Just taking stock

treliac

mrposhman wrote: »

I mean if I felt even slightly suicidal I think this forum would push me over the edge.

I'm glad you are back and engaging in the debate again.

Would hate to think my thoughts would be that depressing. My position as a mortgage holder is to try to be realistic about my finances and their relationship with the wider economy.

I know [STRIKE]little[/STRIKE] nothing about intellectual theories and arguments and apply my common sense perspective from what I presume is a fairly average position in society.

FWIW I think people have got used to having too much of material worth in recent times. But it's not the end of the world if life has to change. Any of us who are a bit older can remember difficult times, e.g. when mortgage interest rates went up to 15%. I remember being terrified at that as we had a young family. We had to prioritise carefully - replace the wine with the occasional lemonade . But we got by because we had to.

The main thing is that we will get past this recession and that it's up to each of us to make sensible decisions about our own personal finances as those decisions have consequences.

Basically I am an optimist, but a realist too and I am concerned that our govt doesn't lull people in to a false sense of security as they seem to be doing whatever they can to persuade people to spend more, when a lot of us think we should cut spending back as that's what got us into trouble in the first place.

mrposhman

treliac wrote: »

I'm glad you are back and engaging in the debate again.

Would hate to think my thoughts would be that depressing. My position as a mortgage holder is to try to be realistic about my finances and their relationship with the wider economy.

Its not your thoughts and I'm not anywhere this level. Lifes too good for me with a 1 year old daughter

I am concerned that our govt doesn't lull people in to a false sense of security as they seem to be doing whatever they can to persuade people to spend more, when a lot of us think we should cut spending back as that's what got us into trouble in the first place.

Luckily (or maybe unluckily ) I'm an accountant by trade and can budget fairly well actually. The trouble is getting my missus to budget too :rolleyes::rolleyes: Fat chance of that.

Anyway, the 2 of them are now overseas so we shall see how I budget better on my own. I agree that people may be lulled into a false future if they aren't prudent enough and realistic enough. Eg, some may get used to having cheaper mortgages and struggle to reduce their spending again when interest rates start to rise again.

Thrugelmir

mrposhman wrote: »

Just had a quick look at their 2007 accounts.

They reported an operating profitof over £400m but the decline in cashflow in the year was astronomical. It only looks okish because of the circa £28bn received from the government. If you have a look at the cash flow statement you will see a line called

Net (decrease)/increase in amounts due to customers.

In 2006 this showed positive cashflow of just over £3bn meaning that more deposits than withdrawals went into the bank. In 2007 this was over £15bn negative indicating more withdrawals than deposits.

They may well have overstretched their business model and hence the reason they are downsizing (too far imo) but the reason for the collpase was NOT DUE TO THE BUSINESS MODEL perse in terms of who they lent to but just how they funded the loans / mortgages.

Clearly there was something wrong in terms of funding but had a run not happened they would not have collapsed imo.

Nothern Rock obtained their finance by securitising their mortgage book through a little known Company called Lehman Bros....... The downfall was due to a business model which required wholesale funding. Been plenty of detailed coverage on the TV about this.

the_ash_and_the_oak

StevieJ wrote: »

As has been stated many,many times using the US market as a predictor of the UK is a futile misuse of your Googling finger

sorta agree w this in theory - but its been a pretty good predictor (with a lag) so far - and gave us almost a years warning that peak was almost here. do think it shouldn't really be used too much though - I'd prefer to use California as a predictor rather than the US as a whole

the_ash_and_the_oak

StevieJ wrote: »

We had similar problems with sub-prime (oh yes), BTL, flipping and all the rest of the HPI nonsense.

No we didn't

Not really feeling this - think we had similar problems with sub-prime (somewhat unfortunately I remember Scarboro Building Society actually had a product called the Subprime Mortgage - bit embarrassing for them imo)

Could be just semantics I guess but I think 125% mortgages, interest only, part buy part rent and the other schemes to be examples of subprime - never really been into those things so much imo.

a_rather_tall_man

the_ash_and_the_oak wrote: »

Not really feeling this - think we had similar problems with sub-prime (somewhat unfortunately I remember Scarboro Building Society actually had a product called the Subprime Mortgage - bit embarrassing for them imo)

Could be just semantics I guess but I think 125% mortgages, interest only, part buy part rent and the other schemes to be examples of subprime - never really been into those things so much imo.

I think interest only mortgages are a problem that is currently sneaking under the radar. I know of two households who bought with interest only as it was the only way they could afford to buy and one of them was pushed to the financial limit when interest rates were raised during 07, quite worrying really considering rates weren't raised particularly high. Both couples must be 5-6 years into their loan agreements by now with not a penny saved towards paying off the capital...madness imo. Whilst not sub-prime using the US definition it still represents poor practice from a lenders point of view. I don't know if there any figures available for the number of people with interest only deals on a national basis.

mewbie_2

a_rather_tall_man wrote: »

Whilst not sub-prime using the US definition...

Let's split into two categories. People buy using traditional model, borrwing amounts they can afford to pay back on a repayment mortgage. I'd call that Prime. Everything else is not Prime.

Generali

mewbie wrote: »

Let's split into two categories. People buy using traditional model, borrwing amounts they can afford to pay back on a repayment mortgage. I'd call that Prime. Everything else is not Prime.

AIUI, the US-ians split things into 3 groups:

Prime - people who earn a provable income and borrow little enough that Fannie Mae or Freddie Mac (yeah I know) will take on the mortgage financing (so-called Jumbo loans > $417,000 ($625,000 in Alaska)).

Alt-A: Jumbo loans, unverified income in the mortgage process, high loan: income ratios; high LTV

Sub-Prime: Includes some Alt-A loans (the worst end shall we say - the border between Alt-A and Sub-Prime is grey) but also includes borrowers who have shown themselves to be unable to repay debt in the past.

sabretoothtigger

a_rather_tall_man wrote: »

I think interest only mortgages are a problem that is currently sneaking under the radar. I know of two households who bought with interest only as it was the only way they could afford to buy and one of them was pushed to the financial limit when interest rates were raised during 07, quite worrying really considering rates weren't raised particularly high. Both couples must be 5-6 years into their loan agreements by now with not a penny saved towards paying off the capital...madness imo. Whilst not sub-prime using the US definition it still represents poor practice from a lenders point of view. I don't know if there any figures available for the number of people with interest only deals on a national basis.

interest only is supposed to be alongside investments to pay off the capital. So yea missold and nonsensical, most people would be better off paying off the debt anyway though maybe thats less true at the moment