Can anyone explain....

Graham_Devon

HAMISH_MCTAVISH wrote: »

Absolute nonsense.

The real figure is more like 2.5%.

Both of you are wrong. It makes up 8% of the mortgage market (in 2007).

Which is strange, as your the one who says it never existed here, and was a US issue.

Generali

Shupufski wrote: »

..why banks used the restrict lending to multiples of income?

What was it 3.5x single and 2.5x joint?

Why did they used to do that?

Generally I believe it was either 2.5 x 1st wage and 1 x 2nd wage or 3 x 1st wage.

Before IT was any good (computerisation of offices in the 1980s on average reduced efficiency) it was quite complicated to work out how much a person could afford in mortgage repayments from a salary and other circumstances (eg how many kids they had, other debt outstanding, utility bills etc) so a simple calculation was needed to work out how much it was reasonable to lend to someone.

These days it is better for a bank to work out what someone can afford to repay using more effective metrics. It reduces their risk and increases their profits. Banks like reducing risk a lot.

Generali

Oh BTW, the 'non-conforming' part of sub prime means loans given to people whose credit scores are too low for those mortgages then to be sold on to Freddie Mac or Fannie Mae, two companies that have provided most of the cash for most mortgages in the US for decades.

It was traditionally very hard for people to get loans that were non-conforming because they were sub-prime or 'jumbo' (too big to be sold to FM/FM).

The UK had no sub prime lending nor any jumbo loans because there is no standard for loans to be measured by in this way. I guess you could say that 100% of UK lending is sub-prime because none of it is able to be sold to FM/FM. That would be harsh and a bit silly.

Shupufski

Cleaver wrote: »

Significant growth in house prices was down to a massive range of factors. Two of these factors would have been an increase in earnings and increased levels, and types, of lending.

I could list around two dozen other reasons, and I'm sure other posters could add many more. HPI wasn't down to one single factor and neither was it due to one major factor over others.

Can you please elaborate?

I need to understand how house prices can more than double in ten years when according to you:

1. Lending remained the same with extreme behaviour restricted to a very small minority

2. Earnings did not rise as fast as house prices during the same period


So, where did the money come from to power house prices across the UK to more than double in ten years?

Thrugelmir

Shupufski wrote: »

1. Lending remained the same with extreme behaviour restricted to a very small minority

NR, B&B and Halifax were significant lenders during the boom years. Whilst others hardly changed their lending practices at all such as HSBC.

blueboy43

abaxas wrote: »

Cleaver posted a link stating at least 30%.

Remember IO mortgages are subprime.

Does this mean that all endowment mortgages taken out in the late 70's and onwards were also sub - prime ?




* no fan of them but for people who took out endowments in the last 70's a combination of tax relief and high stock market returns meant they paid off handsomly.

abaxas

HAMISH_MCTAVISH wrote: »

Absolute nonsense.

The real figure is more like 2.5%.

Dont you actually ready what it says.

By the american definition we had almost 50% sub prime lending in 2007, but the UK definition almost none.

Now ask yourself who was doing the majority of this 'subprime' lending..... was it UK lenders... No, huge american banks or corps.

Who do you believe the world's largest company (GE) or the CML? Obviously the CML and FSA are always right, just as Morgan Stanley and Lehman Bank were wrong.

So just to confirm...

The companies that didnt see the sup prime crisis coming rate the amount of subprime (even when they didnt see it) greater than the FSA/CML, when they did.

Who we going with here, the people who messed up bis style, or the people who under estimate by the factor of 5.

Cleaver

Shupufski wrote: »

Can you please elaborate? I need to understand how house prices can more than double in ten years when according to you:

1. Lending remained the same with extreme behaviour restricted to a very small minority

2. Earnings did not rise as fast as house prices during the same period

So, where did the money come from to power house prices across the UK to more than double in ten years?

Writing about why house prices doubled and more in some areas could be an essay or even a disseration, so summing it up in one post would challenging. A lot of it is subjective and opinion too and the reasons are multiple and complex.

Firstly, it's a fact that house prices doubled (or even more) in some areas. So I guess it's just a case of looking at all the factors that caused this. Off the top of my head, and in no particular order, here's my reasons. You may disagree or agree with them, or argue that some were minimal or very influential. Others are obviously free to add any I miss.

1) There was a culture, or 'fashion' in the UK for investing in property. Investments come in to fashion - in recent years we've seen property, tech stocks, BRIC nations, Gold, Silver. Stuff becomes flavour of the month, then goes again. Property seems to have had its day between the late 1990s and the late 2000s. That's not to say people won't always make money from property, just that it won't be as fashionable until the next time it is.
2) The country felt rich. All of us were having loans, mortgages and credit cards thrown at us. It was the spend, spend, spend decade. So we all bought houses.
3) Houses were undervalued the decade before. That's opinion of course, but house price cycles tend to boom, bust, boom, bust, boom etc. etc. We've had a massive boom, we'll have a bust, then we'll probably boom again. Remember that houses prices didn't rise between around 1988 and 1998. So people got stuck in after that.
4) Unemployment was very low and lots of people got payrises. People bought houses.
5) We saw lax lending to some extent, so more people got access to credit. We've covered all this during this thread.
6) Home ownership became more and more desirable, so more people bought
7) Baby boomers had a load of cash. They used this to buy houses and / or give their kids money to buy houses
8) BTL took off (linked to point number 1). This competition between investors and FTBers led to an increase in prices
9) We were encouraged to borrow to buy houses. The government liked it, banks liked it, the media liked it and therefore we all liked it.
10) Suddenly people started talking about houses being an 'investment' or a 'pension'. There was more demand for houses and therefore prices went up, as the supply didn't match.
11) Interest rates have been relatively low over the past 15 or so years.
12) Our population increased
13) Remember that whilst earnings and houses prices are linked, it isn't a perfect line. We see boom, bust, boom, bust in the housing market, whereas wage increases tend to be pretty steady. There will be periods where wages rise a lot and house prices don't, and vice versa. There will be times where they are linked. We might see wages increase somewhat over the next five years and house prices fall considerably. The two aren't always in sync.
14) Decent new houses aren't really being built, and supply of quality houses are low
15) Renting is still a pretty miserable thing in this country as renters don't have many rights, and aren't treated that well (I say this as someone who rented for five years). I imagine if our renters were treated like some in Europe there might not be this desire to always buy.
16) A shift in the way people like to live. Open plan living, more space, more bedrooms, home offices, large gardens etc. etc. People are far, far more demanding. People will laugh at this one, but FTBers don't seem happy with a simple terrace house any more. This puts pressure on demand for decent houses.
17) UK stock market returns were generally poor between 2000 and 2010. People turned to investments such as property.

I could go on and on and on, but we've seen all these reasons on here before. You may feel some of these reasons have been major influencers on house prices, others very small influencers. I guess that's the fun of debate.

I think if you mix everything above in to a pot, you get a doubling in house prices. Some are more critical than others, but they all played their part.

HAMISH_MCTAVISH

Cleaver wrote: »

Writing about why house prices doubled and more in some areas could be an essay or even a disseration, so summing it up in one post would challenging. .

Not really.

You can accurately sum it up in a relatively short post:

Demand exceeded supply. The primary cause was an increase in demand due to population growth and household creation exceeding the insufficient supply of new housing. The enabler of increased demand was an expansion of credit. Areas of particularly high increases were where the highest levels of demand, (particularly around areas of high employment) met the lowest levels of housebuilding (particularly around densely populated areas).

Of course, the OP has no interest in accepting the truth, and will doubtless just regurgitate the same nauseatingly trite bear memes ad infinitum.

Thrugelmir

Shupufski wrote: »

Can you please elaborate?

So, where did the money come from to power house prices across the UK to more than double in ten years?

A tale about a building society.

In 1997 Northern Rock demutualised, floated on the stock market and became a bank. In 1998 it held around £10 billion of retail deposits and had lending exposure of around £17 billion. By the time it collapsed a mere 9 years later its retail deposits had grown to £ 24 billion but is lending book to a £113 billion.

The lending book grew at a staggering 23% compound rate over that 9 year period. At the point of collapse was the 5th largest mortgage lender in the UK market.

To fund the shortfall between retail deposits and its mortgage book. NR issued securitised loan notes. (The story of Granite and its part in NR's downfall is another story). These loan notes were being sold to the same pool of international investors who were buying the US sub-prime debt. So when the wholesale money markets dried up in August 2007 so did NR's source of funding. NR collapsed as we all know.

As the loan notes subsequently matured then the UK Treasury had to step in to ensure there was sufficent funding to allow NR to continue to trade and wind down its asset book (mortgage lending). At the end of 2007 the Treasury was funding NR in the region of about £27 billion.

Similar scenario at HBOS where LloydsHBOS was lent £165 billion under the special liquidity scheme to provide capital finance to allow the bank to remain solvent. Though LloydsHBOS has the additional pressure of a EU directive to reduce its overall share of the outstanding UK mortgage market.

So we are now witnessing a slow contraction and adjustment of available credit as banks reduce their lending exposure to a level they can support, independently of the treasury.