bubble - as the main contributors to the spike in repossessions.
Most of these higher-risk lenders are writing no new business. In 2007, there were 37 subprime lenders happy to lend to customers perceived as less than blue chip. Today there are almost none - and there's also been a collapse in the number of lenders offering self-certified mortgages.
I'm unclear whether Coogan categorises Northern Rock in this non-mainstream category - since it was funded largely in wholesale markets, as were most of the subprime and specialist lenders.
Also the Rock's Together Mortgages were anything but mainstream, in that they gave homebuyers and re-mortgagers the ability to borrow up to 125% of the value of the relevant property.
The resonant point is that Together borrowers are finding it much harder than other Northern Rock borrowers to repay (doh!).
Anyway, if Coogan is right and the repossession increment is principally caused by a rise in arrears at firms providing subprime and secondary mortgages, then it will be harder for any government policy to reduce the rise in repossessions.
How so?
Well, with the future so bleak for subprime and specialist lenders - in the sense that they were too dependent on wholesale markets that are unlikely to recover for years, if at all - those lenders are primarily interested in getting their money back as soon as possible.
And as their borrowers fall into difficulties, these lenders may have little incentive to help those borrowers over the hump - even if they receive support from Gordon Brown and taxpayers, as per yesterday's mortgage guarantee scheme (see my note, "Taxpayers Mortgage Guarantee").
The subprime and specialist lenders will have noticed (ahem) that property prices are still falling sharply, and that there could be a massive financial cost to them of waiting two years before seizing and selling a property.
Bottom line?
I wonder whether Gordon Brown's evasive action to stem repossessions next year will prompt the CML to reduce its expectations of repossessions next year by any significant extent.
We could yet see a return to the repossession levels of the early 1990s (and to repeat what I said yesterday, the 75,000 number for home seizures in 2009 is not yet the CML's formal forecast - but is its expectation based on current trends).
I'm 
© MMIX~RS~q~RS~~RS~z~RS~03~RS~)
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What will happen is that the subprimers who are usually second ranked will take possession and the principal lenders will put their hands up and say "nothing to do with me"! Yesterday was window dressing and gave Brown something to say after an embarrassing Queen's speech. It has nothing to do with the market.
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Strange isn't it Robert, when the Northern Rock first blew up everyone was telling us what a great mortgage book it had and it was only brought down by you.
The Together mortgages are really living up to their name. At 125% of original value they must now be at somewhere like 100% overvalued. Someone is going to loose big time; now let me guess who it might be....
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Sub-prime lending does not explain the mess that RBS and HBOS are in.
This is simply a smoke screen for the real reason why they have had to be bailed out by the taxpayer.
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But Gordon Brown doesn't believe that we have subprime in the UK:
http://blogs.ft.com/westminster/2008/10/gordon-brown-believes-there-are-no-sub-prime-loans-in-the-uk/
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This must be the same Michael Coogan I saw interviewed on Working Lunch.
He seemed utterly confused as to what was going on himself as were those trying to interview him.
As far as the new interest rollover scheme he had no idea what was happening on that and nobody else does either.
Did Gordon really tell anyone about this before yesterday's debate in Parliament?
Or was it another desperate move to spin himself out of the mire,
Whatever there are a lot of people waiting for the details. Someone is going to have to spell them out and fast.
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What is the CML doing being unhappy with you? You are a journalist? (Excellent one)
What is the government doing telling the Banks to lend money without regard to commercial sense?
Why is the Bank of England doing lowering interest rates encouraging borrowing when it is borrowing that got us here?
It seems that in the face of reality all these agencies are waving their arms.
Remember the Singapore Grand Prix when after his pit stop the Ferrari mechanic released Felipe Massa whilst the fuel hose was still attached. As the car leapt forward the mechanic stuck his foot out as if to restrain it.
Yes, that is a good idea. Use your foot to stop an 800 horse power Ferrari.
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'Grumpy' the cheek of it!
I'd be interested to hear anything Mr Coogan had to say prior to the S*** hitting the fan in late 2007. I'm guessing he's another well paid guy that benefitted hugely and holds absolutely no responsibility for the mess we are in!
Maybe the Council of Mortgage Lenders should have been a little more wary of the 'too good to be true' boom they had over the past 10 years
Personally I'm not going to pay a lot of attention to what he has to say!
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What planet are these people on? They think that blaming the messenger for talking Britain down will stop this crisis and we can then happily go on spending as we all have done and live happily ever after. I seem to recall the Tories circa 1997 kept blaming their woes on the media -
Sorry, to wake you up, but this is nonsense. We are paying the very painful, and, in economic terms, possibly fatal price for years of financial incompetence. The Government, BoE and others are incapable of accepting that we cannot stop the tide. Indeed, doesn't anybody ask why if cutting interest is what is necessary, then why have all the previous cuts here, in America and Europe failed to stop the decline, but if anything have correlated with steeper falls in economic performance?
The time for action was 30 years ago, when we opened the doors to this disaster with deregulation and globalisation and the ridiculous notion that growth could be continuous and exponential even without producing anything of substance.
We are now seeing the total collapse of this flawed philosophy. The BoE would be better advised to RAISE interest rates considerably to at least protect those with savings, and encourage others to do the same and deal with the consequences of the fall out. As it is, they will destroy us all - and sooner rather than later with an imminent run on the pound.
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It seems to agree with a certain minister's prediction that only 9,000 would benefit from yesterday anouncements (which they then tried to disclaim later) so we could still easily end up with 65,000 repos which is probably with in the margin of error of the estimate...
Is it sub prime lenders or second charge lenders (loans secured against property as advertised on daytime TV...) that are going for repossessions or has the CML left them out of the figures so there are more horrors to come?
There generally seems to have been very little discussion of interest only mortgages. Does anyone know whether interest only mortgage reposessions are running higher higher than repayment mortgage ones?
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Yesterday, I discovered the very human cost of these serious policy errors by the 'great and good' e.g. politicians, especially those in Government, their regulator, the FSA, and the bankers themselves.
I got a call from a very good mortgage broker - who I have worked on some deals with before - he has just gone bankrupt.
He told me that his business had dropped off by 98% over the past year, the FSA was on his back more-and-more, and he was on all sorts of pills, drugs ,whatever from the doctor.
I must admit it shook me up a bit, this chap was extremely good at what he did ... but now he is, through absolutely no fault of his own, in a poor situation.
If there is a backlash by the proles, then as far as I can see, the so-called 'great and good' fully deserve whatever is coming their way.
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Most of the SUB PRIME brigade are NOT
CML members.
Many of these SUB PRIME LENDERS lend at
20% plus.
I cant name them due to the DELETION
POLICY.
Many of these outfits send in the bully
boys to collect arrears.
THE BIG PROBLEM IS THE MAIN BANKS LEND
TO THESE OPERATORS.
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Robert, they are all running for cover - the government and associated departments, and all their quangos... they are just doing it in a variety of different ways.
Unfortunately, one way or another, we are all caught in the headlights and when the impact comes....its going to be painful and messy.
Ouch time......
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Help yourselves and stop worrying about the minutiae of saving a few pence here and there on tax saving pension deal etc etc etc
You are wasting your time listening to these financial advisers and following the path of saving pence here and there.
IT’S costing you thousands.
If you invested in the stock market then you will now know that losses of up to 70% are not uncommon. So there’s no safety there.
Property may have fallen 30% but it’s a necessity you can’t sleep in a share or a bond!
Get back to basics.
Pay of any loans you may have especially Credit cards the number of fools who are paying 18% on credit cards and worrying about losing 1-2 % on saving is a joke.
LEAVING money in the BANK is a mugs game.
AS is listening to advisers about a tax saving here or there it’ll only cost you.
RENTABLE LAND, BRICKS AND MARTAR is the only way to go.
NOW MORE THAN EVER!
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Robert
I watched that guy on News Channel also, what he seemed annoyed at was that CML had told government (in confidence haha!) about their projections for 75,000 repossessions then (who would guess it!) it's leaked by Treasury to BBC five minutes later when our esteemed leader comes up with a rescue plan for those 75,000 people.
As I read it in the interview that was where he was coming from.
GW
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#3 HBOS *WAS* one of the sub-prime lenders !!
RBS got hit when it allowed hubris to over-rule facts. It got into a tussle for ABN AMRO that cost it dearly and put it deep in the doo-doo.
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Although HBOS may not be a sub prime lender, dont underestimate how many dodgy mortgages went through their subsidiary BM Solutions. When i was a broker several years ago, the unbelievable speed at which they could produce a mortgage offer (24-48 hours) was astounding and they were the lender of choice for self cert and BTL punters.
Oh yeah, and the second choice for someone who wasnt exactly 'mainstream' was Mortgage Express (B and B).
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Northern Crock's Together mortgages.. presciently named, since now both provider and borrowers are now all Together in the brown/Brown stuff!
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The masterplan from Brown is Just another Headline Grabber from his 'spin' machine. The devil is always in the detail and Brown fails to say how much interest can be deferred. This 'initiative' will quickly be forgotten by the government as it has already served its purpose in promoting their 'regime'. Repossessions will hit 75,000 in 2009 and at a guess 125,000 in 2010.
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The rich mans wealth is in the city
they mourn what their projections did not earn
they can bribe no one
because they don't want their money
because money get funny
Though I trod through this valley
I will fear no evil
'Cause I know
Jah guide, Jah guide, Jah guide
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Why is it that modern grandees have this desparate need to be well thought about? Clearly they lack the confidence to follow a properly adult life of responsibility.
The smelly, sticky stuff is in the fan and we are all going to get our portion regardless. I saw my savings lost yet more value today and for what?
Rather than the intelligent media being the problem, it is the deniers who represent the real obstacle to recovery. But then they have two strong motives to deny their culpability: their own fat pay packet and the universal contempt for their foolishness that will echo down through history from now on.
Whether it is members of this government or parties involved in the finance game - I decline to call it an industry - they are all refusing to face up to the dire realities.
They seem to think that just this little tweek here, that shabby ruse there, all backed up by loads of taxpayer funds will solve all our problems.
No it won't: we are stuffed and they did it. I look forward to the eventual retribution.
Keep up the good work.
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Lets say that there will be 75,000 homes repossessed next year, and come to that for the suceeding two years. That would be 215,000 homes. How many homes are there in the UK? well the BBC in depth reoporting suggests 25M, of which 70% ore owner occupied or circa 17.5M.
So if the repossessions were as high as suggested for 3 years, it would still only affect 1.23% of homeowners. So lets get this into perspective eh. While its will be close to the end of the world for those unlucky enough ( or is that feckless enough for some?) to be directly affected, the message the Government is sending out here is that people can enter into huge financial committments and expect to be rescued by the government (or in reality taxpayer).
The government is fighting fires at the moment but it would perhaps be sensible to consider what controls need to be put in place so that when things become more stable (note I don't use the word normal) we don't end up repeating this scenario in the future. If that means some people never buy a house then so be it - it not in the human rights act yet, is it?
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I FORGOT TO ADD
APOLOGIES
TO
ALEXANDERCURZON
FOR COPYING
HIS STYLE
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Michael Coogan is hardly worth listening to. The fact that he is angry, sad, happy, jovial or in the unlikely event reflective will change nothing.
I remember listening to him talking up the housing market as late as this summer. His predictions on house prices have been wrong forever.
He is largely irrelvent. Its every man for himself now.
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One could be forgiven for thinking, given the number of charity shops, pound shops and branches of Primark that the whole economy is subprime !
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Subprime lenders usually sold their products to mainstream lenders. On the CML's own website you can download tables which show some of our most recognisable high street names in banking ran specialist lending subsidiaries, often with rather nondescript names. When the market for mortgage loans failed last year, this type of company ended up with unsold inventory that is now accumulating losses. In a falling property market, the faster they can liquidate it, the better their position will be.
These are the cold hard business facts. You can see how they could use a little spin.
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#11 alexandercurzon
"Many of these SUB PRIME LENDERS lend at
20% plus. I cant name them due to the DELETION POLICY. Many of these outfits send in the bully boys to collect arrears. THE BIG PROBLEM IS THE MAIN BANKS LEND
TO THESE OPERATORS."
Obviously you can't name them here but ...
"If RBS/NATWEST want to bring good news
the best thing they can do is NOT supply
sub prime lenders with facilities. I am aware of one SUB PRIME Lender that has a near
ONE BILLION FACILITY with RBS/NATWEST."
(alexandercurzon 1/12/2008 08:54)
"I know of one account a mere 900 million facility to a bunch of gangsters dressed in suits. NATURALLY WE NO LONGER BANK WITH RBS/NAT WEST"
(alexandercurzon 28/11/2008 10:43)
... obviously you named them to RBS/NATWEST when you moved your account. Naturally, you explained this as one of the reasons for moving your account
or maybe you went to the police?
"Debt Collection is very nasty. Anyone subject to the type of behaviour you describe MUST complain to the Police and insist they take action. The problem is that the poorest members of our Society are least able to deal with this type of harassment & bully boy tactics."
(alexandercurzon 11/11/2008 12:20)
Admirable sentiments but do you practice what you preach?
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A few months ago there was a line of argument in these blogs that went 'it is not the multiple of income that matters it is the affordability' - where are these people now?
The plain unalloyed fact is that many borrowers took leave of their senses and believed their own falsehoods. They lent sums of money on grossly overvalued properties to borrower who did not have a hope in hell of ever paying it back. Whilst the roundabout kept tuning nobody noticed or cared. People like me who have been raising concerns about this problem for a decade or more were just ignored.
All I can say is: 'some chicken and some roost'. (to misquote Churchill) These 'unwise bankers' have destroyed our Nation. The lust for easy money by inflating asset prices that they drove forward has fundamentally damaged the whole country. I am still of the opinion that the heads of the regulatory bodies should all go - and without a fat pension. They were asleep; they were told in detail how to remedy the situation a decade ago and they ignore the advice.
House prices need to fall to 3 times or less of earnings everywhere in the country and then we can start to recover. We will recover by encouraging saving, by offering sensible positive interest rates and only then will the Nation start to rebuild. All this nonsense of a rapid recovery would be nice, but history tells us is highly improbable.
The depression will probably not turn in the 3rd quarter of 2009 as predicted, more like 2012 to 2015. Even the government has acknowledged this by offering a 2 year payment holiday to all mortgage holders who can arrange their affairs so that it appears that they have suffered a large fall in income - and what of the end of 2 years in 2011 when the slump will still be hurting. Unemployment will still be very high; will the government possibly be able to abandon those that it has been supporting?
Assets need deflating by 50 or 60 percent from where they are today. Buy to(i)lets are probably overvalued even more and need to fall by 70 percent. Borrowers and savers will suffer very badly, and all this is due to the policy of inappropriately low interest rates for the last decade or more. The Bank of England is intellectually bankrupt! Its head and senior management and the MPC must all go and go NOW.
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It made sense for lenders to provide mortgages in the boom times at inflated interest rates where, if the sub prime lendee defaulted, the rise in property prices would more than cover the liability.
Similarly, as Robert says, it now makes financial sense to repossess.
It's not the fault of the "greedy lenders" but those who allowed the situation to occur.
Interest rates must never be allowed to fall above inflation otherwise you create boom and bust
It creates a guaranteed win for the lender if this rule does not apply.
Assume inflation 10%, interest rates 5%.
If you borrow $100 and buy 100 jars of coffee at the beginnng of the year, you will be able to sell them at the end of the year for $110. Pay back the loan with $105 and you have made $5.
Hedge funds, buy to let, are simply exploiting this principle.
It is not the wolf's fault the sheep got eaten, but the shepherd who left the gate open.
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post23 somali pirate
Have you been on the High Seas????
############################
Mr C of the CML
Might just ,i say, just challenged his
members
lending policies,which have been crazy.
One of his members was lending at 7 X
income:CRAZY OR WHAT???
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Robert,
Are buy-to-let casualties classed as repossessions or business failures?
They are credit failures just like repossessions, but may end up with bankruptcy.
I think that 75000 repos next year is hopeful thinking.
We may end up with over a million credit failures over the next few years.
Perhaps its time for the gov to take over all failing mortgages, and rent these properties back to the tenants at fair rates.
The losses from this would be tiny compared to repo fire-sales, and the public could end up owning a million rental homes....a good investment instead of huge losses for no return.
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even though mortgage lenders may be victims in the sub-prime they still charge customers big time.
e.g. during 6 years mortgage borrower pays 86 grand
capital is reduced by 20 grand
(unrealisable equity is 30 grand)
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POST 27 bluepigblackcats
Yes i do and yes i have
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#33 alexandercurzon
... glad to hear it
(keep up the poetry)
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If homes are our biggest investments, then by factoring in current market conditions, and calculating future income projections and subtracting living expenses minus additional rises in costs.. we are stuffed
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Mr. Peston, some of the bloggers and I (thank you papanca!) would like to know what your interpretation of the current economic crisis would be in terms of the criticisms of fractional reserve banking systems that have been levelled by protest pieces such as 'Zeitgeist: Addendum' and 'Money As Debt' (both a google hit away), given that the BoE and the Treasury function in much the same capactity as the Federal Reserve of the U.S.
Obviously, these are very subjective and un-peer reviewed articles but their importance cannot be discarded on such grounds. After all, Michel Foucault played hard and fast with the 'facts' while his ideas surpassed the evidence they were based upon.
Surely this entire system needs to be considered, rather than the undesirable effects of its operation dealt with as we continue to turn a blind, public eye.
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Sorry, in #29 what I mean to say was that
Interest rates should never be allowed to fall below inflation.
Sometimes these flipper fingers have a mind of their own!
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Gosh, but Gordon said the problem came from the USA? So how come we have sub-prime?
Iteresting also that the failed boss of HBOS is now assisting/advising Gordon!
More spin, no content and the trick is just that a trick. Some white rabbit. It does not matter what the leader of the CML thinks, the market is the market.
The media was not to blame, the media were not out there valuing houses, estate agents were, and valuers. No on had the bottle to tell the public that it was not worth it, we were all told that you might miss the boat, so, hurry, hurry, buy now.
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Its like sweeping water uphill isn't it. It will still find its way to the bottom of the hill, maybe taking just a bit longer. This idea of giving a 2 year window to those who have overstretched themselves - well house prices will still move to their true level, might just take a bit longer to get there.
Its being touted as helping the middle classes. Well I'm middle class and its definitely not helping me. I have spent the last 4 years paying down my mortgage to a negligible amount with the intention of starting again with a big mortgage and moving to a big house in 2009. Its in my interests for people who have overstretched to downsize, and I can buy their houses off them. This 2 year window means it will take longer for property prices to find their true level and there will be fewer motivated sellers when I want to move next year.
It also sends completely the wrong message to people considering taking a new mortgage. The message should be - be cautious in how much you borrow, don't assume you'll always get overtime or be in a job and take insurance to protect yourself. The message now is borrow up to the eyeballs and rely on an incompetent Government to bail you out as they don't have the appetite to do the right things for the long term.
Yet again Gordon Brown is well intentioned but totally misguided and incompetent.
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Bobby, I no longer read the body of you blogs - just the headline.
As usual, the headline tells me that you still cant get enough of the debacle within the financial markets.
Cup half empty doesnt even come close.
Also, do you have any political agenda within your blogs?
I would also suggest that you are creating, and living within, your own Robert Peston Inc. bubble - in a similar fashion to the one the banks, etc., created - and you have been making a living off.
I'm looking forward to your bubble bursting one day. I think i'll then start my own blog on how R. Peston Inc. got it so spectacularly wrong.
I cant see it, but it would be nice to think you will be as gushing about any successful news within the industry if, and when, comes along? I doubt it. Wheres the fun in that.
I cant possibly know, however, I get the impression you must have created more enemies than friends over the last few months.
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Vampire's it's good to see you suffer
Vampire's only like to see blood running
Vampire. Your wicked bloody meditations
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The Banks are slowly but surely overtaking this obnoxious nuLabour government in the publics unpopularity stakes.
Since being bailed out by taxpayers money, what have the Banks done except exploit the changing bank rates to the detriment of the Saver and the Lender.
Why is LIBOR still locked up ?
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The great Brown plan will add 2 extra years debt to a house mortgage which is already dropping in value. Does he honestly think any lender who has not been semi nationalised is going to risk losing any more money on bad debts. This is another cosmetic ineffective measure aimed at conning the great unwashed into thinking that Brown is doing his utmost to " helppeople ", when in fact he's hoping it will get the opinion polls into a favourable position for a May/June election after a nice giveaway in the April budget.
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One year ago we were not subprime. We had invested in Buy to Lets because of the problems with Equitable Life. We had more than a third equity in our 7 buy to lets and our home had more than that.
In November 2008 we made ourselves bankrupt because of the credit crunch (our creditors would have done it to us in 2009).
I just wish our Government would make decisions early enough (or not at all). Business can cope with most things but not so many external changes. We were just about to retire and so now will be on benefits instead of a reasonable amount of income. I have heard it is the same for other accountants, solicitors and barristers. I think that it is a lot worse out there than the Govt. realises. Just let it all come to an end.
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Other than a Mortgage for those buying a house by far the most personal debt is on Credit Cards, with repayment at minimum levels each month. As the interest rates on these are14% and all numbers North, how is the reduction of the Bank Rate to 2% going to boost the economy?
Perhaps Mr Peston could enlighten me?
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There are probably no measures that will save the foolhardy, so - so what. The mortgage relief measures are likely to help some who are vulnerable through no fault of theirs, that is the point. As far as I am concerned if your buddy at the CML is grumpy - well tough luck he still is in a job, unlike a great many people. I mean really doesnt he understand that the definition of employment is that there is a problem to deal with. No problem means no employment, you dont employ somebody unless you have a problem. Next time you meet him just point it out. Tell him to be grateful there is a problem.
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Sorry my error @ 45
should read, 'Saver and Borrower'.
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You can not polish a turd.
Names deleted to protect the guilty
1. X 'NG family law solicitors' complaint with LCS
2. Y 'DP family law' complaint with OLSO
3. Z 'KPMX LLP' complaint with IPA
4. @ 'Hastings CSA' several complaints with Chief Exec, ICE, Parliamentary Ombudsman and 2 Tribunal Appeals
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Would anyone who gets a two year stay of execution please make a post.
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37 theresonly1soupey
The collective noun probably should be latrine.
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The CML issue resonates with the scandal of mis-selling endowment policies. Under FSA regulations a lender has to satisfy certain very specific criteria before it can lend money to someone requesting a mortgage.
It is clear, the level of repossessions shows it, that the FSA regulations were not properly followed in that large amounts of money were lent to people where there was a significant risk of non-repayment. It was, by any standards, negligent and it should lead to court actions against the CML members.
I would be very happy to take the lead in initiating such a class action aganist CML members and perhaps those who read this blog could help me in getting some momentum by emailing through this site.
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Does it matter what sort of lender you have borrowed from if you lose your job and cannot get another one, or another one paying enough.
Of course non on the prime lenders will have this problem will they Mr Coogan.
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Post 47 Babaramayoh
I really feel for you and fully understand what you've gone through.
I am facing a similar situation facing the loss of everything I've worked for in the last 15 years of self-employment.
I am tired of perpetually robbing peter to pay paul and everyday when I wake up I have to decide whether to try to go on or just fold the lot and file for bankruptcy.
My company has experienced a 90% drop in income over the last 12 months due to the credit crunch but I am re-building it everyday. But the issue is whether I can re-build it fast enough to satisfy the creditors fast enough.
There are many companies in this country hanging on the edge of a financial cliff by their fingernails.
Anything the Gov't can do to stretch out the recession has to be welcome as it will lessen the number of unemployed, the loss of companies, homes and the basic destruction of peoples lives.
Never again must we elect a Gov't that arrogantly states that it can end the economic cycle and abolish boom and bust. Crash Gordon has been one of the mian architects of a mega boom and now a mega bust except that he personally won't be paying the price..............it is decent people like me and post 47 who will.
If he had one once of honour he would resign for such a major failure of policy.
Brown has diminished this country economically and Blair diminshed this country's stature through the dodgy dossier Iraq War.
Both will end up multi-millionaires.
What fools the British Electorate have been
P.S. I never voted for is phoney double act at any time! Put your hands up and bow your head down in disgrace if you did..........
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Have to say - I said all this yesterday in response to your blog. It is the law of unintended consequences.
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41 Jiltedjohn
Think you are missing the point old buddy. At the moment to all intent and purposes the 'market' is repo. That is not a free market. If the intervention, if it works, does anything it simply will stop more repo, that is all, that is the point of it. As such it may help the market stablise because it would help confidence which is missing. It will not actually change the subsequent free market level because that is based on the debt held by the critical mass of householders who will not voluntarily sell unless it is in their interest. 1 in 3 house have no mortgage and 1 in ten are vulnerable. The market is set by the debt levels of the remainder, that is why the market rebounds to a particular level promptly. There is a balance between the level of existing debt tied up in a typical house and affordability, ie what an investor do based on the profit motive, ie uplift. Anything that stabilises the market gets you to the point you and others can move sooner, not later. This is nothing new - it occurred in Aberdeen when the oil industry pulled the plug and retrenched in the 1980's and the local market collapsed. If you think the house price level is going to fall so a huge sector is in negative equity I am afraid it will not happen. Your best bet is to borrow heavily against your house and buy another property at auction cash and then sell both to maximise. however you have to sell the second house withing 6 months to avoid capital gains and obviously you have to time the uplift correctly or possibly end up having a divorce even if only with your bank manager. 2% of housing stock turnover is normal, 4% of stock turnover is a boom, 1% is a bust.
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If Gordon Browns proposal for a two year deferment were being offered by a high street lender then there would be an outcry.
Buy now, pay no interest for a couple of years, simply roll it up and then pay more on your new, higher debt.
Forget a remortgage for at least eight years, no one will touch you, we will charge our standard rate in the meantime, plus maybe a bit more - to be confirmed.
Forget capital repayment
It does not matter if you are not working, in fact we will only offer these terms to those already in financial difficulties.
Please note, the asset on which this borrowing is secured is likely to be worth 20% less than now.
It does not take a brain scientist to realise this is a liberty - I pity anyone who is stupid enough to take up the "deal"
Did the NR not offer a "payment holiday" at one point - advertised with the usual young couple painting each other and their home.
cheers
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Comment 8, hiya, you will be aware that America started the trend for massive rate cuts, (0.75%, the largest reduction for 26 years I believe) back in January.
The rationale was the stock market falls due to the Societe Generale offloading of stock (on a Wall Street holiday), due to fraud - Je-rome Kerviel.
Rome is the clue, I believe the "State" "owned" about everything then too.
It's a New World
cheers
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#41
Never mind the middle classes not being helped - No-one will get any help from Gordon's new Ocean Finance style approach until the Banks sign-up to it. Despite Lord Mandelson's squeaking they have not done so, and they appear to be pulling away by the hour.
So, I hope we see corrections in all tomorrow's papers and new headlines saying "Government fails to deliver promise of help for troubled borrowers". Any chance do you think, or will Mandy have got to the editors first, with a new distraction story?
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Now then, by the time someone with a mortgage is facing repossesion, they have normally run-up every avenue of available funding - overdraft, loans, credit cards. Then they lose their job and the Government says don't worry, we'll cover for you. Sadly, that's with the mortgage company. The rest of the creditors still want their dosh and they'll go for repo whether the government - or indeed the mortgage company - like it or not.
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Although probably less value in monetry terms than the US, I think the UK sub-prime market will cause as much havoc here as it has done in the states.
It's just taking longer to work its way through the UK systems. Once it does though that'll only be the start of the real problems facing us in the coming years.
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How much lower can interest rates go? If we keep reducing month on month the market is not having time to adjust to these redudtions, and the BoE is surely reducing its options in the future, potentially leaving itself with no possibility of reducing and therefore having no chance of 'making a difference'
The other thing is that the mortgage market is no longer a competitive market, some players passing on the whole reduction others not. Change to the ones charging less? not a hope, their rates for new customers sting. A market then that can not do what economic activity requires of a market.
Does this massive cash injection into the banking sector look such a good idea now? where next?
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I agree with 13, Property is still the safest place for your hard earned. Inflation proof, deflation proof (depending on when you bought in) and most importantly, you CAN earn an income from property - ALL things that cannot be done via the stock market or pension's.
Buy a bargain, you won't regret it imo ( although I would wait until round about April before getting in)
As if I know anything :) Seems reasonable though!
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N0 28 "House prices need to fall to 3 times or less of earnings everywhere in the country and then we can start to recover. "
The most sensible comment on this blog for a while.
The only way lenders are going to start serious mortgage lending again is on sensible income multipliers - I worked for B&B in the 1980s when it was a proper Building Society as a mortgage adviser, back then mortgage funds were limited, 3x income was max we could approve. far more sensible than recent ridiculous income multipliers. House prices need to drop quickly to 3x average income or less, so thats 50% or so down from where we are now, only then will mortgage lending restart in any serious way.
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Michael Coogan, (CML)
If you live in a glasshouse
Don't throw stones
And if you can't take blows brother
Don't throw blows
Harm no man
Let no man harm you
Do unto others
As they would do to you
P.S. Thank you for the basket to carry my water
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I have a together mortgage from Northern Rock and it helped me buy my property. My mortgage balance is less than three and a half times my salary and the property (even after the fall in prices) is worth more than the outstanding balance.
I am not a reckless waster. I have a good job and work hard and get irritated when posters seem to point the finger at people who borrowed the whole value of their property as the ones who have caused all this trouble. Northern Rock helped me at a time when I needed to move.
The fact that Northern Rock themselves were borrowing beyond their means is something none of us including the Government could do anything about.
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22 wrote
'So if the repossessions were as high as suggested for 3 years, it would still only affect 1.23% of homeowners. '
at an average of 4 skulls a house I'd say 1.23% of 25million homes (307,500 houses empty) * (4 skulls) = 1million 230 thousand people = 1,230,000
Are you seriously suggesting this is not a problem? No wonder this country in such a toilet!
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It is the first time that I see British subprime seriously mentioned. Can anyone predict when the default on UK subprime mortgages will kick off a fresh round of bad-debt write-offs around the globe?
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A very credible and competent-sounding commentator on the radio the other day explained the UK Government-Bank relationship.
He said the bailouts were made because the banks are on the point of collapse (broke).
He said the talk of pressure to make the banks lend again is pure spin - to fool the taxpayer into believing something positive, to his/her benefit was to be achieved.
As we now see, there is no sign of any worthwhile benefit flowing through to borrowers.
The banks are still open, and that's about it!
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59,
I posted exactly the same last night, a terrible deal - absolutely shocking!
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Financial and political opinions which cannot be easily and timely made accountable should be given only very little, if any, weight in our decision making. There are lies, repetitive spins and economy with the truth.
Gurus are nothing more than good talkers with polished manners.
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The basic reason we are all in this mess is through poor governance of the regulatory system which was flawed in it's inception.
Bluff and Bluster Boom and Buster Brown is wholly to blame.
Bring back Ken Clarke. If he had been at the helm for the last 11 years we would be no where near the parlous state we are in now.
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The sub-prime thing was driven by a number of influences not least of which was deregulation of the market. The main problem however was the people in charge of lending (be that HBOS, RBS or Bish Bosh loans) do not, did not and probably never will understand that the capacity for a market to rise is finite. The 125% mortgage was viewed as safe as the forecast was for prices to rise sufficiently (and remain stable) that within a couple of years the extravagence would be covered. The lenders stretched the utility curb by creating 40 year mortgages and interest only mortgages, maxed out for loan multiples (forgotting people still want holidays, cars, food, nights out, etc, etc). Ultimately something can only be stretched so far before it bursts! The government of course are now looking at creating a 'relative' feel good factor for us hard pressed folk so they can capture enough of the vote come the election. I think the expression in Iceland is Kreppaonomics for the situation we have here. http://www.economist.com/finance/displaystory.cfm?story_id=12382011&fsrc=rss. The only reason the UK has not gone bust is our government have a Black Amex card where as Iceland clearly only had a Gold one.
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I'm fed up with the whole bunch! I saved while I worked, I put money aside to pay for retirement, I worked 8 a.m. to 7 p.m. plus ninety minutes travel each way. And for what?
To give my money away to Gordon Brown's no hopers, who've spent too much money buying thing they can't afford.
When I was their age, people who overspent went to the wall, and so they should today. Gordon Brown is merely putting off their "evil day".
If they can't afford it today, how do you expect them to be able to pay tomorrow, Gordon, after a couple of years recession and lower salaries (for those who can find work).
The only people who are being punished are those who have saved for a rainy day. And now they have that rainy day they find that Gordon Brown has sold them umbrellas with moth holes in them!
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MORE LIES FROM MORTGAGE LENDERS
Housing Minister Margaret Becket said on the BBC Radio Four programme this morning (December 4th) that it cost mortgage lenders £35 000 every time they were ‘forced’ to repossess a house when homeowners fell into arrears with their mortgage.
Now I’m sure Margaret Becket hasn’t intentionally constructed a lie or simply invented this figure herself. But it is most definitely a lie and it is a completely fictitious figure too. So where did this piece of fiction come from ?
Could it be from the Council of Mortgage Lenders ?
The truth is most repossessions cost the lenders absolutely nothing. But they cost the persecuted homeowner plenty because it is the homeowner that is made to pay any extra costs incurred by the lender.
Not only does the repossessed homeowner have to pay all the real costs, but lenders invent utterly fictitious ‘costs’ which they add to the final bill to the homeowner. This is all extra profit opportunity for the lender.
This is why the banks were so keen to develop their laughingly labeled ‘subprime’ mortgages. They allow the banks to contrive to make more and more borrowers desperate for a mortgage as the banks falsely label them ‘too risky’ for ordinary, standard mortgages.
This contortion of thinking then allows the banks an excuse to tie these borrowers up by forcing them to accept weasel mortgage contracts worthy only of Shylock the evil money lender. The contracts are specifically designed to fleece the borrower at every turn and push him further into debt as his home is stolen bit by bit by the system the banks have deliberately designed to do exactly that.
You see, the banks have all got together to form a sort of cartel or effectively a monopoly where they all follow the same procedures to milk as much money as possible from their customers and in particular to catastrophically penalise the most disadvantaged and poorer people.
I personally know of a case where a homeowner has been systematically milked of about half a million pounds of the value of his house as he was repossessed four times in rapid succession. Mortgage lenders literally forced him to remortgage again and again by using their artfully constructed lending system to get their hands on nearly all the equity by means of falsely claimed ‘expenses’ and ludicrously named ‘early redemption penalties’ Oh, and rapaciously higher interest charges on the completely false premise of ‘higher risk’.
So where, precisely, does this claim of each repossession costing the mortgage lender £35 000 come from ?
I suspect it is a figure mostly comprising the imaginary losses dreamed up by lenders of the loss of profit they would have obtained if the mortgage had continued.
In other words they have lost absolutely nothing at all except their greedy little dream on some further profit in the future which their twisted minds makes them think they can describe as a real loss now.
It is a lie. It is the same as you or I saying we have ‘lost’ a million pounds because we failed to earn more money than we have. It is a fiction. Just like a lot of what the banks get up to. They are so used to habitual lying they no longer have any understanding of the truth - just like most other career criminals.
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Peston, my dear chap, you're the only reason left why I think I could stretch to a license fee.
Keep nailing these great and well guessed truths to the web. We're loving it.
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This ain't subliminal
Feel tha crtitical mass approach horizon
Tha pulse of tha condemned
Sound off America's demise
Tha anti-myth rhythm rock shocker
Yes I spit fire
Hope lies in tha smoldering rubble of empires
Back through tha shanties and tha cities remains
Tha same bodies buried hungry
But with different last names
These vultures rob everyone
Leave nothing but chains
Pick a point here at home
And tha picture's tha same
There's a field full of slaves
Some corn and some debit
There's a ditch full of bodies
Tha check for tha rent
There's a tap, tha phone, tha silence of stone
Tha numb black screen
That be feelin' like home
And tha riot be tha rhyme of tha unheard
Calm like a bomb
There's a mass without roofs
A prison to fill
A country's soul that reads post no bills
A strike and a line of cops outside of tha mill
There's a right to obey
And a right to kill
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Doh - why does borrowing more than 100% of the value of a property increase the chance of default - surely if the borrowing was affordable then why would such borrowers be more likely to default - for all I know NR had tighter income etc criteria for such loans than their standard mortgages.
My guess however is that those wanting such a large facility (what was in effect a mortgage plus an unsecured loan) were probably those consolidating other debts - ie living outside their means. Compare this to those who save for a deposit and thus demonstrate they are willing to make the sacrifice in consumption to put money aside. I.e. there was some sort of negative self selection for this type of product but this does not imply that there is an a priori reason that such loans will be more likely to default.
However such lenders are more likely to be repossessed because after special introductory rates expire the lenders become trapped - in NRs case on particularly unattractive interest rates. And not only are such lenders more likely to default they are clearly more likely to be repossessed quickly - for a lender if a borrower still has some equity in the property there is less urgency to repossess - for these over 100% mortgages in a falling market any delay in repossession is costing the lender money - as I commented on the mortgage support thread last night which Mr Peston seems to have picked up on today.
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XCAnderson talks about an imminent run on the pound - it's down 10% in the last few weeks and is even lower compared to last year. Time had it that Harold Wilson was chastised for his pound in the pocket speech when the pound was devalued in one go. Now we have GB allowing
( encouraging? ) a 20% fall by stealth. Of course it helps exporters but ultimately the fall in sterling will have much broader negative effects. Lower interest rates are not the answer. Lower taxes are.
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#28 and 66
If you think house prices are going to fall to 3x average earnings, then you must be counting on hope over experience.
Average house price in the UK is 160k. I challenge anyone to attempt to go out, buy some land, take it through the tortuous and expensive planning process, pay all the expensive tradesmen 150 quid per day and buy all the expensive materials and finally part with 5% of the final figure to cover legals and sales costs, not to mention bank interest for the duration....and then attempt to return a profit of any discription.
Trust me, it cannot be done. This is why no new houses are being built, or will be built in the near future. Unless and until land prices fall (which they will not due to lack of supply through the planning system), wage levels drop by 50% (no sign so far) and material costs come down (a price increase is due in the new year), your utopia of 3x average wages will never be realised.
In the unlikely event that the above did occur, average wages would come down by a concomitant amount, which would mean the multiple could never be reached.
As I've said before on this blog, there's no such thing as affordable housing and never will be - live with it.
Then of course there's the soon to be introduced aspiration for zero-carbon housing.....add another 20% to the build cost chaps!!
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I still think the game at the moment is trying to get people to see what an overvalued world they have been living in. I've thought we've had the "knows the price of everything and value of nothing" mentality for well over 10 years.
I thought that would be the first delusion to go when the bubble burst, but I'm shocked by how many are still deluded.
I suppose, like so many things human, it will take time. So anything that slows the descent to the abyss has to be good. Rationality has to take a back seat while we all sort our heads out and readjust our values. Just perhaps...
In terms of rebalancing world power, I can't help thinking about recent work in evolution where the effects of a very few violent environmental changes are seen as more important than much longer terms of gradual change. Perhaps we are about to see the equivalent of dinosaur doomsday?
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Post 82 houseflogger
You obviously do not know what you are talking about but your Brown like bluff and bluster makes you sound like you do!
I am a residential land trader by profession. Building land values and now down from peak 2007 at least 40% and in some cases 70% and landowners are agreeing to sell at this level. Building costs including labour and materials are tumbling due to the scarcity of building contracts.
The "unlikely event" you refer to is actually todays reality.
A traditional 3 bed townhouse can be built including all costs including land in average areas for around £80K. Banks will only finance this if there is a 20% profit so the average values of new build townhouses could get down to £100,000 and unless major action is taken that will be a very "likely event"!
Now what would the impact of new build prices at those levels have on the housing market? The same as repos been sold off at knock-down prices!
All this equals depression.
Anyone wishing for drastic cuts rather than a normal correction in house prices is acting like a turkey voting for Christmas...which is quite apt right now!
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@ #36 SheffieldStudent
"Surely this entire system [fractional reserve banking] needs to be considered, rather than the undesirable effects of its operation dealt with as we continue to turn a blind, public eye."
You're right. Unfortunately, few people are willing (or perhaps able) to think outside that box. And if you keep bringing the question up, someone will doubtless explain (more or less condescendingly) why any alternative to a monetary system based on frb can be dismissed with a wave of the hand, or in 25 words or less.
I wish I new enough to explain how such an alternative system might work, but I'm still very much in the learning stage. But here's what I do believe:
The world's economy is based on an assumption that exponential growth in wealth (read: consumption and waste IMO) is possible. This hypothetical growth is financed by an exponential increase in debt, facilitated by fractional reserve banking. It also helps that we treat our natural resources as income rather than capital.
Since infinite exponential growth of anything (outside pure mathematics) is impossible, the economy undergoes cycles of boom and bust. During the boom years many people may "prosper", but it seems in the bust years more people suffer.
99.9% of discussion in the media (including these blogs), in the chambers of government, and in the board rooms of banks and corporations is devoted to debating how the operation of our existing economic/monetary system can be "corrected". Endless recriminations against those we believe are to blame (or have been the greediest); endless proposals of how the parameters of the system should be tweaked to bring about a return of the boom years; and endless recommendations as to what "they" should do.
I also wish Robert Peston would consider giving us his thoughts on alternatives to fractional reserve banking and an economy based on sustainability, not exponential growth. But the people with whom he consorts, the movers and shakers in government and finance have long ago dismissed the alternatives (if they ever considered them). Of course,you may have noticed that they are not among those worst affected by the bust part of the cycle! Why should they (or RP) consider alternatives?
In addition to the (rather politicized) web resources you mentioned, anyone who feels they need to know more about how our economic system works should check out this web site:
http://www.chrismartenson.com/crashcourse
It was previously recommended by another person on these blogs. I found it very informative, and it's helped me better understand some of the discussions here.
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Well said MUDSHIRES (77). These organisations are very skilled at twisting the truth to suit their purpose.
Have you noticed how brilliantly the Banks have got Angela Knight to speak for them? She never answers a question straight, makes out the fault lies with everyone except the banks and hardly gets challenged by the interviewer?
You can't help admire her talent even if you disagree with her. I'm amazed the Tories haven't signed her up for a future cabinet post.
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82. At 10:42pm on 04 Dec 2008, houseflogger wrote:
""#28 and 66
If you think house prices are going to fall to 3x average earnings, then you must be counting on hope over experience. ""
Maybe the hope should be that the average price of a house for a first time buyer would be 3.5x or 4x their salary. You can scale upwards from there.
3x salary is a bit hopeful - that would see the AVERAGE price of a house at ~75,000. By that point an awful lot of privately owned houses would be in negative equity. Most houses bought after 1995, I'd guess.
""Average house price in the UK is 160k. I challenge anyone to attempt to go out, buy some land, take it through the tortuous and expensive planning process, pay all the expensive tradesmen 150 quid per day and buy all the expensive materials and finally part with 5% of the final figure to cover legals and sales costs, not to mention bank interest for the duration....and then attempt to return a profit of any discription. ""
As not every housebuilder has gone bankrupt I'd assume some of them are still scraping by. It's not all relentlesly negative. Just really, really bad.
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Coogan and his ilk need to be investigated. Him and his pals were responsible for the bad practices - just look into how they define a first time buyer. I guess they'll not be investigated because Brown was complicit in the conditions that Coogan and co were defending until recently. They're all in it together and will fall together.
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#84
Perhaps I should move up north - 80k wouldn't buy the plot around here!
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#87
In my last planning application, it cost 4k just to cover the potential presence of a single roosting bat...and an 18 month appeal process (and three sets of consultant drainage engineers) to disprove the spurious contention that the backing up of the storm drains had anything to do with global warming.....typical costs associated with the vagaries of the planning process.
These costs are not going to go away anytime soon and if anything will be increased by the relentless addition of more government legislation and red tape. All of this adds to the cost, so in short, houses are not going to get cheaper anytime soon.
For info, the above costs would account for about 10% of your aspiration for a 70k house - before a spade went into the ground.
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Don't know if you good folks in the UK are familiar with the American TV personality Jerry Springer, who stages daily outrages that end with the participants cursing and throwing furniture at one another.
He ends each show by calmly asking: 'Now, what have learned here today?', and proceeds to share platitudes.
Just now, on both sides of the Atlantic, it's beginning to look like a Springer episode.
So, what have we learned?
Really, not much, just that our grandparents were right:
Money doesn't grow on trees.
Debt in general is undesirable, and best paid off quickly.
There is no free lunch.
Beware the guy in the $3000 suits who has a deal you just can't afford to pass up.
Governments can't create jobs or economies, but they certainly can destroy them.
And, one modern proverb to add:
'If he sports an MBA, run the other way'...
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#82
You are absolutely correct and all the wishful thinkers out there really need to wake up to the unpalatable facts that people have always and always will try to buy property at the cheapest available price. Prices are where they are due to fundamentals of land, labour and materials.
95% of the property market is driven by the desire to own a home.
Property in the UK will be the best long term investment as it always has been.
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Agree 100% with houseflogger. The £80k figure mentioned by NorthernThatcherite (plus another 20% profit, taking it to £100k), mysteriously "lost" the cost of land itself, not to mention the cost of the planning process, architect's fees etc any building firm needs to go through to build the house in the first place.
Leave aside the fact that an £80k property would look like a shed, not a proper family home - and that if you depress workers' wages who build them, among others, they wouldn't then make even the kind of X3 earnings multiples referred to earlier.
At the end of the day, there is a need for at least 150k homes a year (the Govt says 200k+, but what do they know), whether for rent or sale, to take into account the fact that people leave home, get divorced, have babies and so on. Yet they aren't being built and never will at this rate.
Some people seem to pontificate about the market as if it really will follow some orderly progress, where prices will fall to a "sane" level where people can afford to buy on a 3X multiple and have saved up at least 10% of the asking price.
At which point they will all form a nice orderly queue outside their local building society, policed by a friendy bobby, and be handed a cheap mortgage for the nice 3-bedroom semi they always wanted.
It won't work like that. My big worry is that all this talk of "sensible" prices, of "necessary" 40% market falls etc. etc. from people on here will evaporate the moment it becomes apparent in 3-4 years that there is a massive housing shortage because no-one built anything in all that time.
Then prices will rocket again - and the second people in the queue will be today's doom mongers, beaten to it by speculators who, as always, had the readies they needed while the rest of us were unable to get a mortgage regardless of status or income.
We should stop taking about the need for price falls as if this is an orderly market we are talking about. It's actually a very brutal market, whether prices fall or rise. And there will be many losers whichever way it pans out.
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House prices are NOT falling as quickly as is being portrayed by the statistics. The only people who are selling are DISTRESSED SELLERS and virtually no-one is buying. The number of transactions is very small, there is no competition between buyers (as some potential buyers wait to see the market bottom and the vast majority couldn't get a loan anyway because of the huge deposit required). This all leads to a huge market price drop. If credit were available at reasonable rates, the buyers would mop up the distressed sales fairly quickly (over 2-3 years). Most potential sellers will simply sit on their hands and wait until the prices recover sufficiently. So, sales volumes will be pathetically small for some time and because of this paucity of sales, a few distressed sales will make the price rate drop appear horrendous - its the way of statistics to accentuate a disaster in this way.
Gordoom is facing in two directions!!
To the public he is portraying himself as being tough on the banking crisis tough on the causes of the banking crisis. pre-Election largesse is evident)
When talking privately to the bankers he says build up your capital reserves, pay back your expensive loans from HMG and take the flack I give you through the media.... don't worry, its only for public consumption, we don't really mean it.
If he were serious, Gordoom could either stick a super-director on the board of the banks HMG now control, or simply pass a new law requiring banks to maintain a specific proximity to the BOE base rate. Its so simple, but they won't do it because Nu-labs require jobs in the finance sector when they get thrown out at the next election.
Come to think of it, the best possible fillip for sterling the housing crisis and jobs would be if Broon announced a snap general election!
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I remember new build semis for sale for £100k at the turn of the decade. Some things have changed since then, but someone tell me what lasting change has happened during that time. It was not long ago.
The credit tap has been turned off, land banks are being written down, builders, tradesmen are easy to come by again, the crash in building materials looks set to be epic. Plots - have a drive around, pick a vacated one and I bet someone will be happy to accept an offer. We are a crowded island, so they say. How much more crowded, when all is said and done? The housing stock we have could return to a £75k average and make new builds uneconomical. Mortgages back to 3x income and no residential construction industry. Is that so implausible? Come on, we all remember it, it was practically yesterday, not some bygone era.
The market price is that at which transactions take place. If transactions fall back under £100k, sunk costs are someone else's problem. Negative equity for millions, why not, if repossessions are the market then negative equity is whatever bankruptcy auctions say it is.
75,000 repossessions and subprime are a joke anyway. Entire developments stand empty a few minutes' drive from BBC offices in the regions, if they cared to send an intern to take a few photos. It might make a nice photo essay.
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#40, you forgot "Global recession" and "Interest rates were 15% under the Tories"...
Brown seems to have a peculiar love of failed bankers - Derek Wanless ( was known in the market as Clueless ) and Martin Taylor ( indirectly an old boss of mine ). Maybe Fred Goodwin should give GB a shout, I hear he has some time on his hands....
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#77 sounds like your friend should stop buying property as he/she seems incapable of keeping up with payments. Maybe some primary school lessons might help with that reading issue when someone puts a piece of paper in front of him/her.
Of course, he/she should be happy that someone is willing to lend to someone that is clearly so incapable of running a basic household budget.
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Poor Gordon cannot make up his mind wether the public gignats wish to be lead by DonQuixoteys , Sancho Pansys ,windmills in drag ,carrots or turniptops ,so our public cervante numberr one is combining them all into one and one for all.
Whilst the public are still trying to understand the nature of the civil union between LAAAbour and Naaautearn wok [caught with its pans down yet still wanting a bonus] vis a vis the finaaancing of city centre "baaachelor boy"flaaats ,they are unlikely to view it as a healthy one that will produce the patter of little taxipayerrs feet at any time between now and infinity or beyond
If only Sheikspear were alive today ,he could then access material for his greatest works
The laming of the shrewdest
King liar
Love labour lost
Rich erred the third
Macbet[what is this numbskull i see before me]
Homeowe and dulyate
For pure entertainment value it has been worth every scent of 100 TRILLION dollars [excLUding VAT]that it will finaly cost, including free bubbly lehmonade for the soda mites and their sodukomite experts and silly digits
And Great Gordon is plannig a seaquell with
New MPROVED Credit Crunch 11 [SNAP CRACKLE AND BOOOOOOOOM]
Whichever labour quango ends up running the nationalAAAyesed hole , will end up also being referred to as "the creature from the bottomless pit "
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Dear Nick
This is a right mess a real real mess, if it were not for the fact that the General Public Now a days can see right through the serious events that are now on us the finanaciers would have dragged us into war, as they do, to make money,
These Bankers and Money men are dispicable social terrorists holding the world to ransom.
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96 When interest rates were 15% under the Tories houses cost less than a quarter of what they cost a year ago ,equaling 3 3/4%comparatively,
The massive subsequent inward flow of ever cheaper Chinese imports not hamstrung by beligerant unions and poor management ,destroyed British manufacturing and allowed Great Gordarren Brown to pretend his policies controlled inflation whilst removing housing from the inflation statistics with the slight of his hand .
Labour squandered the interest rate supressed Tory inherritance and turned homeowening negative equity PRoxymorons into serfs by allowing loony loans to bid up normal prices ,thus putting homes beyond the reach of working couples but not the ponzi bandit Labour /bank buy to letter dalliance now going down the pan , which replaced due diligence.
Put that in your pipe dream and smoke it !
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Once again Gordon Brown is trying to have his cake and eat it. He is attempting to force the banks to reduce their interest rates on mortgages while at the same time tell them to pay the government 14% on their loan while restoring their own reserves.
Isn't it about time that someone told him that his public statements and policy doesn't stack up.
Meanwhile savers like myself are being offered close to zero. It might be safer if we took the money out and put it to work in a Safe Deposit box.
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Many sensible people occupying oversized houses will downsize now that they realize that the FREE ATM on the side has been removed by the ram raiders of the lost arc that dispenced through non performing loans [the great Chinease takeaway]all their banks seed money on which credit was based .
The housing shortage will dissapear as fools that rushed in to buy houses by the bunch are taken away by men in white coats and are replaced by wise men that fear to tread .
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This whole sorry saga is being engineered. How else could so many mistakes be made at such a critical time and to the setriment of the populace.
The powers that be are actively enslaving the economy.
Anyone who thinks otherwise is either an idiot, or a part of it!
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It is more than hilarious that we can all blame journalism for our greed which created our blindness.
Whether we are buying black tulip bulbs or south sea bubbles,we are to money what oil is to water and perhaps should be removed from the process. who knows.
There are simple strategies using common sense to confirm whether or not a property or any asset represents good value for money and only outright greed and stupidity would have lead you to purchase property 05. Your A level child will explain Sharpe ratio to you.
Journalism played its part though. It talked it up and is now talking it down.
Excess liquidity may well have been the biggest player however as this lead to the excessive investment in commodities through margin and swaps that drove an unrelated inflation to distract the Bank of England from real domestic issues.
In May 2003 the total value of capital invested IN HISTORY in commodity index traded strategies was $13b. Had it been $16b in May 2008, that would have been obscene. It was $260b.
The CTFP in the U.Sallowed commodities to be purchased on margin of just 8%. So now I can buy 100k worth of commodities for 8k.
Swaps also allowed for financial institutions to hide other trades.
As a consequence we have every commodity soaring in price driving inflation skyward.
I read about it in May and was stunned no-one else commented. Supply and demand was the reason. Hardly. Supply of oil wheat zinc was fine in relation to demand and in fact was falling since January yet the BOE paid no notice to this and allowed rates to remain high.
October 07 was the time to inject cash into the system, now is too late. Trying to support before the trough hits,is like trying to catch falling knives. A pointless task.
Only when we feel that trough will we be able to move forward and at that point we can look to the media for support, but up to then, they are just doing their job, creating and selling stories.
Related article i was referring to:
http://www.wwfp.net/weekly-articles/our-weekly-columns/recession--the-uk-economy.htm
Its the one titled oil and inflation
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I'm no economist and I don't have a political axe to grind. I see the current crisis as a story of 2 sides: We have the worst economic crisis in most people's living memory which is resulting in rescession and as in everything in life there will be winners and losers. For most of us the subject is too great to comprehend - so will probably lead to better economists in the future as the current crop of students study the subject now.
The other side is for the man/woman in the street and for this I give the Goverment pretty close to full marks. Having worked through 2 recessions had I known I wouldn't lose my house (which fortuntately I didn't) I would have been much bolder in my purchasing decisions. It seems to me everything the Government is trying to do is to encourage us to spend to try and reduce the depth of recession so we're in a slightly better shape to pay off what we're going to have to pay back in the future.
And isn't this the Tory perscription - spend in the bad times and save in the good times for the rainy days?
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#82 Houseflogger. You seem to be misunderstanding the nature of markets. There is no reason why a market in anything should trade at a price that allows recovery of cost, and every reason why from time to time the market price should be below the cost recovery level. Markets send price signals - this is what they do, this is their function. If a market for anything always traded at above the cost recovery level then it would provide no mechanism for curtailing supply and would represent an entirely risk free opportunity, thus encouraging more market entrants and a further increase in supply.
Fundamental analysis, of the the type you attempt, may well provide an indication of long term average values - but not entirely as a lot of the costs you describe can themselves be subject to downward pressure, and in some cases removed altogether.
Why should the market for houses be any different for the market for anything else? Look at oil, it has a ten year trading range of $12/bbl to $140/bbl. How many people do you think were making money at $12/bbl?
To repeat - markets send price signals and these price signals feed through into supply and demand - there is no reason why supply and demand should ever be in the kind of harmonious equilibrium that you and others appear to think is natural.
If you want proof of this why not take a look at house price changes in the US during the Great Depression.
Of course your analysis on this occassion may be correct - in which case if you back your judgement with cash then you stand to become very wealthy, and under a market economy that wealth will be yours to do with as you wish. If you are wrong then you stand to lose and may face a life of penury. Under such circumstances and under a truly free market you would be left to starve.
Alternatively it may be that you really don´t like markets that much after all.
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No 31
A great idea. Add the housing bought by Govt. to the depleted Local Council Housing stock - also remove the infamous 'right to buy'
imposed by the Thatcher Govt. A simple and economically sound solution that would go some way towards solving the housing crisis.
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The big problem is that the Gov't policy over the last twenty odd years (both parties) has been to attempt to Inflate the prices of Land and Property whilst artificially restraining the Wages of ordinary workers.
This they have largely been successful in doing, creating a wealthy propertied class, and reducing the old middleclass into overleveraged debtors.
But this has been their plan for quite some time.
Now, for whatever reason, the folks who Bankrolled this activity have pulled the plug, their plans are mucked up.
Now, if they wish Inflated property, they will have to Inflate wages to match.
this they do not wish to do as they are wedded to a property rich, renting poor, Class system.
In the old days, to stimulate demand a Gov't would give pay rises to Public Sector Workers.
Nowadays, it is common to lie about Inflation and give Workers Pay rises well below the actual rate of Inflation.
The net result we see around us in the failure of the Consumer economy (as real Inflation erodes purchasing power of the Workers).
The trickle down effect does not happen, as the profits generated are tending to go to offshore,sunny tax havens around the world.
The Gov't will have to go back to basics, give up its obssession with creating new landed gentry, and work out a new and effective industrial policy to rebuild Britains manufacturing base.
Oh and restore the relative pay rates of Public Sector Workers, that would in my estimation be more than a ten percent jump, but the longer its left the worse it's going to be.
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The government is now reacting almost daily to the 'News Story of the Day' to make the problem 'go away'.
They now need to stop acting and sit back and watch to see if what they have done is enough. It won't be enough to stop unpopular bad news but it might be enough to 'soften' the recession.
There must be some pain to sort this mess out - either now or later but my feeling is the later the pain the greater the pain will be.
Having said all that I think we are in for a lot of pain anyway in the New Year - if people like M&S are discounting by 20% before Xmas where do they go to get people buying in January - its not impossible the High Street as we know it is about to disappear.
But this is not bad - its bad for the government of the time and bad for those of us who have to live through it - its necessary to readjust our lives and our world back to the position we should be living in.
The money that is being pumped in now is not injection of funds to boost the economy - those funds were injected over the last 5 years by poor lending - the 'new' government money now is just being poured into the hole.
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Another accurate prediction then
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Have to say I agree with expertpygmalion (post 104). I have read that article and it pretty much predicted what has happened. The inflation was artificial and the government concentrating on this has led to the subsequent problems we now face.
You'd think that the government, with all their experts and resources could (should?) have picked up on these details and done something about it.
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All this is unimportant..
The really big question is whether Gordon will nationalise the Honda F1 race team!
Given the choice of saving a bank or an F1 team I think I know which one I'd go for!!
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Some of the 'sub-primers' are also exposed - possibly more heavily to commercial property arrears.
I wonder how many of these lenders go after re-possessions on residential mortgage holders before repossessing commercial property from property developers - the bank's should I think have a moral and ethical priority to repossess commercial properties first!
Are the Lenders doing this or are the lenders just keeping the 'lid on the cauldron' of their massive internal resourcing and related problems relating to commercial property write-downs?
There must be something frightening the banks behind the scenes - it must be commercial property and apartment block developments which I think is a major scandal as ordinary families have become 'cannon fodder' for Banks and their favourite property developers!
Where has 'the rest' of the money gone?
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There are some truely wacky desires to see property tumble to very low multiples long term, and other than distress sales it simply is not going to happen. Whilst property prices have sharply dropped and sales are slowed to a standstill people simply cannot sell a property below the mortgage redemption value. People just sit tight. That takes a lot of property out of circulation when the market gets going again at a rock bottom price so it has to move up fairly promptly. As usual less than prime property will be slow to sell and hang around but anything good will be fought over. Yes mortgage availability will slow things and prices will not get back to the highs other than thru inflation but the idea everything is going to implode is a bit far fetched. There is still a lot of money in this country. I have just listened to a economist and he simply did not appear to understand that greed is a powerful and common motivation. All he could do was take a curve and extrapolate it. Just down instead of up last year. He seemed to think that was his job, just extend the curve. I know a number of people just siting and waiting. There will be a feeding frenzy as soon as a uplift is sighted and the herd will stampede, the only limit will be access to money. It was the lack on control of access to money at the point of sale that caused the curent problems. If you take a look at France, as soon as you go near a new build in a popular area where there is work the price goes up. Land is still very cheap there. It is only the old ruins that are cheap and that is because the renovation cost is so high and the French do not like ruins, they havent read Jane Austin. As for credit being scarce, well it might be but I have lost count of the number of offers we have declined. There will be a steady build up of funds in the system over time and the banks only make money with pushing debt. The question is where is the bottom thats all. As for new builds they cannot build enough to plug the hole when the market gets going,and I cannot imagine a property developer saying you can have it cheap to supress the market, I have never seen that occur, and the lead time on new builds does not help unless German type kit houses are introduced which is not possible in some locations. Recovery just will not happen in time to save the governments bacon. At the moment they are doing an extraordinary job of upsetting just about every social group possible. However there are still people largely untouched by this recession, and who are quite likely to remain untouched, and who may even benefit from reduced high street prices, they just are not the spendaholics the government needs, they have all been culled. As for car makers the other economic problem area, the world just does not need the volume they can produce, the conventional technology has topped out.
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Robert, it gets worse. Much of this subprime lending is off balance sheet and there is little that the Government or lenders can do.
These loans have been securitised into income bonds with specific conditions that trigger repossession. I don't believe the Government's guarantee apply to these.
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#69 How did you work out that "average of 4 skulls per home" ??
In my street, the average is about 2 skulls per home since quite a few flats are single owner/occupier types and others are 2 occupier types. There are also a minority (30%) of family homes of 4+ occupiers, e.g. mine !!
This is also quite typical of my area too, in that there is a good mix of houses and flats and some green/common fields !!
The only problem here is the sudden multiplication of cars over the last 10 years and the lack of on-street parking leading to unpleasantness due to driveways blocked by irresponsible/yobbish types !!
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Good article Robert which highlights the subtle differences in the roles different banks played. Not that the big UK banks are entirely innocent having loaded up on US sub prime, but they really did not join in the UK sub prime mess. I think now we can say Northern Rock, Bradford and Bingley, The alliance and Leicester, and a sub section of the Halifax were the real sub prime lenders in the UK. One interesting point you may not have picked up on is that those with unusual build housing are in a spot of bother now. Steel houses for instance require specialist mortgages which you could only get from Northern Rock and the Halifax and are very difficult to get now. There are now streets in the UK where effectively your house is worth nothing because nobody could get a mortgage to buy your house. The government seems unwilling to get into the nitty gritty of some of these problems and leaves those on the sidelines out to dry.
Next will be sub prime car loans, many of them organised through Ireland and the likes of GE Money and GMAC but also to some extent the same culprits for the sub prime housing mess. Second hand car prices are falling and with financing in recent years typically being a sort of personal lease rather than an outright buy, car buyers have no equity in their vehicles. What is worse is that increasingly guaranteed second values by the financing companies are below actual valuations with financing companies taking a loss.
Today we hear that the FSA wants the banks to buy Government bonds. I am guessing this is because pension funds are not that keen on Gilts now they don’t pay much interest and the government needs someone to buy all the debt they are issuing. Does this sound like some sort of ponzi finance scheme to you where government lends to banks at the same time that banks issue debt which is bought up by the banks with the money they borrowed from the government. Sounds like short term quantative easing to me and of course sterling won’t be popular if investors work it out. I can’t help thinking government would be better off being honest about the real reasons for their actions rather than treating us like sheeple.
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#82. houseflogger wrote:
"Trust me, it cannot be done" (referring to a drop in house prices to affordable levels)
That comment encapsulates the scale of the problem; whilst there is a belief that house prices will 'bounce back' we are doomed to remain in the Japanese situation of a long, deep and grinding deflation and depression.
Either wages, pensions and incomes must double or house prices must go down. Either way houses must be affordable. For as long as houses remain unaffordable a long and corrosive social malaise of broken families and social fragmentation will rot society.
Houses need to be affordable and interest rates need to pay a decent return to savers - then the depression will be over.
My best guess is interest rates of between 7 or 8 percent for borrowers and 6 to 7 percent for savers are long term sustainable levels. When (and if) the Tories return to power, traditionally interest rates have rocketed and all those borrowers should be warned.
By the way anybody know how to engineer double digit inflation without it getting out of control as that is the other way of 'fixing' the numerically over valued properties. (Loans being in historic currency units.)
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the moderators were very vigilant yesterday and removed both my comments about Gordy and the bankers because I might have been comparing them to A REAL PERSON
I was clearly mistaken as Gordy and our leading bankers BEAR NO RESEMBLANCE TO real people
Having allowed our economy to run on for years with no proper regulation AND NO BRAKES they now throw money at the 'problems' whilst desperately blaming one another and trying to work out a way to get re-elected
These constant new bail-out plans also mean that more and more special interest groups think
HEY MAYBE I TOO CAN
GET A LOAD OF MONEY
FROM THE GOVT COUGHERS
WELL KEEP SMOKING THE GOOD STUFF EVERYBODY; COUGH COUGH
YOUR HADRON COLLIDER IS BROKEN MR BROOON; WE SHOULD HAVE ATTACHED SOME BIG MAGNETS TO YOU TO KEEP YOU ON LINE BUT IT'S TOO LATE NOOW
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There's no need to re-possess a single house until all of the commecrial property lending issues are cleared. A property developer takes commecrial risk in building a new property a family holding a mortgage does not.
The bank's should put all of the defaulted commercial property up for sale and sort out that side first and not re-possess houses from owner occupiers until that process is finished - this will stimulate the commercial property and construction markets and will give housholders time to adjust if in arrears.
The bank's should, in my humble opinion, sort out all of their commercial property and business projects first and before re-possessing homes off familities - Why isn't this most obvious to all those neo-intellectual financial gurus in business and government?
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#106
You are quite correct about the market but markets due to human nature always exaggerate the upside and the downside but only a fool would produce a product for less than the cost of production. Therefore supply is always curtailed.
The cycle in property with the average property outlasting the average human life is long however the housing stock has to be continually renewed, this is not happening at a fast enough rate at present which will inevitably lead to a short supply with the inevitable price correction on the upside.
It would be mistake to think property prices will fall much further.
We all need shelter above all other commodities.
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It is abundantly clear that the underlying capital ratios of the mortgage lenders have to be maintained/strengthened. If banks lend more as the Treasury wishes, the capital ratio will worsen and the government will have to step in again with further bail outs.
A very bold and brave initiative would be to encourage repayment of outstanding debt. One idea would be for certain mortgage holders to forgo the payment of Income Tax for a year with the proviso that the monies were used to pay off the capital part of the loan. Indeed the banks themselves could rejig their normal charges to the benefit of the mortgage holder.
This could slow down the repossessions as well as the number of mortgage holders falling into arrears. The bank's capital ratios will improve. This improvement in the balance sheet could also encourage more private investment through the Soverign wealth funds, that currently are not interested in the UK. The banks could lend more with confidence which may in turn provide a gentle kickstart to the economy again - anyone who thinks that the upturn will be anything but gentle is living in cloud cuckoo land.
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#82 A good comment !! However, i think you will have to allow for the following too :-
Capital cost of the house + 160k (your example)
1) Down payment 30% = 48k -- leaving the need for a loan of 112k
2) the norm years ago was 3x +1. Assuming it is 3x30k + 1x25k = 115k
Therefore, 160k is just about affordable !!
What this means is that a young couple has to save hard to acquire the down payment !! The other alternative is to get a loan/gift from the Bank of Mum and Dad !! :-)
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I don't want to mention any names but there are many more sub-prime lenders than mentioned on this blog and of more concern are the building societies who have invested in commercial property in the form of apartment blocks through setting up subsidiaries. These same building societies ( possibly in breach of the building societies legislation) have collectively leant billions to property developers on 'commercial' and all have lost. So why do these lenders repossess houses of ordinary families FIRST to 'try and re-balance' the books!
Get this commercial stuff sold at knock down prices FIRST!
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Robert,
nice piece, but how about a blog comparing ADs economic rescue package against that announced yesterday by Sarkozy?
I almost hate to admit it but the French have proposed a packet of measures which will get their economy going by getting industry researching, developing and producing things, making money which the people can then spend.
ADs version is to give the people a negligable price cut, increase the cost to industry of employing people and hope that we all go out and spend the economy healthy again.
I will wait until I see the details of the French proposal, but I know which plan I prefer.......
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#114 Your prognosis may be correct but your analysis is flawed.
Outstanding mortgage values do not represent a floor on housing prices - at best they provide a resistance level. Repossession is the principal mechanism for breaking this resistance level. If this mechanism is being interfered with in the short term then, all other things being equal, pressure builds and there will be a massive breaking of this resistance level (i.e. increased repossessions).
A lot of houses have no mortgage and their owners are entirely free to trade at any price they wish - all the way down to nominal levels. In many cases there is a psychological resistance to this - but not in every case, and in any event people die and houses then tend to be sold irrespective of price.
It is true that in any downward spiral such as we have at the moment you would expect a decline ijn aggregate transaction levels.
Today the principal reason for supposing that there cannot be a decline in price levels to those you describe as "wacky" is because there is no broad psychological acceptance of this likelihood. Over time, and if the situation does not improve, this pyschological barrier will be eroded.
It is arguable that the psychology of the nation is severely distorted from reality. I recall seeing a newspaper headline from about 12 or 18 months ago "Ukranian Philanthropist pays GBP 87 million for House in Kensington" - This passed entirely without comment.
I am not arguing in favour of a price collapse comparable to the Great Depression - I am just saying that it is possible. In any period of substantial downward price movements everyone will suffer but it is the poor that will be the first casualties.
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nice to know that we are allowed to compare Mr Broon to the Hadron collider; thank you moderators
IT WAS RUNNING FINE BUT SUDDENLY COULDN'T TAKE THE PRESSURE
THEY WON'T RUN IT FROM ZERO TO MAX SPEED LIKE THAT AGAIN
BUT IT WILL COST A LOT TO FIX AS THE GAS ESCAPED AND THE MAGNETS WERE PULLED LOOSE
OOPS
THERE ARE SOME LESSONS THERE FOR YOU MR BROON AND ALL YOU RECKLESS BANKERS WITH YOUR CDOS ETC
WHEN IN A BIG DEEP HOLE STOP DIGGING BUT WHEN IT ALL BLOWS UP AT LEAST ADMIT THAT YOU ARE TO BLAME
PS: whilst a lot of people suggest we should go back to sensible house loans of 3x income that presupposes that starter homes and flats should cost less than £100k, even in London and the Southeast - that is not possible unless our whole economy is restructured and land prices drop a huge amount; at the moment a builder could not build a decent, environmentally friendly home for that - a 1-bed flat maybe.......
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Re: post 108
supercalmdown - almost every post of yours espouses large pay rises for public sector workers. Why do you think they're more deserving of the private sector?
I do the same type of job as a friend of mine. I'm in the private sector, he's in the public sector.
We earn roughly the same.
In a few months I'm being made redundant whereas he is virtually guaranteed a job for life.
My pension fund has been reduced greatly by the fall in equity markets. He has an index-linked final-salary pension entitlement which is funded by the tax-payers at no risk of decreasing in value.
He deserves a 10% pay rise why?
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Hi Guys,
Just been reading through everyone's comments and found number 104 very interesting.
Clicked the link apprehensively but found the article there an extremely interesting read.
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#91 Here's one to add to your list -
At 14, I thought my dad knew nothing. At 21, I was surprised by how much the old man had learnt in the last 7 years !!
It seems that every generation thinks they know better until the by-product meets the rotating object. Then they suddenly discover the ancient truths !!
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Robert,
I understand Brown has £100 million budget for the repossession scheme?
The CML has estimated 75,000 repo's next year(I think it will be more but lets use their figure).
If you divide the £100 million by 75,000, this is £1,333 per case.
This completely ignores all the other people in arrears who will need help under the scheme.
Take a £200,000 mortgage at 5%. The monthly interest is £833.
It is obvious to anyone who can make basic maths calculations that the scheme is a joke.
The money will not stop repo's in the vast majority of cases.
It's a political tool to try to help save Browns skin.
Trouble is, unless you are an extreme optimist or have blind loyalty to Mr Brown it is also blindingly obvious that the other attempts to buy our way out of this mess wont work either.
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Robert has made a very important point but are you able to quantify the amount of sub prime uk motgage debt outside the government influence?
Also on this theme last sunday afternoon by chance when driving I listened to the BBC Radio 4 programme ( I think a repeat)on the repossession problem and the reporter had picked up that some of the more spiv/sharp UK Hedge funds are buying up the UK sub prime debt - 40p in the £ was mentioned - and are therefore clearly incentivised to speed up the repossesion process.
The strategy therefore for them is purely a hard nosed numbers game to just get the properties sold at the repossession auctions asap before the residential market drops further and even with huge discounts make a fast buck. Sell it quick as you can mate otherwise you will lose the gamble.
I have also been told by a city contact that the same Hedge Funds just like some of the banks heavily involved in mortgage lending are taking derivative side bets on the % of market drop to cover their positions.
The other question is therefore are the UK banks still selling off the so called sub prime mortgage debts to the spiv/sharp hedge funds on the sly even now or has it stopped with the recent government focus on repossession protocol.
Does any one out there know the extent of the Hedge funds involvement and the likely impact of this problem to the repossession crisis. Hedge Funds trying to put families onto the street at Christmas is not very pleasant human behaviour.
Surely if the problem is considerable there ought to be government emergency legislation to deal with this sort of quick buck immoral behaviour during what is a delicate social emergency which will end up costing the tax payer if the hedge funds operate outside the governments repossession protocul.
Maybe the problem is very minor but someone in the government ought to follow up the radio programme asap.
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118 John from Hendon
Your point of view seems to contain the idea that we do not live in a manipulated enviroment, socially and economically. All the evidence points the other way. Governments in general like an indebted population because it makes them compliant and industrious and taxpaying, and individuals who inccur debt want to know their assest is secure and want to make a risk free profit. This site is riddled with individuals who want the senario that they make a risk free profit. There is post after post to that effect. It is the removal of the threat of risk which produces debt growth, it is an illusion but there are plenty of willing victims. Some do make substantial money but there are losers and a tax take overall. Most people are not risk aware, that is where the problems start, they are lambs to the slaughter.
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Dear Robert
What would be interesting is for the Moderators to publish all that that they have removed, because me thinks that what is said is more to the truth than what is poblished/
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Another grave mistake made by Brown's government is in thinking that the lenders can be trusted on re-possessions.
Emergency legislation is urgently required to ensue that no owner occupied house is re-possessed where the bank can re-possess another commercial asset.
The prioritisation of re-possessions by lenders needs policing - the policy announced by Gordon Brown yesterday on re-possessions sounds useful as a sound bite but will not adequately protect ordinary hard working home owners who are the real victims of this credit mess.
The banks have many other options and if home owners are given proper time and the commercial side is stimulated by the banks getting tough with the wealthiest and greediest property developers - the economy can improve and house repossessions will be totally unnecessary.
You'd think that even Gordon Brown would know this with his 'social mind' and an election looming?
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Robert, thank you for your coverage of economic affairs since you joined BBC. I for one do not see how an economic crisis can in any way be blamed on the messenger. That distinction has to be laid at the door of an ill-educated, fragile population who have lived in Aladdin's cave for too long..
Following an excellent piece on Newsnight last night about the Bank of Lebanon, when was the last timne the Bank of England liquidity was 30% and also when was the last time British mortgage applicants have been asked for 30% deposits and offered no more than 3 times their salary?
These seem quite reasonable figures and I find it hard to understand why any sane person would wish to incur upon themselves indebtedness beyond this. Is my thinking outmoded or stupid?
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Robert,
A view seems to be developing that the main function of banks is to lend. Do you agree that is wrong. Are they not required legally, to maximize shareholder value, increase earnings per share, and, like other businesses seek to maximize profits?
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#56 NorthernThatherite.
Looking at your name I can't see what your issue is, if your company is weak it should go to the wall, it will be replaced by something stronger and this will be an improvement.
Thats what Thatcherite economics is about. The markets will correct the imbalance caused by your weak company.
Unfettered business with minimal regulation sorts the wheat from the chaff.
If your company turns out to be the chaff thendon't bleat about it.
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Some 40 years ago in Edinburgh we got on to the housing ladder through a mortgage from the city council. It seems to me obvious that giving councils the finance to lend would at least free up some credit for the housing market.
If banks wont lend there is a tried and tested mechanism for making credit for housing available
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The lenders are closer to the property developers because these are the guys who take them out for lunch every week and send them 'the bubbly' at Christmas. The banks do not care about individual owner occupier customers with a residential mortgage. The lenders bend over backwards to help property developers buy home owners can be on the street after re-possession after missing one or two payments. The banks have their priorities wrong as re-possessing houses moves the cost onto the local authority housing departments - the banks know this also. We are all subsidising property developers and this must stop. These savvy people like the market so re-possess the commercial stuff FIRST and let these guys realise their own commercial risks and meet a few 'vultures' themselves - on their 'new learning curve' and experience.
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#114 "It is only the old ruins that are cheap and that is because the renovation cost is so high and the French do not like ruins, they havent read Jane Austin."
It is interesting that you mentioned this. My mate just bought a 5 bedroom "old ruin" in South-west France for not a lot of money. This place included a chapel and a few barns/converted workers' quarters on 5 hectares of land !!
He then rounded up his friends and family and threatened to stuff them with good food and wine, so they helped him renovate that place. His expenses are mostly for materials and official inspections/permissions.
All told, his place is still cheaper than my bog-standard family home in London !!
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It is reported that groups of people, in order to exist, require public money through welfare payments. It is further reported that they are going to be required to do work in the community to qualify for such support, and also be subjected to lie detector tests.
In view of the fact that a large proportion of banks require public money to exist, is it reasonable to expect that the boards of directors of these banks will be required to do a degree of community service, and ensure that lie detectors are installed in their boardrooms.
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Maybe it's time to rationalise and regulate pricing and products. The same interest rates should be applied across all mortgages and products from different companies.
Why do customers have to renew terms every two years and pay another enrollment fee?
Why should customers in difficulty pay more or higher rates?
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# 117
Re your last paragraph. Actually, pension schemes love gilts. They allow them to more closely match the cash flow of their liabilities (ie pension payments) with the assets to generate them (gilts and other bonds). So much so that there's actually a shortage of attractive gilts for pension funds to hold. You'll find that many pension schemes currently get the bond exposure they want via swaps (with lower-than-previously-rated investment banks as the counterparty to these swaps). So pension schemes would actually love the government to issue more gilts, especially in the 20-50 year maturity range. That's where there is a shortage, whilst it's also the peak period for pension scheme liability run-off (ie when pension scheme members are expected to die!). This kind of issuance would allow schemes to reduce their credit risk to the investment banks. Unfortunately the governement appears likely to use 2-5 year maturity gilts to fund its extra borrowing, which won't be of any use to the pension schemes.
The FSA requirement for banks to buy more gilts has nothing to do with funding government borrowing. Rather it's a liquidity management tool. Essentially FSA wants banks to have a larger proportion of assets in liquid instruments in order to meet demand for repayment of deposits. Basically, it's to try and stop a repeat of the queues at Northern Rock. In plain English (I hope) the issue is as follows. When you stick your cash card into an ATM, you expect to get cash out. However, most depositors' money is used to fund banks' lending (mortgages etc), which cannot be converted into cash at short notice. Even if these assets are in securitised form, suddenly selling them may depress the prices received which has implications for all banks (think MBS here). FSA thinks NR etc shows that banks need more cash-on-hand, or near-cash such as gilts, which can be converted into cash at very short notice. This will reduce the risk of banks needing BoE liquidity support in future (ie they'd have more resources of their own before needing to approach BoE). In addition, knowing banks had greater liquidity would, it's hoped, reduce the risk of everyone asking for their money back anyway.
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126 armagediontimes
Hi
The issue is whether the economy is collapsing or not. I doubt it will collapse. In the last recession I was affected. Many were not. That is the case in any recession the effect is usually arbitary and localised. The issue in this case is just how wide and seeping it is. In the early nineties high interest rates were a problem. Interest rates are currently very low helping those who stay in employment. A significant number of people I come in contact with say they are not affected. You can argue they are complacent but that is their opinion. Some are drastically affected. The issue is fear which has become dominant for a lot of people. Fear is being heavily marketed. However when herds stampede they cannot stampede forever. I am not saying things will definately go one way any more than you are saying they will go the other, to me the bleakest outcome is not that likely that is all. Just how many people do you expect to die or get repossessed to create a false market. The average life expectancy is 80+ years and the projected repo levels are less than 100K at the end of next year. There is being a clear out of tat and rubbish and a reduction in the sales of avoidable purchases. You say the poor always suffer, well that is true up to a point but in a recession cherries are also targeted by the banks as they have assets. I do not think it is as simplistic as you are saying but you are probably saying the same to me. Thats OK. The question is where is the bottom.
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"And isn't this the Tory prescription - spend in the bad times and save in the good times for the rainy days?"
It is - however we have had the good time and didn't save. Now we have the start of the bad times. The result is that the Conservatives feel that the prudent thing to do is cut borrowing commitments.
Why do people go on about the 'right to buy' as if it something bad? You either have a family in a rented council property or you have THE SAME FAMILY in a house they own. In EITHER case the house is unavailable to the council.
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when will people get the details of the northern rock together right...
yes it is upto 125% ofthe value of the home but it is made uo of:
maximum 95% secured loan
maximum of 30% unsecured loan
therefore the together loans are no more at riskof falling property prices than any other 95% mortgage...
what is causing the problems with the together customers:
you signed up for a rate of anywhere from 5 - 5% for the combned loan, this then drops onto svr at the end of the term (which meant a lot of people went from around 5% to close on 8%) got into payment difficulties
add to that a lot of those together customers also somehow mannaged to get loans with those tv and radio advertising "XXXXXXXXXX finance : need money you know you cant afford? come to us and well help you")
and you have the perfect scenario for catastrophe:
one of 4 things happens:
1) the second charge repossesses the home, gets secured balance from northern rock, realises the house isnt worth enough to cover NR's loan let alone theirs so gives it to NR to sell (weather NR was going to reposess or not) - end result: its shown as a NR reposession
2) the customer is out of work, has no loan insurance etc, calls NR, says they have no way of payin and wants to hand over the keys to NR: NR has a LOT of these volultary posessions wether they want them or not (a lot happen well inside the 6 months missed payments window) - end result: its shown as a NR reposession
3) the customer has done a runner: after no contact form the customer regarding the arrears (o contact form the tenant were the house is illeally let) NR sends in an investigation company, if the house is illegally let then they try and find the landlord/mortgagee to go through the debt management procedure else if the house is obviously ababdoned a court claim is made to seize the house to stop it being vandalised etc: result: its shown as a NR reposession
4) true reposession: customer hasn't paid / will not pay / ilelgally renting out the property: stadard reposession claim proceeds : end result its shown as a NR reposession
as you can see there are a lot more ways NR ends up with a reposession than a) people think and b) the media likes to over-hype in cenarios 1.2, and 3 NR ends up with the house wether they were planning to reposess it or not, sadly those figures are never mentioned by the media: all they want is an easy quick headline of "NR making the nation homeless" and so on
maybe mr peston would like to investiagate the TRUE number of NR eviction based reposessions rather than just the combined total of all the housing stock they are left with to try and sell...
the one thing that stops people taking the secured part of the together loan elsewhere is this:
also most lenders see the together as a 125% secured so won't try and match it, when they should be looking at it as a 95% secured loan - that is all they need to match, you CAN redeem just the secured part of a together loan and leave the secured with NR (but check your terms as the intrest rate does jump quite a bit)
the final note is one of poor public education:
a large number of people believe it is fine to miss payments on a secured loan as its secured on the house but you must pay the usecured loan as its not secured on anything - if you are having difficulties paying a together and second charge loan talk to NR - they would much rather find a solution than have yet another second charge reposession dumped onto them!
a happy to be ex-northern rocker who is getting sick of all the mis-information in the media!
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138 reforse
You know as well as I do that there is no such animal as a free market, they are all regulated. Further the problem is that those regulating are not always effective because they are not market traders and therefore can cause discontinuities because their function is to some extent parasitic and always reactive rather than proactive (FSA for example). Furthermore that capitalist market forces demand efficiency and therefore strip the fat out of the system which reduces the capability of a business to cope with dramatically adverse impact.
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#143 "Why do customers have to renew terms every two years and pay another enrollment fee?"
And the answer is .....they don't !!
All you need is a standard mortgage instead of one of those fancy "special offer" fixed rate ones !!
If people sit down and work out why these "special offer" mortgages seem too good to be true, they would realise that they *ARE* too good to be true !!
All they have to do is to work out the real cost over the lifetime of the mortgage and how many "enrollment fees" they have to add on to their "cheaper rate" to realise that banks are *NOT* charities !! If they don't make their money up-front, they make it by stealth !!
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#138 reforse
you said to #56 '... if your company is weak it should go to the wall, it will be replaced by something stronger and this will be an improvement.'
would you like to substitute the word 'country' for 'company' in your reply? do you think that the UK should be allowed to go to the wall and be replaced by a stronger country like China or India?
you advocate the destruction of value but for what purpose? you should heed what happened to Hoover's Treasury Sec Andrew Mellon after 1929; when the economy began to collapse he said leave is all to the market to do its work "liquidate labour, liquidate stocks, liquidate farmers and real estate"; by 1932 everyone knew that didn't work and was only causing terrible destruction, so they had the sense to elect FDR and listen to Keynes
doing the same thing now will be even trickier, given the globalised economy etc; the current gov't is admittedly struggling but I'd have to give them 5 out of 10; the free market alternative? well there isn't one at the moment, is there!
George W's instinct seems still to go with the free market except when it involves his friends; for instance he would punish GM for being bad capitalists; well we all know about George W's instincts don't we; how many times has he been right, remind me someone please
On the question of house prices and land values, the UK and especially the SE is and will stay overheated until govt can intelligently intervene to dilute the market's excesses: build more social housing; compulsorily purchase land and streamline it through planning processes; encourage people to go and live somewhere else; get all the empty buildings back into use etc etc etc; there are all sorts of things that govt could and should do but which the free market would never contemplate; the free marketeers would presumably advise us all to buy cheap, ruined French chateaus and live in 'em but they might rise in value when the first 100,000 Londoners head for Calais........
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#121 As you say no-one voluntarily builds houses or produces any other product when the market price is below the cost of production - this is how price regulates the supply of any given product.
The problem with housing is that the "cost of production" is opaque. In the recent past there was enormous economic rent to be obtained from obtaining planning permission - i.e. the difference between agricultural land values and land with planning consent. This can be squeezed significantly and the method for doing so is through house price pressure.
The demand side for housing is not straightforward either. There is no law of nature that says current average household size cannot increase significantly. There are plenty of examples proving that increased household size is perfectly feasible.
It is true that we all need shelter - but this is to confuse demand with effective demand. The existence of homeless people are proof of this difference. There is no reason why levels of homelessness should not rise.
I´ve no idea where house price levels may go - but it is clearly possible that they could fall to levels that are not currently considered possible. Take a look at house price movements in the Great Depression for proof of this possibility.
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151 armagediontimes
I think your comments are fair enough but I do tend to think you pick the worse case in every measurand. Also this is not 1930. You can say that makes it worse, or that it makes it better, but it is not the same.
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#71
I agree entirely with what you say - I'm a bit late getting here but I have been saying this about the Banks for some time
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#138
Yes totally agree but the trouble is - no one wants to be the 'chaff' and everyone is clinging on hoping it's not going to be them!
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154
Do you think there is any difference between the wheat and the chaff in a hurricane.
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Somewhere in the mist of all this, is an independent government appointed regulator, which is funded by all the companies trading in the financial sector.
The Financial Services Authority - about as much use as a chocolate fire guard.
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#148 and #150
You both missed the slight air of parody in my comments.
I was responding to someone with the user name "Northern Thatcherite" who was bleating about their company being in difficulties.
We have had mostly de-regulated markets for most of my adult life stated by the edecade of Thatcherite economics in the 80's(progressively getting less regulated on the way) which has led us to this point.
"Northern Thatcherite" if he lives up to his username should believe it is correct for his weak company to go to the wall.
As far as Britain being replaced by China et al. According to unemotional Thatcherism, yes that is correct, if Britain cannot be competitive then it is right and proper that it be relaced.
I am of course playing the devils advocate at little on the blog, these are not my beliefs but my understanding of Thatcherite beliefs.
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"Do you think there is any difference between the wheat and the chaff in a hurricane."
Thatcherism has no time for those caught in the hurricane. The market will adapt to the gaps left by the hurricane and the strong companies will prosper as they take advantage of the lessened competition. As others see the profits to be made they will enter the market and increase competition again.
After all those who failed to survive the hurricane are only statistics and their predicament is only the law of the markets in action.
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#128, because your friend was smart enough to get a job in one of the few sectors to massively grow whereas you were dumb enough to work in a sector exposed to commercial realities. With some luck the UK will get rid of that pesky private sector and the nationalised banks can keep lending money to everyone forever unwritten by more and more money printed in the government. Just like the real leaders in fixing the world economy have been practising: [Unsuitable/Broken URL removed by Moderator] " "As Monetary Authorities, we have been humbled and have taken heart in the realization that some leading Central Banks, including those in the UK, are now not just talking of, but also actually implementing flexible and pragmatic central bank support programmes where these are deemed necessary in their National interests. That is precisely the path that we began over 4 years ago in pursuit of our own national interest and we have not wavered on that critical path despite the untold misunderstanding, vilification and demonization we have endured from across the political divide.""
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So how much is a house worth?
Here is my own particular position. I recently returned from living in the Middle East and I live in Kent, an ideal location for family and working in London. I don't own a house and I rent comfortable 4 bed detached house in a small village close to the station. It not a grand house, its an average 1930's house with an extension, no garage and really quite a modest affair for a middle aged man with a medium sized family.
I earn 115,000 GBP p.a. A pretty good wage, or at least it is according to recent BBC surveys. My wife has chosen to stay at home to look after our young chlidren.
Because I understand the time value of moneyI think it prudent to borrow no more than 3.5 times my salary. Assuming I have a 100,000 deposit (which I don't, and this is a symptom of why most of us from the spend it now generation are in the mess we are in), how much should I spend on a house? Well the Math quickly tells me around 450,000.
So how much is the house I rent currently valued at, the answer 650,000 GBP. A funding gap of a massive 200,000. The conclusion, I can easily afford the rent, but it would not be prudent on my salary of 115,000 to borrow 550,000. Knowing my rent, and calculating the equivalent mortgage for 550,000, the difference, in cash, could be used to get a better return in investments other than housing (present stock-market circumstances excepted).
So, Robert, tell me what does this story tell us about the true value of housing in the UK?
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157 reforse
I am not convinced Thatcherism ever existed it was mainly a convenient excuse to assest strip or justify short term decision making eg the dash for gas power stations. The sale of utilities to cash in on assest and get them off PSBR. It has been taken to its logical conclusion by of all things a Labour government. Just spin from start to finish. There have been a stunning number of property developers in government over the years. We are at the logical end point of 30 years of hyping housing.
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#157, in what way is the mortgage and financial services industry "de-regulated"? And surely the point of Thatcher was not to throw up your hands and go "we can't compete" but to actually go out and find something we can compete on. Unless of course you fancy a job making T-shirts for a few quid a day?
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how about this for an idea, all these subprime lenders re finance their own borrowings via the Bank of England, this reduces their cost of capital.
They then do a deal with their own borrowers to have interest only payments for say three years whilst the property market sorts itself out, then, when there is equity back in the lending equation they start repaying capital.
Or sub prime borrowers refinance by borrowing direct from the Bank of England at the newly lowered rate!
The sooner our Banking system takes a longer view of getting out of their own mess the better and stop trying to shore up balance sheets as quickly as possible to cover up the more bad debt that will come in 2009 as a result of their behaviour the better.
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158 reforse
The point is that it is simply down to if you are in the path of the hurricane, it has little to do with whether you are wheat or chaff. Most people are simply glad they are not hit and the inflexibilty of a position in employment or business means those in the path cannot move quickly enough. The closer you are to supplying something seen as being necessary the greater the chance of not being affected.
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160 energyboy
Your rental is probably lower than it should be due to oversupply. It could stay that way. Enjoy.
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"157 reforse
I am not convinced Thatcherism ever existed it was mainly a convenient excuse to assest strip or justify short term decision making eg the dash for gas power stations. The sale of utilities to cash in on assest and get them off PSBR. It has been taken to its logical conclusion by of all things a Labour government. Just spin from start to finish. There have been a stunning number of property developers in government over the years. We are at the logical end point of 30 years of hyping housing."
Glenafon,
I agree with you.
I am only taking "Thatcherism" to its logical conclusions. I do not think that this is in anyway the best way to run a society. My own view of the ideal is the Scandinavian model, but I do not believe we have the Politicians to apply it or indeed the populace for it to work.
The Scandinavian politicians spent many years persuading people that a converged equality between people was the basis of a fair society.
Compare a Danish nursery worker who is respected as a qualified professional who looks after the children of rich and poor to a high standard, whereas in the UK it tends to be an uneducated school leaver who only looks after a lower/middle class child with the profits going to the owner who by employing cheaper less appropriate labour increases their profits at the expense of the children of those who cannot afford to pay more.
In the UK we do not have a population who would accept the higher taxes to pay for the better services as we have become a very selfish nation (whats mine is mine and screw the rest) and politicians who cannot be trusted to apply higher taxes in the best interests of the country.
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"#157, in what way is the mortgage and financial services industry "de-regulated"? And surely the point of Thatcher was not to throw up your hands and go "we can't compete" but to actually go out and find something we can compete on. Unless of course you fancy a job making T-shirts for a few quid a day?"
And if you can't compete under Thatcherism and don't find something you can compete on then you go bust like NorthernThatcherite who is complaining how terrible it is that he can't compete.
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"#157, in what way is the mortgage and financial services industry "de-regulated"?"
HAHAHAHAHAHA
Oh, you are not joking aren't you?
I forgot the Government regulations insisted that banks lend vast multiple of money and purchased worthless securitsed assets.
i forgot that the FSA was all over the banks telling them they should increase their leverage and that perhaps they had a bit more leeway and should fill it with shonky loads and investments.
Which alternate reality are you from.
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#133. glanafon wrote:
"Your point of view seems to contain the idea that we do not live in a manipulated environment, socially and economically."
Curious my view of economics in general is that 1. you can not buck the market in the end 2 it is really all about simple (and compound) arithmetic.
I was not aware that I was expressing a subliminal view that we are either manipulated or not and in the end if I was asked such a question I suppose my response is that no matter how much you 'manipulate' (to use your term) in the end in economics everything comes down to the individuals pocket book. No matter how much anybody tries to convince me that the contents of my wallet is other than it is they will fail. (I admit that this may not be true fro the innumerate.)
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#168, "I forgot the Government regulations insisted that banks lend vast multiple of money"
what news you reading? The government is insisting on EXACTLY that and the banks like HBOS etc SOLD - not bought - securitised assets because under the regulations made by this government they could lower the capital they had to keep in reserve. CDOs boomed because the government forced the BoE to keep the rates artificially low - US did the same thing - thus pushing investors to search for yield. Most investors have regulations about the credit worthiness of investments and so because CDOs substitute interest rate risk - which investors are allowed by regulations to take - for credit risk - which they are not - then the investors bought these products. The FSA specified exactly what the characteristics were of the investments that counted as capital.
So the short answer is yes, regulations did force high street banks to lend out many multiples and did force them to SELL securitised bonds and did force them to go the money markets and did force them to lower their capital base and use "shonky loads"( not familiar with this term ). Maybe you should ask for an increase in your credit limit and use the extra money to buy a clue.....
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#162 The mortgage and financial services industry are deregulated in a dizzying variety of ways - both through regulatory omission and comission. Initial examples can be found below.
http://www.guardian.co.uk/commentisfree/2008/sep/19/regulators.creditcrunch
Turning to Thatcher - she specifically insisted that there were certain areas that under no circumstances would we compete or attempt to compete. Coal mining being the most famous example. When people objected the police were sent in and it was made clear that irrespective of cost this industry was to be destroyed.
It was to be destroyed because it stood in the road of market liberalisation (specifically in the power and gas industries) and more generally it impeded the march to the services economy. Thatcher spelt this out quite clearly. Some people objected, but they understood the message or the vision.
In other words she was leading us somewhere - whether we wanted to go there or not.
Today there is substantially no manufacturing industry and financial services in its broadest definition is being unmasked and revealed for the mirage that it always was.
There is nowhere left to go. The real tragedy of Thatcher is that in addition to destroying industry she also destroyed communities and community support groups. The population is uniquely unprepared to cope with what lies ahead.
It is no use arguing that these industries had to go anyway - some of that is true, but it could have been handled in a different way, a way that would not have destroyed much of the social fabric of society.
It is true that she cannot be responsible for specific policies of recent years - but she laid the foundations that allowed the current crop of second rate incompetents to assume control of the levers of power and continue pulling them in broadly the same direction. Her policies inured the sensibilities of the general population to more of the same - as the old saying goes "after the first death there is no other"
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#148, furthermore the financial services industry is heavily regulated. Thats why you have reams and reams of paper that probably do not read when you get an account or credit card or loan or mortgage.
Regulations are the ONLY reason all these structured products exist. They serve no economic purpose except for tax and regulatory arbitrage. The people who are claiming "de-regulation" is the problem are either ignorant, stupid or running an agenda - which is probably why GB is saying it as he is all three.
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BBC Breaking News!
"Repos - the new Growth Industry"
'...it's a guinea a minute says one broker - buy while stocks last!'
Other top stories this Friday afternoon:
Britney Spears singing louder than ever
Sheffield mum has triplets
Jeremy Clarkson
Afghanistan the new tourist hotspot
And now the sport.
Repossessions up 12% and nobody came..
GC
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169 John from Hendon
I think we are here because the market was deliberately cultured in a particular direction, very little to do with economics, more to do with sales technique. There are clear attempts to try and encourage market movement in a direction now, may be right may be wrong, may or mayt not work. There are so many ways things can be massaged that I do not think economics is the entire picture. Fear has been whipped up and that is affecting things. There is due to be massive intervention, support, aid, worldwide to warp the survival of large corporations - what has that to do with economics. The trouble is you have too many governments wanting to fiddle with pet projects - all countries wanting a national flag carrier airline is an example.
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171 armagediontimes
Thatcher is not exactly at the top of my list of favourites, however the action against the miners appeared to be due to the miners trying to hold the country to ransom. It was broadly accepted, whatever people want to argue because of that. Having wrecked an industry there was not a lot of option to gas, power stations had to be built in a hurry and easily.
Thatchers acts were within the context of the period. There is absolutely no justification for NuLab to have continued along the path. They were simply elected as an alternative to the Conservatives because the Conservative policy was seen as outdated. The man inthe street said, gone to far.
I agree that there are now few sectors to provide growth, again that is a lackof strategy, there has been a decade to develope a solution. It is noticable that the internet infrastucture which now needs taking to the next level has been denied government funds with the result it will be patchy. It is just very poor infrastructure investment decision making.
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168 reforse
You keep posting with ref to 157 which you posted, so technically you keep arguing with yourself. I'm sure you don't mean to. : )
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I think it is a necessary action that Buy-to-Let landlords are specifically excluded from any government-driven action to force banks to lend.
They wouldn't do it for hedge funds after all.
But then again hedge funds don't vote and are punchbags to win cheap political points.
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#175 A couple of points;
It is true that the miners appeared to be trying to hold the country to ransom. That, I suppose, is a benefit of a "free press" and further proof of the old adage that history is written by the victors. What they were actually trying to do was to oppose pit closures and job losses justified by a particular methodolgy of evaluating the economic contribution of mining.
I´m not saying that they were right or wrong - but that strike demonstrated the existence of an organised and solid community based cohesive force in society. That has been lost, and that loss will likely soon prove far more deliterious to the UK than any gain or loss realised from the removal of coal mining itself.
I´m not sure that it is a lack of strategy that has left us with nowhere to go - more likely it is the inevitable consequence of the strategy that has been pursued these last 30 years. That strategy has seen the material erosion of private sector R&D as all efforts and cash have been diverted to satisfying the City and Wall Street who require ever rising earnings.
The thing that most people don´t seem to realise is that there is substantitively no difference between Labour and Conservative. The policies that count have been consistent. The only thing you can say is that as the boom reached its last frenzied moments NuLab did nothing. Maybe someone else would have acted, but its not likely as poiliticians have been largely homogonised and emasculated and the forces ranged against them were to great.
As you say money could have been spent on the internet. I´m no expert but it sounds like a good idea. However to my mind it doesn´t have any of the "big ticket" systemic advantages of earlier technology developments - say the telephone, the radio, the jet, the motor car. In their own way these things revolutionised the economy. I don´t see how faster internet has the same capacity to carry the whole economy forward, and I also don´t see anything around other than the internet.
Wherever I look I find nothing that is likely to save us. Whenever I look for branches to break the fall I most often find that they have long since been sawn off and "monetized."
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178 armagediontimes
Hmm cant argue. And the difference or lack of it in a 2 party, or should that be bipolar political system is worrying. I monitor the internet because it is central to what we do which is deliberately kept small and flexible but is worldwide and independent of the UK, having had a kicking in the early nineties in a more traditional activity. If necessary relocation can happen. Once biten etc.
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"168 reforse
You keep posting with ref to 157 which you posted, so technically you keep arguing with yourself. I'm sure you don't mean to. : )"
Technically as the reference was within the quotation marks quoting the other posts you will find I was not.
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#171, I think the Guardian article kinda proves the point i was making which is that there was plenty of regulation. It claims that the regulation was "out of date" or "not good enough" or "didn't cover the right institutions" which is kinda what you'd expect from the Guardian.
The fact is that ANY regulation is going to get gamed. It is the closest to "risk-free" money that you can make, as long as there are arbitrary differences between treatments of cash flows or risks, someone is going to transform one into the other.
Re Thatcher and miners, they had plenty of time to transform themselves but like the other unions refused to do so. The fact that their end came in such a painful confrontation is entirely their fault - given they assumed they could bring the country to a halt anytime like they had before. That the collapse of NUM mines was so devastating is to be blamed on the NUM for insisting these mines be kept open at taxpayer expense long after they ceased to be commercially viable as opposed to being shut down over a period of time as the mining industry declined.
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#176, not sure what reforse is doing technically meets the definition of "arguing" under the trade descriptions act......
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180 reforse
182 laughingblacksheep
Cunning ploy. lol. reforse is a southpaw.
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#174. glanafon wrote:
"I think we are here because the market was deliberately..."
Tell me how an individual can be persuaded that he/she has more in his wallet that he actually has?
Is that you are saying that the education system has been so dumbed down that people can't do sums? And further are people worse at sums today than they were in the thirties or the sixties or indeed the 1880's?
If you mean that education has been so debased then I may agree with you, but I do not believe that people are so stupid than they cannot add up. Greed, and its encouragement is another thing, but we step into religion now, not economics.
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184 John from Hendon
Hi John
The government takes money out of your wallet, and spends it on your behalf without any discussion with you. You have provided the money but have no say where it is spent.
That money can exceed your disposable money and is used to influence the economy. That changes the market place and you operate in that environment.
That can change the effective value of the money in your pocket. It puts the cost of goods and services up or down. It influences what you do and depending when you spend the money its value is a variable.
You dont need to encourage greed it is there all the time, all that balances it is risk.
Housing in the UK has had little to do with economics. Planning has restricted supply, there has been no socially driven policy.
Debt is now embedded in society. Graduates now graduate with substantial debt - it is part of the mindset as an adult, people now can be in the position that they never know life without debt.
The concept of how much money you can 'manage' is not boundaried by zero, it is boundaried by how much debt you are told you can manage by peole who want you to borrow from them.
The money in your pocket does not mean anything anymore. Not until the skids are withdrawn and then it is too late to reposition.
It is computer says We want you to borrow 250K one day, unsolicited phone calls saying can we 'help' you, the next day the computer says No. The whole system is interested in you borrowing and spending, banks and government. The government is trying to push borrowing and spending now. It benefits from the increased revenues, it is not disinterested.
I am afraid the old fashion safe framework of how much have you got in your pocket and are you debt free doesnt mean anything for some people.
If you have a 100 quid in your pocket and 10K of debt (plus student loans) for being a student how much do you have in your pocket, plus 100 or minus 9900, you still have 100 you can spend now and no immediate possibility of paying the 10K. You have been told by the government, and your school and your family that it is sensible to get the debt as it will help you have a better future.
If you have a debit card and are offered a credit card and told it is best to use the credit card because you are protected against fraud which do you use. It is all manipulation, another boundary blurred.
There is much the same going on with people who are not graduates.
How about needing a car because there is no public transport. A few decades ago you could go to work on the bus paid for out of you weekly income. Now is some location there is no choice you have to have a car, certainly you have to in a rural environment. That probably means borrowing. And so it goes on. If you have young kids you cannot just put them in the back of the car you have to buy an expensive special seat. It all mounts up. Put it on the credit card.
And it all has economic effects. it is all now interwoven. Do you see where I am coming from. I am not saying you are wrong I am saying things have got complicated.
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#185, I think it is a number of issues:
1) People are innumerate. The ability to do basic sums seems to be lacking in most people
2) People appear to believe they can get something for nothing. That you make "extra returns" in the market, in housing and that there is no risk and if they lose money it is because someone "lied" to them or "fraud". The fact is the major victims of actual fraud here are the banks not the borrowers who simply could not be bothered to read what they signed.
3) Somehow Brown has managed to convince people that spending more equals better and as a inflation adjusted portion of GDP the portion of the GDP directly spent on the public sector in the last 9 years have gone from 36% to nearly 45% but because people are unwilling to bear this cost directly the country has racked up enormous debt - only India, Pakistan and Egypt's debt is growing faster as a percentage of GDP - and an enormous number of indirect taxes.
4) Finally people are unwilling to bear the consequences of their actions. In this Crash Gordon leads from the front, I have not yet heard a single peep that even remotely suggests that he might have the slightest link to the current problems. If the UK PM can't admit it then why should anyone else. I blame greedy banks, Thatcher, "free" markets, US, capitalism, my mum my dad, God......
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#185 glanafon wrote:
"The government takes money out of your wallet, and spends it on your behalf without any discussion with you."
What you are suggesting is that all political parties do not do what they promise to do you have a point - but we have responsible government not a bunch of mandated delegates - but this is off-the topic.
I do whole hartedly agree with #186. laughingblacksheep concerning that poor level of numeracy and rising level of innumeracy.
However there are limits to what you can borrow and thus spend, if lenders were so stupid to take leave of their senses that this is also a contributory factor in the depression of the 2010 and 2020's we are now entering.
In the end the market will balance itself - with very harsh consequences fro those who cannot or will not repay their borrowings. The Japanese have found to their cost that 100 year mortgages simply do not work and all debt needs to be repaid.
If you spend it today and borrow to get the money you will pay more than if you had saved and spent your savings. This rule is, I believe, immutable throughout the ages. So borrowers who have live (or have been persuaded to live) in a 'paradise' of spending money they did not have will suffer terribly. That includes most borrowers of houses for the last decade, but everyone will suffer.
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187 John from Hendon
I would agree your closing para. If you go out and ask anybody just what the outstanding total repayment bill is for their mortgage very few have any idea. As for saving - historically savings have not kept level with inflation. That is why the government, as reported today, effectively recommended that Child Trust Funds were put into the stock market because historically the returns, although more risky have been significantly up on conventional deposits. Until savings at least match inflation in a risk free way there is little inducement to save.
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It is about time that the regulator (FSA) got real and stops so-called entrepeneurs from becoming lenders/brokers in the market and making fortunes off the back of taxpayers when the market is going well only to bail out and re-invent themselves when the market goes down.
Specialist lenders should have the same capital requirements as banks and should not be allowed to establish themselves as thinly capitalised finance companies. They should also be made to hold the loans on their balance sheets and not just be there to make a quick profit on selling on the loans. This is the very business model which fuelled problems in the US and started to emerge in the UK before the credit crunch. A lot of the senior mangement of these companies are very wealthy off the back of the sub-prime market. Watch out for ex-employees from failed mortgage businesses who will establish new lenders and likely get FSA authorisation to start lending - more sub-prime trouble on the way if they get their authorisation - the only likely winners are the owners who have no trouble raising money to bankroll these new operations. I am sure other failed sub-prime lenderswill reinvent themselves as new specialist lenders or sale and rent-back companies (currently unregulated). The FSA should admit it got it wrong before and stop authorising new non-bank or specialist lenders who head for the hills at the first sign of trouble.
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Re: 181 Man you should be a politician. As you well know deregulation and liberalisation paradoxically brings with it an increase in specific regulations.
If you take look at the CEGB they were subject to very few specific regulations. The 1989 Electricity Act liberalised and de-regulated the electricity industry and brought with it thousands of specific regulations. This is common to all deregulated sectors.
Basically you only get regulations of the type you refer to in liberalised or de-regulated markets. However many of them there are and whatever they say they will (as you say) be subject to gaming.
The core question is are we better off with monolithic entities like the CEGB that does not need underpinning with thousands of specific regulations or is it better to have a more open market that requires a myriad of regulations.
Whatever the answer is I think most people are unaware of the amount of time and effort that market participants devote to regulatory gaming. (It doesn't seem to appear in PR materials or annual reports) Without understanding this it is not possible to make an informed choice as to the optimal structure.
Thre time for allocating blame for the end of mining has long past. The point is that a lot more than mining was destroyed and it may be that the average person will stilll have cause to rue the ancillary destruction.
Why is it wrong to keep open mines at taxpayer expense and yet necessary to keep open banks at taxpayer expense?
Would these banks have needed taxpayer support had they not devoted so much intellectual effort into the gaming of regulations?
I guess if the whole system is brought down the answer will be clear. Anything less than systemic collapse should at least give pause for considered thought.
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Isn't it amazing how Gordon Brown is being allowed to come across as the savious of all our financial worries when it was he who was particially responsible for turning a blind eye to the lack of regulation and overall trading of the banking industry - that lead us to this financial mess in the UK. I notice he , and others, are also getting away with saying that this has ONLY happened as a result of what has gone on in America. Whilst that may partially be true, Gordon Brown and the FSA still need to be held responsible for not understanding what will happen as a result of the financial products being sold to VULNERABLE and DISADVANTAGED individuals that have now lead to many repossessions in the UK. I strongly advise that Mr Brown needs to be bought down a peg or two. Remember, the pat on the back he received from Mr Blair for being RESPONSIBLE for teh 'good ole times'? Remember, how his party praised his record as Chancellor? There is something terribly wrong with the political system as the air does not seem as murky as it should be. Labour peers still 'nervously' praising Gordon Browns record. It seems to me, if we ever needed evidence that politicians put their party first and the people... (well, not quite second place - but after the banks) second, here it is. They all FAILED!! Though many who have gained financially, such as Mr Blair and other Politicians who maintained their relationships with banking exec's in order to get a HIGH LIFE job after politics, have SUCCEEDED. Surely, the many can no longer have doubt about the true workings of politics and the agenda that they truly serve (not us!) now this mess have occurred?
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Has anyone got any stats about how many of the potential repossessions are buy to let - v - owner occupied properties and how many re-possessions are due to the borrowers having lost their employment since august 2007?
Also, why does the Bank of England base rate apply across the board - Surely owner occupied residential property lending is a special case requiring independent interest rate assessment. UK owner occupied housing markets, industry, credit card business and commercial property lending sectors are distinct and not necessarily served by a single base interest rate. Don't argue that this would be too complex - the credit crisis is a complex mess needing radical solutions - Ask any real economist (but not more than one at a time!)
What does the Bank of England do besides 'learn from its mistakes' and bring in every interest rate cut or increase about 6 -9 months after it was due?
The only 're-possession' that is required is for the government to 're-possess' the entire owner occupied residential property lending activities of the entire UK banking system to make sure that the same banks that got us into this mess are not putting ordinary hardworking families (particularly those not having a history of arrears and credit problems) now in mortgage arrears, 'onto the street' as the banks have many other options.
The residential property market is in a slump and will recover last not just because of lending problems but also because of job insecurity, stamp duty, etc - commercial property transactions are required FIRST to stimulate the market as the sub-prime 'vulture' market has alternative funding and the vultures will spend on construction and legal fees etc if the property is knocked down to very low prices. The banks can stimulate the market by re-possessing their defaulted commercial property, make the write downs and get the stuff sold at auction without reserve and watch those 'vultures' feed - once the rental income from a property stacks up against the purchase price the commercial properties will start moving again and nothing will happen ANYWHERE until this rental cover happens - Yes - this means a long time to recovery to even modest '2005 levels' - 5+ years of pain?
What else can G. Brown/ A Darling do - They can allow anyone holding a personal pension to buy a property (in the UK only) with their 'pension pot' including their own 'prime residence' property - This would immediately UNLOCK and put CASH in the hands of millions of people for them to spend and would provide a massive stimulus to the entire economy i.e. allow all UK owner occupies to convert their existing mortgages into pension mortgages on their own homes. This would encourage homeowners to trade up and would stimulate the housing market like never seen before!
There is plenty that can be done - but these things need doing now - if G. Brown's government does not act now I predict that in about 12 months time, another predictable message from G. Brown/Labour after 75,000? repossessions will be - 'lessons have been learned'
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191#
"Mr.Brown needs to be bought down a peg or two"
How much does a peg cost? If this sounds like drivel to you it should be easily recognised by you.
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#190, I believe that banks that have made bad decisions should be allowed to go to the wall. People who deposit in them should lose their money as should their shareholders and bond holders. People who overextended themselves in the current crisis should go bankrupt. It should be made clear from day one that this is the case.
There should be zero regulations on products sold and to whom, with it made crystal clear that "Buyer beware" rules. If you are too dumb to understand what you are buying or too greedy to bother trying then you deserve to be separated from your cash.
There should not be all these artificial distinctions between different types of risk and different types of payouts - ie the wholely artificial distinction between capital growth and income.
I must not have the politicians skill at putting across a viewpoint, as i have said repeatedly this attempt to bail out banks and bail out borrowers will end in tears - with probably more widespread consequences than the closing a few mines and breaking the backs of some worthless unions.
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#194 - OK the argument is clear, and I don´t disagree from a theoretical perspective, and I don´t disagree with your closing paragraph from any pespective (apart from the worthless bit).
The practical problem with the unfettered "Buyer beware" approach is encapsulated in your own post #186, i.e. you have a significant proportion of the population who are basically innumerate and you have a political system that encourages the belief that it is possible to get something for nothing.
In addition you have power concentrated into the hands of the few. I´ve read plenty of credit agreements and I often don´t like what I read. When these agreements are for $100´s millions then people are only to willing to negotiate. When these agreements are for some 2 bob personal loan then its "too bad mate, it´s company policy."
Your ideas would be fine if you had an education system that actually educated people, a more honest political system, and a more even balance between market participants. Absent that then your proposals would quickly lead to fighting in the streets.
Of course none of it may matter much as the tipping point may have already been passed and fighting in the streets may now be inevitable regardless.
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Robert
Your quote:
'Well, with the future so bleak for subprime and specialist lenders - in the sense that they were too dependent on wholesale markets that are unlikely to recover for years, if at all - those lenders are primarily interested in getting their money back as soon as possible.
And as their borrowers fall into difficulties, these lenders may have little incentive to help those borrowers over the hump - even if they receive support from Gordon Brown and taxpayers, as per yesterday's mortgage guarantee scheme'
Sorry to labour the point but the issue is also how the bank's work internally - most of the underwriters and decision makers inside the banks find it easier to re-possess houses because they have little if any direct contact with the borrowers but most of the guys who wine them and dine them every week - the vultures and property developers
have a lot in common with them socially and so some of these are protected by the bankers and get favourable treatment and I say that these are the vultures that get subsidised by the very cosy, high cost working arrangements inside the banks.
This is not in the interests of the shareholders, depositors, taxpayers or anybody except the senior bank managers and the favoured property developers and vultures.
This is what Labour - Tony Blair particularly used to call sleaze! So why are we as taxpayers funding these bizarre arrangements when hardworking families are put on the streets to deal with the vultures?
The point being are these 'incentives' more a matter of social convenience, social matters and pure vulturised sleaze?
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It's good to see the BBC mediators are no less hypocritical than their journalist and presenter counterparts.
I used a word in my post which has been re-used by later comments on that post.
Meanwhile my post has been removed and others have stayed. It appears my post must have passed before it was removed otherwise others could not have commented.
So is this what the BBC describe as a fair and even handed democracy?
No wonder the country is in such a state when the official national broadcasting association doesn't know what the term free speech means - despite continously claiming it's fighting the battle to keep it for us.
Maybe free speech only applies to the writing and speaking for material that serves to collude with the state system and not that which speaks against it.
Maybe this is also why the BBC continously produce news stories which are inaccurate, incomplete and skirt around the real issues and causes.
Still, when the world has twisted itself up into so many lies that the most important gift mankind has is lost (the ability to pass on information from one generation to the next - i.e. teach) then the decline of mankind shall begin.
If anyone does get to read this - maybe this will explain why 'normal' people are never invited on the BBC to give comment as they might actually know what they're talking about - instead we are given the thoughts of a minority, like Kelvin McKensie on the BBC this morning talking about unemployment - which included the words 'MY TAX' when discussing the national social situation on a subject which many more people will get to know soon.
....because he thinks he represents the common man having run a national newspaper - how wrong can an insititution be?
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Robert,
As an ex estate agent/ financial advisor and general businessman, I must stress that any attempts to dilute the repossession ability of the banks will have the same catastrophic effect on valuations and house prices as it did in the early twentieth century.
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198
I'm not sure which part of the early 20th century you are referring to but either you must be about 120 years of age and/or be forgetting that until WW2, 95% of the housing stock in the UK was in the private rented sector and that the UK residential mortage lending sector was not established until the 1950's - so what is your point? No one is saying that re-possessions should be stopped - just be managed much, much better and fairer and in a way that helps the general econony and redresses some serious socio-economic injustice and sleaze within the entire vulturised banking sector?
The 'knee jerk' repossessions by all banks (including the sub-prime lenders) of houses from ordinary hard working families is a major scandal and it is disappointing that David Cameron has not yet taken this up on behalf of genuine victims of the banking sector's sleaze and vulturised incompetence. This New Labour government is too incompetent to care about these issues anyway, as the many thousands of innocent victims are largely identified by New Labour as not being likely to vote for G Brown. Their loss stifles personal ambition, achievement, family cohesion and values and does terrific damage to social morale.
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On the Madoff article, there is a correction to be made: he did NOT run a hedge fund. Although the article repeatedly refers to him as a hedge fund manager, he was not one.
I understand that the government needs a scapegoat (i.e. the hedge fund industry) to justify its handing out taxpayer money to the banks that precipiated this crisis. There's no need to implicate hedge funds in another scandal in which they have no material role.
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Robert....
This is not a British Subprime mess; it is an international subprime mess..it is sad, that it could get out of control to this point.
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201
Must be a British sub-prime mess if a statement by the the Council of Mortgage Lenders started the blog?
Apart from the USA, which has always had high repossession numbers but on BOTH residential and commercial assets/properties, I'd be interested to hear of any other country having actual/potential residential 'mortgage re-possessions as high as the UK (pro rata by number of mortgages, GDP or per capita)?
Perhaps you could enlighten us all?
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