The Four Horseman of the BTL Apocalypse.

ad9898_3

julieq wrote: »

The 30 year trend line projections are on the basis of 2.9% annualised growth, compounded. That's surely not unsustainable over that period?

I know it's bordering on the heretical to suggest that housing is not a pyramid scheme, but really either you believe in capitalism or you don't. In terms of the income bearing potential against asset value, houses are priced just about right. You may argue that we pay too much for accomodation, I'd have some sympathy with that view, but you can't just wish a situation away. If we were seeing 20 or 50% rental corrections there'd be some basis for a corresponding fall in asset values, but we're not. People pay what they have to pay to live somewhere they like, whether they rent or buy.

The fact is that the price crash wasn't really specifically to do with here, it was to do with suicidally lunatic lending in the US which our banks indulged in indirectly. In the US there is plenty of land, inflated property prices have no real basis in supply and demand terms. There's precious little security in asset values, particularly if an entire neighbourhood goes down the tube.

There's no real basis for worrying about energy cost increases based on declining supply either. Worst case is we are cold in the winters and drive less, which is as things have been for about 1800 of the last 2000 years. There will be opportunities to fix the problem using different technologies which are more trouble than they're worth when there is cheap oil about.

Although I agree to some extent, the first part I high lighted is not true, suicidal lending was just as bad here, 6x,7x,8x salary loans were common place here as well as self cert liar loans which were highlighted on the BBC's The Money Programme in 2003.

The last part I highlighted is 'pure head in the sand', but of course you are entitled to stick your fingers in your ears and go 'la la la la', it will work for about 5-10 years, then no amount of sand to bury your head in will help.

julieq

High multiples are not suicidal. They were offered to relatively few people on the basis of reasonable assumptions of the rate of default, and the average LTV was (if I recall correctly) well south of 3x. I'd be interested to know the default rate on high multiples but I suspect it's proportionately low.

Neither were "liar" loans a dominant factor in the bubble.

You can work yourself up disproportionately about the significance of these loans in the UK. The difficulties here were to do with a global collapse in confidence in the banking system based around what was done in the US. Up to then we were predicting a correction here, but one significantly based on stagnation.

As to the last comment, I work with people who are solving energy related issues and I have confidence in humanity to solve problems. Also there's a doctrine of acceptable pain, people accept pain up to a certain level and then they change the way they behave. That is why you can't make straight line projections.

chucky

julieq wrote: »

High multiples are not suicidal. They were offered to relatively few people on the basis of reasonable assumptions of the rate of default, and the average LTV was (if I recall correctly) well south of 3x. I'd be interested to know the default rate on high multiples but I suspect it's proportionately low.

Neither were "liar" loans a dominant factor in the bubble.

You can work yourself up disproportionately about the significance of these loans in the UK.

i'm yet to see any evidence that this played the alleged "huge" part in the contribution to HPI in the UK apart from on this site and HPC.co.uk. it obviously happened but no where near the scale that posters on these sites think.

ad9898_3

chucky wrote: »

i'm yet to see any evidence that this played the alleged "huge" part in the contribution to HPI in the UK apart from on this site and HPC.co.uk. it obviously happened but no where near the scale that posters on these sites think.

I'm pretty certain chucky that the low bank base rate is masking a multitude of sins. It would be interesting to see how many people have dropped off any existing deals they were on in the last 9 months onto there lender's relatively cushy SVR, many, many thousands I suspect. Many of which will go under with just 1 or 2 percentage points up on the base rate.

julieq

These are rhetorical questions, not based on fact. How much is "many"? 10%, 20%, 80%? Bear in mind that big multiples were carefully credit scored and there weren't that many of them.

Anyway hypothesising about what might have happened is pointless, what is important is what happened. Had interest rates risen, yes, some people might have been overstretched but that would have implied no earthquake in the financial infrastructure. Would that in itself have triggered a crash like we've seen? Probably not, would have just been a few reality programmes about uppity social climbers being repossessed and stagnation in the housing market.

IveSeenTheLight

ad9898 wrote: »

Not a bad argument, but I would argue that if you take out the 2000-07 boom, '96 would not have been far off the trendline, in fact it would be probably bang on it.

Incorrect. As shown on the nationwide graph, it couldn't have been further below the long term trend.

ad9898 wrote: »

Just to edit, to put some meat on the bones of what I said, in '96 when I bought, I could buy the same kind of house my sisters bought (in 1977, 79 and 83) for similar wage multiples and salary, in the boom times (late 80's and 2000-07), this was impossible and still is.

I bought a 4 bed house in 2004 on one salary.
It certainly was not impossible as you incorrectly are infering.
Maybe not possible everywhere but we know local areas are different

chucky

ad9898 wrote: »

I'm pretty certain chucky that the low bank base rate is masking a multitude of sins. It would be interesting to see how many people have dropped off any existing deals they were on in the last 9 months onto there lender's relatively cushy SVR, many, many thousands I suspect. Many of which will go under with just 1 or 2 percentage points up on the base rate.

nobody can disagree that rates have masked many issues for home-owners. not only is this a good thing for them but it avoids unnecessary pain for home-owners. it looks like it will be like this for at least another year which will be assist those that may become unemployed, have wages reduced or have debt problems - something that nobody can say disagree that this is bad.

going back to high multiples and 'liar' loans - there is no conclusive proof to say that this was one of the major causes of HPI.

Thrugelmir

chucky wrote: »

it didn't actually.

it was only in the period of 2006 and 2007 that BTL accounted for 11% of mortgages. surely you can't be blaming HPI on 11% of house sales by investors?

In 1999 there were 30,000 BTL mortgages by 2007 there were 1.1 million.

In 2007 alone 220,000 BTL mortgages were granted.

On the basis of house prices alone is safe to assume that at 50% of BTL mortgages granted in 2007 could prove troublesome. As the borrowers would have secured equity from an existing property either their own or another BTL to fund the deposit.

As majority were granted on I/o. There's been no repayment of capital to counter the market fall.

At some point the cliff is going to collapse which will precipate a sell off of property as investors attempt to cut their losses. The down turn will be self perpetuating until prices reach a level where other buyers step back in. I.E. FTB's and cash investors.

nearlynew

chucky wrote: »

....................
going back to high multiples and 'liar' loans - there is no conclusive proof to say that this was one of the major causes of HPI.............

You must be joking, surely?

Liar loans were rife and played a huge part in HPI.

There is no way the massive rise in house prices could have been supported on genuine income levels.
Cheap and easy money fuelled prices which then made more money available in a positive feedback loop.

At the peak of the boom and in the years leading up to the bubble bursting, anyone with a pulse could borrow up to their eyeballs with hardly any questions asked.

There are many documented cases of people earning little money buying 3, 4, 5, 10 properties in one day on the strength of perceived capital gains and inflated rental potential.

How is this possible without liar loans and how does this not fuel HPI?

'The FSA has found plenty of evidence to support this.....

http://www.guardian.co.uk/business/2009/may/12/self-certified-mortgage-fraud

http://www.totallymoney.com/news/index.php/2009/05/an-end-to-liar-loans/

StevieJ

julieq wrote: »

You can work yourself up disproportionately about the significance of these loans in the UK. The difficulties here were to do with a global collapse in confidence in the banking system based around what was done in the US. Up to then we were predicting a correction here, but one significantly based on stagnation.

.

I have been making this point for a long time now, the bears on here just ignore it I think it is because it doesn't fit in with their pre credit crunch UK HPC crash of epic proportions forecasts. As you say most were not aware of how deep UK banks were embroiled in the US sub prime disaster.