So why isn't this possible?

Thrugelmir

kennyboy66 wrote: »

The initial numbers you quote would not be total lending, but presumably the increase in lending.
I would not under-estimate the amount of mortage lending in the UK (roughly £1225 billion). However the write offs and provisions so far have been much more in the commercial lending book (including commercial property lending).

The main reasons are;

1) Commercial property has fallen much more the residential property already.
2) Businesses run out of cash quicker than home-owners
3) Leding £100k each to ten thousand customers is inherently less risky than lending £10million to each to 100 customers.

I'd be amazed if total UK residential property write offs exceeded £60bn over the next few years.
Equally I would be amazed if commercial write offs were less than £200bn.

How the banks, lets say HBOS in this example are going to end up losing vast sums of money. I believe that you are thinking that banks will only lose small amounts as individual householders default. The issue is far greater than that.

The figures I'm going to use aren't reflective of anything other than to give an examaple.

Mr Joe Public uses £30k towards buying a £150k BTL property. Rental income covers mortgage cost.

This property rises in value by £30k. Mr JP remortgages and releases the £30k.

Uses this to buy property 2 for £150k.

As value of property 1 and 2 increases. Releases equity to add further property. And so on and so on.

In the end builds a portfolio of 15 houses. All on an initial capital base of £30k.

All the mortgages are interest only. So has total mortgage debt of £2.2 million.

Property prices slump 25%. MR Jp defaults. HBOS looses £550,000.

But the bank hasn't lost £550,000 , they've lost far more. As they securitised MR JP's mortgages and sold 40% on to raise an additional capital.

On the mortgage book of £2.2 million. The bank has leveraged up 40% = £880k. Selling on £880k of securised product to another bank.

So the HBOS's total exposure is actually £3,080,000.

The properties realise £1,650,000.

The actual write off to the bank is £1,430,000. :eek:


This is where the problem lies.

mbga9pgf

Really2 wrote: »

So what will your house be worth in real terms in 15 years, Also what will be the price you paid in real terms looking back to the date you purchased it.

Sorry if you think you know that you should take up palm reading.

Quite easy really.

in 15 years, it should be worth what I paid for it, plus wage inflation. Any more, then the FSA will have failed to control prices, anything under, they are being overly restrictive.

I dont need a palm reading, I need an excel spreadsheet.

A simple 1.025^15 calc tells me assuming 2.5% wage rises over the next 15 years, prices will be 44% higher, assuming no further falls or market exuberance.

Really2

Graham_Devon wrote: »

I will admit. I don't understand. In every scenario, you are saying "thats nominal".

Ok graham you purchased a house in 1989 for £63K (average) it dropped by 20% by 1993 to £50,400ish.
They are the nominal prices.

You are looking back from today to then saying in today's terms that house was £120K and fell nearly 50% based on inflation adjustments.
That is the "real terms"

The fact is they were never an average of £120K back then and the majority of the fall was caused by inflation but you can only see that in todays terms (16 years after the event.)
"real prices" are only "real" in today's terms, it is confusing because they are not actually "real".
To a layman the price you paid and sold at is real, that is "nominal"

Does that now make sense and do you understand?

Really2

mbga9pgf wrote: »

A simple 1.025^15 calc tells me assuming 2.5% wage rises over the next 15 years, prices will be 44% higher, assuming no further falls or market exuberance.

Interesting considering you go on about the deflationary enrionment and falls but then forcast 2.5% wage inflation.


good luck on that one, we all know house prices and wages follow a straight line

Thrugelmir

Really2 wrote: »

Interesting considering you go on about the deflationary enrionment and falls but then forcast 2.5% wage inflation.


good luck on that one, we all know house prices and wages follow a straight line

Due to the way the market has been funded over recent years. And the impact on disposable income that has yet to be affected.

We may see a period of time where the correlation breaks until times resume similar to a more normal period ie pre 1999.

Graham_Devon

Really2 wrote: »

Ok graham you purchased a house in 1989 for £63K (average) it dropped by 20% by 1993 to £50,400ish.
They are the nominal prices.

You are looking back from today to then saying in today's terms that house was £120K and fell nearly 50% based on inflation adjustments.
That is the "real terms"

The fact is they were never an average of £120K back then and the majority of the fall was caused by inflation but you can only see that in todays terms (16 years after the event.)
"real prices" are only "real" in today's terms, it is confusing because they are not actually "real".
To a layman the price you paid and sold at is real, that is "nominal"

Does that now make sense and do you understand?

It only makes sense if you qualify todays prices by saying "people were never buying at average prices of 198k". Which they were.

kennyboy66_2

Thrugelmir wrote: »

How the banks, lets say HBOS in this example are going to end up losing vast sums of money. I believe that you are thinking that banks will only lose small amounts as individual householders default. The issue is far greater than that.

The figures I'm going to use aren't reflective of anything other than to give an examaple.

Mr Joe Public uses £30k towards buying a £150k BTL property. Rental income covers mortgage cost.

This property rises in value by £30k. Mr JP remortgages and releases the £30k.

Uses this to buy property 2 for £150k.

As value of property 1 and 2 increases. Releases equity to add further property. And so on and so on.

In the end builds a portfolio of 15 houses. All on an initial capital base of £30k.

All the mortgages are interest only. So has total mortgage debt of £2.2 million.

Property prices slump 25%. MR Jp defaults. HBOS looses £550,000.

But the bank hasn't lost £550,000 , they've lost far more. As they securitised MR JP's mortgages and sold 40% on to raise an additional capital.

On the mortgage book of £2.2 million. The bank has leveraged up 40% = £880k. Selling on £880k of securised product to another bank.

So the HBOS's total exposure is actually £3,080,000.

The properties realise £1,650,000.

The actual write off to the bank is £1,430,000. :eek:


This is where the problem lies.

Its a seductive argument but has a number of flaws.

1) It effectively assumes that all 15 properties are bought at the top of the market.
2) The average portfolio is significantly less than 15 properties
3) Most BTL properties will have additional security on the owners main property.
4) Total borrowing on BTL properties is roughly £120bn - even if every single property in the country was valued at zero, that is still the total exposure that the banks have to BTL property.

Really2

Graham_Devon wrote: »

It only makes sense if you qualify todays prices by saying "people were never buying at average prices of 198k". Which they were.

Graham,
Ok Peak was £198K in 2007 that could look like £300K in 15 years time in "real terms" on a graph.(as per what you see when looking at nominal and real for the 80's/90's)
That does not mean the average house was £300K. do you understand

I think you feel I am trying to pull the wool over your eyes. I am not this is how it is done.

Graham_Devon

Really2 wrote: »

Graham,
Ok Peak was £198K in 2007 that could look like £300K in 15 years time in "real terms" on a graph.(as per what you see when looking at nominal and real for the 80's/90's)
That does not mean the average house was £300K. do you understand

I think you feel I am trying to pull the wool over your eyes. I am not this is how it is done.

Ok, well were going a little off path now....well a lot.

Everyone is talking about peak to trough now, not what the peak to trough in 15 years may look like.

I understand what your saying, but I do not understand how it has any relevance to my predictions / thoughts now.

Really2

Graham_Devon wrote: »

Ok, well were going a little off path now....well a lot.

Everyone is talking about peak to trough now, not what the peak to trough in 15 years may look like.

I understand what your saying, but I do not understand how it has any relevance to my predictions / thoughts now.

Well you did ask as you had problems understanding both, next time I wont bother.

I fail to see what you want out of this conversation you ask for explanation and when given you moan about it being off topic.