The Return Of Sub-Prime Lending.

HAMISH_MCTAVISH

DervProf wrote: »

OK.

The Americans had a property/mortgage boom.

We had a property/mortgage boom at around the same time.

True.

Hamish & co blame our troubles on the Americans.

It ain't just "Hamish & co".

It's an indisputable fact that hundreds of billions of dollars of American sub-prime mortgages were packaged up and sold as AAA assets to financial institutions all over the world, and the discovery of this fraud froze interbank and wholesale lending which then crashed the global financial system.

I`m suggesting that our mortgage market was "assisted" by what was happening in America before the crunch.

Why? How?

Our lending standards were, on average, immensely better than theirs.

Our default rate is immensely lower than theirs, despite the fact we also had ZIRP, mortgage assistance, etc.

Sub prime lending just was not a problem in the UK, as evidenced by the incredibly small UK mortgage default rate.

The common link you're looking for is the fact that our banks borrowed money from the same wholesale sources their banks did.

When the American crisis hit, ALL wholesale funding sources dried up overnight, because nobody knew where the fraudulent assets were held, and by who.

Therefore NO bank was considered safe. Even the ones with high performing loan books.

That's what crashed our market. Not UK sub-prime lending.

It went badly wrong in America, and our banks suffered. Hamish & co often suggest that we`d have been OK if the Americans hadn`t been so badly behaved.

Absolutely correct.

I`m asking if the Americans had run their banks responsibly, would our banks have been able to lend like they did (and therefore inflate our property prices to the levels they reached).

Yes.

Our banks would have been fine had the Americans not conducted fraud on a mind bogglingly huge scale.

Without the American meltdown, there would have been no global financial crisis.

And without the global financial crisis, there would have been no UK housing crash.

andykn

DervProf wrote: »

So, NR were borrowing from Peter to pay Paul (more than most other banks) ?

Yes, but this was no secret, it was how their business was run.

Rinoa

Linton wrote: »

No No....

NR collapsed when there ceased to be money available from the interbank money markets because the banks that would have lent to that market were afraid of what had happened to the packaged US sub prime mortgages.

If they lent to another bank which went bust because of it holding large amounts of worthless US mortgages they would lose the money they had lent.

So as people have said the key problem was caused by the US. There was nothing particularly wrong with NR's lending, the problem was its dependency on the interbank money market (rather than say "borrowing" from depositers) which no-one had the remotest idea could possibly freeze up globally.

Spot on.

Indeed the NR 'bad bank', created by the govt.and containing all the sub-prime, recently announced profits of £350M for the first 6 months of this year.

Easy to see why investors are moving back into this market.

DervProf

Linton wrote: »

Our HPI problem is primarily caused by a lack of houses. It was exacerbated by the amount of credit available which increased demand. Increased demand with constrained supply means increase in prices.

Which is why I`m suggesting that our banks should not be encouraged to loosen lending criteria too much at the moment. While there`s a shortgage, lending more money to more people is not going to help. The Americans went further down that road (even without a property shortgage), and look what happened.

the_flying_pig

Rinoa wrote: »

Spot on.

Indeed the NR 'bad bank', created by the govt.and containing all the sub-prime, recently announced profits of £350M for the first 6 months of this year.

Easy to see why investors are moving back into this market.

jesus.

there was a very big bubble in residential property.

certain people made a lot of money from it.

but it was, more or less, 'found out' three years ago.

why are you still on here hyping it after all this time?

why not get involved in one of the new mini-bubbles? emerging markets? some of the riskier corporate bonds? why still banging on the same old drum???

Rinoa

the_flying_pig wrote: »

jesus.

there was a very big bubble in residential property.

why are you still on here hyping it after all this time?

There was only a bubble if you thought there was.

I'm not hyping any bubble, just correcting popular misconceptions.

the_flying_pig

Rinoa wrote: »

There was only a bubble if you thought there was....

was that an attempt at philosophical musing?

Rinoa

the_flying_pig wrote: »

was that an attempt at philosophical musing?

Only if you thought it was.

Linton

DervProf wrote: »

Which is why I`m suggesting that our banks should not be encouraged to loosen lending criteria too much at the moment. While there`s a shortgage, lending more money to more people is not going to help. The Americans went further down that road (even without a property shortgage), and look what happened.

I agree that lending more money is not in the end going to help more FTBers buy homes, despite people complaining on this board about the size of deposits currently required etc.

But we live in a market economy. There are millions of people who believe (and for each individual they are correct) that if they could get a bigger loan they would more easily be able to buy a house.

And increasingly as the current problems are resolved more banks will find that they can make a profit from providing the loans. So we have willing "buyers" and willing "sellers" - the trade will happen.

It will also be sustainable provided the banks lend to people who can pay the money back - and over many years they have shown that they are rather good at doing that, at least in this country.

That is why IMHO the bulls are in the long term correct and the bears wrong.

This is what I find fascinating about the housing market: there are no "bad guys", everybody can behave reasonably and prudently acting on market forces and yet the end result may not be what is in people's long term interest.

Whilst we live in a democratic global market economy I dont see there is anything anyone can do about it.

sjaypink

All very well them being available, but will anyone take them this time?

I know previously they were fairly attractive because although you paid a higher % there were benefits- low/no deposit, you could self certify, obtain a high multiple of your (stated!) income...

If the deal is you have to have a 20% deposit, you can only borrow (for example) 3 x income - and your income and outgoings will be checked with the nurses nit comb and you have to pay a high interest rate- is that such an appealing offer?