Proposed mortgage cap 'suicidal' say 'property experts'

chewmylegoff

Kenny4315 wrote: »

The accounts have to present a true and fair view. Hence a collaspe in the market of the scale we are currently debating of somewhere in the region of 60% from peak, would need to be reflected in one giant motha rekcuf of a bad debt provision.

true and fair value of a loan is the NPV of the future repayments that you expect to receive. hence as i said before, the key driver in determining the bad debt provision is the default rate, not the market value of the security. house prices reduced does not mean loan not recoverable.

the market value of the security would provide an upper limit on the bad debt provision.

however, for the same reason that a completely unsecured loan does not have a value of 0, the banks would not have to write down their loan books by the same % that house prices fall.

lostinrates

Really2 wrote: »

Do we not here? and a shortgage of housing?

I'm not clear on any of the shortage of housing stats..I mean I've seen them and I know what they say, and tehn there are other people saying its not so. We certainly seem to have over supply of some types of housing, and if things were that bad we'd sleep four to a bed-sit.

As for poulation. I'm not so sure anything is so clearcut on that either. Things are moving quickly according to some, and lack of jobs might hasten that. Our 'native' population is aging, we now that, and I'm not clear of others who are permanant and who aren't. There are more people in Britain, I agree. Whether they all would be house buyers, I'm not sure. there is a legislative answer should that be an issue, as I agree, could be likely.

ETA: I'm sorry, I know above is a bit vague....I'm multi tasking....

Kenny4315

chewmylegoff wrote: »

true and fair value of a loan is the NPV of the future repayments that you expect to receive.

I can just see it now hundreds of accountants working out thousands of net present values (on an unpredictable default rate with an unpredictable cost of capital) .... in essence the bad debt provision will obviously shoot through the roof, as house prices and the economy comes crashing down. I bet you that the bad debt provision in RBS isn't as scientific as you suggest ?

chewmylegoff

Kenny4315 wrote: »

I can just see it now hundreds of accountants working out thousands of net present values .... in essence the bad debt provision will obviously shoot through the roof, as house prices and the economy comes crashing down. I bet you that the bad debt provision in RBS isn't as scientific as you suggest ?

i bet you one hundred and fifty billion quantitatively eased pounds that, if RBS want an unqualified audit report, their bad debt provision (for each distinct portion of their loan book) is properly calculated with reference to a combination of historic default rate and the directors' prediction of future default rate, and with reference to the accuracy of their previous bad debt provisioning.

Kenny4315

chewmylegoff wrote: »

i bet you one hundred and fifty million quantitatively eased pounds that, if RBS want an unqualified audit report, their bad debt provision (for each distinct portion of their loan book) is properly calculated with reference to a combination of historic default rate and the directors' prediction of future default rate, and with reference to the accuracy of their previous bad debt provisioning.

So it's a guess then ...

Kenny4315

directors predictions ........ lol :rotfl: :rotfl: :rotfl:

chewmylegoff

Kenny4315 wrote: »

So it's a guess then ...

yes, it's a guess, it cannot be anything else.

however, the point is that it is an estimate of how much they will recover on the loan book, not some kind of panic stricken arm waving hypothesis of doom, based on house prices.

chewmylegoff

Kenny4315 wrote: »

directors predictions ........ lol :rotfl: :rotfl: :rotfl:

yes, last time i looked, international accounting standards did not allow the use of doom-mongering bred on internet forums as the basis for a provision. maybe they should, it would make my job more interesting at any rate.

b0rker

I notice that the BBC news still hasn't picked this up?

Still only a broadsheet (Telegraph) and a tabloid (Daily Mail) who will print anything for a sale or two?

I mean out of the major news sources. Not just some websites.

Unless of course someone can prove that wrong?

I kind of get the feeling that the Government/FSA may have leaked this so that the concerned parties (i.e. the public who care about these issues, us.) can discuss it. They hope that we then come to the conclusion (the only conclusion that can be reached) that it would bankrupt the UK and then dismiss it as a bad idea. That takes the pressure off the FSA/Government to restrict lending so serverly as we have all discussed this and come to the conclusion that it would be "financial suicide".

That leaves the government free to QE sterling down with little/a lot less argument...

Just because you're not paranoid....

Kenny4315

So in concise terms if house prices fall

1. 35%
2. 50%

which will result in a larger bad debt provision in a government controlled bank say llloyds TSB Halifax ... C&G .... etc ?

1 or 2