Just taking stock

Generali

StevieJ wrote: »

So is we had the following forecast correct, would you think the market may have bottomed?

[SIZE=-1]AMIT KARA, UK ECONOMIST, UBS[/SIZE]
[SIZE=-1]"As far as the mortgage approvals numbers are concerned, they are broadly in line with expectation, marginally lower.[/SIZE]
[SIZE=-1]"But the big picture (is) we still expect a recovery in housing activity over the next few months, partly because demand has been fairly resilient at these low levels but also because the supply of funding is going to be a lot more generous with Northern Rock coming into the market.[/SIZE]
[SIZE=-1]"So we are looking for approvals at around 55,000-60,000 by the end of the year."[/SIZE]

Yes. 55-60,000 mortgages approved in Nov/December would make me think that house prices would be likely to stabilise (say up or down about 5% pa after inflation).

The biggest problem with the prediction is that I don't see where the cash to finance the mortgages is going to come from. The only way would be for deleveraging (horrible word) to stop and reverse. Then you start getting into problems with inflation, potentially at least.

I still just don't see printing money as being a magic wand that once waved will sort out the world's problems which I guess is what this prediction is getting at - more cash means no more deleveraging which means everything is hunky dory again. It doesn't chime with me.

As ever, time will tell.

mrposhman

mewbie wrote: »

Yes we did.

http://www.moneyweek.com/news-and-charts/economics/britains-subprime-problem-is-bigger-than-you-think.aspx

http://www.bloomberg.com/apps/news?pid=20601039&sid=axWmsMHJDjiQ&refer=home

http://www.marketoracle.co.uk/Article2397.html

http://www.telegraph.co.uk/finance/economics/2816475/IMF-fears-over-Britains-sub-prime-market.html

http://www.spectator.co.uk/the-magazine/features/587641/welcome-to-subprime-britain-how-scared-should-you-be.thtml

http://www.timesonline.co.uk/tol/money/property_and_mortgages/article2933895.ece

http://www.ashleymoore.co.uk/BuyToLet_article1.htm

http://news.bbc.co.uk/1/hi/programmes/panorama/7037635.stm

http://www.guardian.co.uk/business/2007/aug/21/money.mortgages

Like I said. Google is your friend.

Well not really. I've read some of those articles and they are all written a long time ago, and indicate that our housing market will come under pressure from increasing house prices and no consideration for lowering interest rate.

WEll both have done the opposite to what the articles suggest.

Also, have you any experience of the sub-prime. In the UK this is called self certification. Usually this results in a large deposit in return for not stating your income.

For example, I bought a rental house in the US on a self certification mortgage with the help of my dad. He owns his own business but did not want to state his income therefore self certification. I had enough money for the deposit but as I live in rented accomodation over here, my disposable income after all expenses wasn't enough to cover the mortgage (as they don't include any rental income into account). Therefore we paid 30% upfront in order to buy the house using a mortgage.

I'd like to see the split in the UK of this type of arrangement as to how many were provided to the self employed and how many were provided to the low income area of the market (though I'd bring into question how many low income earners could afford a 30% deposit on a house).

Generali

tomterm8 wrote: »

I think that is one of the scariest things... that this pricing model was economic orthodoxy... it suggest that nearly all the economists can be wrong all the time.

Who knows, maybe the current economic orthodoxy is equally as far up its own...

What I wrote was an oversimplification. Certainly as far as the Labour party was concerned, MCP was the orthodoxy. When the Tories got in things got a little more complicated as they were sort of forced to use the pricing models already in place without necessarily agreeing with them.

AIUI they were more interested in getting assets back into private hands than pricing models. I think Thatcher was the first person really to deal with the Nationalisation mess root and branch: turn the companies around by getting rid of featherbedded workers and introducing realistic pricing structures; get reasonably decent management in place and sell the companies at prices attractive to small investors.

mewbie_2

mrposhman wrote: »

have you any experience of the sub-prime. In the UK this is called self certification. Usually this results in a large deposit in return for not stating your income.

Northern Rock - 125% mortgages? BTL flats, gifted deposits? Low income people suddenly able to build pwoperty portfolios worth millions? InsideTrack and others showing people with no money how to make a fortune? The "UK has no sub prime" is another of those fallacies, like "houses always go up", etc.

You could argue that the last few years of the boom were down to the sub primers. Who else would have been bonkers enough to believe it could last for ever?

mrposhman

mewbie wrote: »

Northern Rock - 125% mortgages? BTL flats, gifted deposits? Low income people suddenly able to build pwoperty portfolios worth millions? InsideTrack and others showing people with no money how to make a fortune? The "UK has no sub prime" is another of those fallacies, like "houses always go up", etc.

You could argue that the last few years of the boom were down to the sub primers. Who else would have been bonkers enough to believe it could last for ever?

I would tend to agree. Most wouldn't have expected the boom to last forever.

You have given examples of the negative side of the sub-prime but without a method of quantifying how many people have taken 125% mortgages etc.

Also with 125% mortgages, these were generally given for poorer quality housing in order for those new buyers to be able to spend and improve the value of the property so should this money be spent on the property you can probably assume that most improvements will have increased the value of the housing.

Say for example, you put new heating into a house and it costs say £2.5k. How much would you expect the house value to increase (assume we are in a stagnant market)?

I would expect it to attract a premium therefore if the money was spent wisely then it potentially could have increased the value of the house to more than 125% of the purchase price which may not mean they are as bad off as some would have you believe.

I definately agree with BTL's, self certification probably enables them to side step the usual checks and this will most definately be a loophole that will probably be closed by the banks between now and the next housing boom.

PS. I never said that the UK hasn't got a sub-prime. It does but its not anywhere near the scale of the US as the US has provided far more sub-prime to the lower end of the market in order to satisfy "The American Dream".

mewbie_2

mrposhman wrote: »

Also with 125% mortgages, these were generally given for poorer quality housing in order for those new buyers to be able to spend and improve the value of the property so should this money be spent on the property you can probably assume that most improvements will have increased the value of the housing.

Strange then that Northern Rock should be the first to collapse. Maybe the acreage of laminate flooring and fake tanning wasn't sufficient to support their business model.

mrposhman

mewbie wrote: »

Strange then that Northern Rock should be the first to collapse. Maybe the acreage of laminate flooring and fake tanning wasn't sufficient to support their business model.

Northern Rock collapsed because the media came out with stories that they were about to collapse and caused a run on the bank meaning they didn't have sufficient cash to pay all creditors.

I'm not saying that some didn't spend the money elsewhere but I would have thought that most would have been fairly responsible in spending what they had borrowed on the house.

I haven't looked at NR's accounts, how much of a loss did they make in 2007 from 125% mortgages? Did they not make any profits or was it all written off?

StevieJ

mewbie wrote: »

Yes we did.

http://www.moneyweek.com/news-and-charts/economics/britains-subprime-problem-is-bigger-than-you-think.aspx

http://www.bloomberg.com/apps/news?pid=20601039&sid=axWmsMHJDjiQ&refer=home

http://www.marketoracle.co.uk/Article2397.html

http://www.telegraph.co.uk/finance/economics/2816475/IMF-fears-over-Britains-sub-prime-market.html

http://www.spectator.co.uk/the-magazine/features/587641/welcome-to-subprime-britain-how-scared-should-you-be.thtml

http://www.timesonline.co.uk/tol/money/property_and_mortgages/article2933895.ece

http://www.ashleymoore.co.uk/BuyToLet_article1.htm

http://news.bbc.co.uk/1/hi/programmes/panorama/7037635.stm

http://www.guardian.co.uk/business/2007/aug/21/money.mortgages

Like I said. Google is your friend.

Oct 09, 2007 - 12:22 AM

By MoneyWeek Editor John Stepek Jan 14, 2008

Iam confused How can these articles be explaining the losses from UK sub-prime when the market had barely made a move on its downward leg when they were written. Plus one of them is Moneyweek and I don't count that anyway, I am sure that paper is edited by !!!!!! or his doppel Wookie.

StevieJ

mewbie wrote: »

Strange then that Northern Rock should be the first to collapse. Maybe the acreage of laminate flooring and fake tanning wasn't sufficient to support their business model.

Northern Rock collapsed because it lost access to money markets due to US problems, nothing to do with UK sub-prime.

mewbie_2

StevieJ wrote: »

Northern Rock collapsed because it lost access to money markets due to US problems, nothing to do with UK sub-prime.

Oh I see. Either it was Preston's irresponsible reporting or the US. Deffo not Applegarth at fault then.