Quarter of mortagage 'SVR'

HAMISH_MCTAVISH

FallenAngel9898 wrote: »

Great OP Really2, it goes to show how precarious the whole situation probably is at this time.

And yet that same vulnerability of many millions of people is exactly why the worst case scenario often touted by the bears is so unlikely to happen.

Imagine, for a moment, that as per your rough example, 5.5 million are on variable rates. Now assume that over the next 2 years, unemployment climbs to 3.5 or 4 million, and base rates rise to 5%, with retail rates therefore at 7% plus.

In very broad strokes, 10% to 12.5% unemployment, now translate that into a similar percentage of people with variable mortgages, and now ask them to double or triple or quadruple their mortgage payments whilst unemployed, and you're instantly looking at 550,000 to 600,000 defaults.

Now add in a lot of other people who may not be unemployed, but will be unable to pay 7% rates, and you may be looking at a million defaults. Potentially leaving 3 million to 4 million people homeless if the banks reposessed them all, and of course there would be no way government could house that many people, so you'd have millions on the streets.

Now ask yourself..... in a democratic society, where politicians could lose their jobs (not get re-elected) over something as trivial as a sex scandal or expenses claim, what government can you ever see allowing millions of people to be evicted and made to live on the streets? That would be the shortest lived government on record, and the party that allowed it would never get elected again, ever, as long as anyone from today was alive to remember.

HAMISH_MCTAVISH

FallenAngel9898 wrote: »

A great post from you there Hamish, very apocalyptic. It just shows what a mess we have gotten ourselves into over the last decade. What we are likely to see though is not quite the doom of your post above but somewhere in between 'everything is rosy in the garden' and 'the apocalypse' you mention.

The only thing that would bring your scenario about is a bond strike or the calling of the IMF, although neither is looking likely at this time, it shows how close we are to the edge of the cliff, from everything being ok and manageable to armageddon.

The issue what I'd like to bring up is because of our current 'fantasy borrowing' we have no idea just how close to your doom post we are, and aren't going to know until after the election, reason enough to see where we are in the next 18-24 months before leveraging up on a house purchase.

Hmmmm, suspect you missed my point there.....;)

Which was that such a scenario is incredibly unlikely to happen. Precisely because it would be armageddon.

It the same reason that 50% falls across the board are impossible. It would cause every major bank to fail. It would put millions more deep into NE. It would cause insolvency of all the major homebuilders. Housebuilding industry would cease to exist, unemployment would skyrocket, etc, etc, etc.

It's the same reason that 500,000 repo's are impossible. That many homes being repo'd and sold would cause 50% price falls, which would cause the banks to fail, etc etc etc.

All of it, is the modern day economic equivalent of the old MAD nuclear deterance theory.

Neither banks nor government can afford to pursue courses of action that would ensure their own destruction in the process.

Therefore house prices cannot drop 50%. Repo numbers cannot reach hundreds of thousands.

Overseas bond holders cannot afford to have the UK enter a depression, and default on the existing debt. Therefore there will be no bond strike, and interest rates will not reach a high enough level to trigger any of the other tipping point events.

mewbie_2

HAMISH_MCTAVISH wrote: »

Imagine, for a moment, that as per your rough example, 5.5 million are on variable rates. Now assume that over the next 2 years, unemployment climbs to 3.5 or 4 million, and base rates rise to 5%, with retail rates therefore at 7% plus.

Welcome to the dark side Hamish.

Mr_Mumble

HAMISH_MCTAVISH wrote: »

Now add in a lot of other people who may not be unemployed, but will be unable to pay 7% rates, and you may be looking at a million defaults. Potentially leaving 3 million to 4 million people homeless if the banks reposessed them all, and of course there would be no way government could house that many people, so you'd have millions on the streets.

Now ask yourself..... in a democratic society, where politicians could lose their jobs (not get re-elected) over something as trivial as a sex scandal or expenses claim, what government can you ever see allowing millions of people to be evicted and made to live on the streets? That would be the shortest lived government on record, and the party that allowed it would never get elected again, ever, as long as anyone from today was alive to remember.

Housing doesn't get demolished if it is repossessed so why would there be "millions on the streets"? Repossessed housing stock will be sold off in auctions at the market rate, a market rate that falls when supply outstrips demand ergo house prices fall. In your scenario the government will be near bankrupt (since it owns large slices of the largest mortgage lenders) - it simply could not afford to bail out fiscally irresponsible homeowners.

HAMISH_MCTAVISH

mewbie wrote: »

Welcome to the dark side Hamish.

:rotfl:

..........

Adebisi

I love my HSBC SVR Base rate + 1% it has made my mortgage come down to just over £250 per month and now I am paying off an extra £1000 each month. Makes the small ammount of negative equity easier to digest.

HAMISH_MCTAVISH

Mr_Mumble wrote: »

Housing doesn't get demolished if it is repossessed so why would there be "millions on the streets"? Repossessed housing stock will be sold off in auctions at the market rate, a market rate that falls when supply outstrips demand ergo house prices fall. In your scenario the government will be near bankrupt (since it owns large slices of the largest mortgage lenders) - it simply could not afford to bail out fiscally irresponsible homeowners.

:rolleyes:

And who would buy them? Mortgage lenders would cease lending, to anyone, under any circumstances. Those with equity mostly wouldn't have any left. Theres only a few thousand STR's around.

No. Prices, if allowed to fall by 50%, would just keep on falling until you could get one free with a box of cereal. Of course, cereal would be prohibitively expensive for most people, as the house price falls took out the banks long before that, which took out the wider economy with them.

House prices are inextricably linked with the wider economy.

You cannot have a crash in isolation. We've had a mere 14.5% so far, and the entire global economy was 6 hours from meltdown.

50% would be "end of days" territory.

Mr_Mumble

HAMISH_MCTAVISH wrote: »

:rolleyes:
And who would buy them? Mortgage lenders would cease lending, to anyone, under any circumstances.

Why would they do that? If they're lending at 7% with interest rates at 5% there is no problem here for mortgage lenders. With deposits of 25% now the norm the largest barrier to lending - the worry that the value of the security (the property) falling - is being dealt with right now.

No. Prices, if allowed to fall by 50%, would just keep on falling until you could get one free with a box of cereal.

Ugh, no, if residential property becomes a better investment than gilts, corporate bonds, equities, stamps, forex trading, art... then people will flood into the market with capital. If you assume you'd get a free house with a box of cereal then renting a house'd be ridiculously cheap and the economy wouldn't be in any trouble whatsoever.

House prices are inextricably linked with the wider economy.

Which is an unhealthy link and needs to be broken.

You cannot have a crash in isolation. We've had a mere 14.5% so far, and the entire global economy was 6 hours from meltdown.

50% would be "end of days" territory.

We've seen real falls (after Sterling devaluation and inflation) of 40% and we saw real falls of >50% in the moderate recession of the 90s. So, no, vast falls in housing wouldn't be the end of days, quite the reverse as lower housing costs will boost the economy.

Dan:_4

FallenAngel9898 wrote: »

One thing I've learned, certainly over the last few years is never say never, although again your post is talking of 'MAD' for instance, it doesn't mean that it could never happen, the coming energy crisis is going to change our world beyond all comprehension over the next 3 decades, it will be apocalyptic for many millions of people, that doesn't mean it's not going to happen though.

I can't think of a time when I've said for certain that the all the indices are going to hit -50%, but I can see -25-30% and more to the point no recovery to 2007 prices for many many years.

Good pont. During 2007 I said it was highly unlikely we will see 20% falls. :beer:

chucky

FallenAngel9898 wrote: »

I can't think of a time when I've said for certain that the all the indices are going to hit -50%, but I can see -25-30% and more to the point no recovery to 2007 prices for many many years.

that classifies you as a bull on here... :T