Proposed mortgage cap 'suicidal' say 'property experts'

chewmylegoff

Kenny4315 wrote: »

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

2.

but will the bad debt provision, under that scenario be:

1) an extra 15% of the loan book
2) an extra 1% of the loan book

b0rker

Kenny4315 wrote: »

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

That is assuming that house prices would only drop 50% from peak if the multiples were restricted to 3x. I think that is VERY conservative. To go from 6x multiples and 125% mortgages to 3x multiples and 90% loans would surely see prices drop more than 50% from the top of the market. That would make even the 70% crowd look sane.

Well a bit sane anyway...

Kenny4315

Neither. All I know is that's one enormous amount of bad debt. The further the market moves down beyond a sensible correction the more damage it does to the UK.

Kenny4315

b0rker wrote: »

That would make even the 70% crowd look sane.

Well a bit sane anyway...

That's exactly what it would do ..... :eek:

chewmylegoff

Kenny4315 wrote: »

All I know is that's one enormous amount of bad debt.

well it would be if people only had to pay back the market value of their house, rather than the actual loan itself.

all depends on the repo rate, which is not in my view going to be materially affected by actual house prices.

Kenny4315

chewmylegoff wrote: »

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.

Uuurm isn't .... prudence was the over-riding principle or standard .... if in doubt ?

In this instance, you can see average house prices will come down by 65% ish, and as a result can conclude the need for a massive bad debt provision, being prudent we'd assume the worst of course......

Kenny4315

chewmylegoff wrote: »

well it would be if people only had to pay back the market value of their house, rather than the actual loan itself.

all depends on the repo rate, which is not in my view going to be materially affected by actual house prices.

the loan is going to be more than the market value of the house .... :money:

what was the repo rate in a HPI more or less than in a HPC. This is pretty obvious stuff. Why because interest rate comapre to base are lower as risk is less in a HPI, as the asset value can be recovered against the liabiability.

chewmylegoff

Kenny4315 wrote: »

Uuurm isn't .... prudence was the over-riding principle or standard .... if in doubt ?

prudence cuts both ways. it is completely imprudent to write off huge amounts that are actually recoverable. fundamentally you cannot overprovide for something - that is part of the underlying reason that standards governing provisions were introduced; people over provided in good years so they could write back the provisions in bad years, thereby using accounting entries to smooth out profit.

In this instance, you can see average house prices will come down by 65% ish, and as a result can conclude the need for a massive bad debt provision, being prudent we'd assume the worst of course......

no, it would be completely imprudent to make a "massive" bad debt provision based on the market value of the security, unless there was evidence that the security would be needed to realise value in a higher % of cases. the bad debt provision would have to be realigned, to account for the fact that more would be lost on each repossession. you wouldn't just go "oh well, we better write off 20% to be prudent".

you'd also need some evidence that prices of repossession sales would drop by 65%.

chewmylegoff

Kenny4315 wrote: »

the loan is going to be more than the market value of the house .... :money:

irrelevant until repossession.

what was the repo rate in a HPI more or less than in a HPC. This is pretty obvious stuff. Why because interest rate comapre to base are lower as risk is less in a HPI, as the asset value can be recovered against the liabiability.

yes, but the repo rate going up is a symptom of the same problems which falling house price is a symptom of - lack of affordability.

the repo rate isn't going up because house prices are falling. it is going up for the same reason that house prices are falling.

if you effectively rebase house prices another 15% lower, for instance, then the bad debt increase would be an extra 15% of the original bad debt rate, not the whole 15% fall in the market value of the security.

with repo rate currently running at under 1% of all mortgages, it's going to have to get a whole lot worse before that extra 15% loss on each repo becomes an economic disaster for the country.

in effect, to get enough repos to make this mean economic armageddon, you would need so many people to lose their jobs that it would already be economic armageddon anyway. either that or put interest rates at about 15%.

and if interest rates went to 15%, house prices would go down the toilet anyway.

Kenny4315

chewmylegoff wrote: »

the repo rate isn't going up because house prices are falling.

This is utter tosh ... lets say customer comes to end of fixed term, and wishes to remortgage on a similar deal, previously he was able to get a decent rate based on a good equity portion, suddenly house prices have fallen significantly, he can't remortage as he now has negative equity, and so goes onto the SVR, rather than a similar product to previous ... result .. can't afford ... repossessed ... thus house price falls are effecting the affordability.

LTV determines the interest rate charged. risk vs return.