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Debate House Prices


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Storm Clouds on the horizon

245

Comments

  • Generali
    Generali Posts: 36,411 Forumite
    10,000 Posts Combo Breaker
    michaels wrote: »
    Is it time to start looking out for queues outside branches again yet? I'm just glad I have now spent all my money...

    I just lost my job, home, country and most of my possessions in 2008 I'm prepared this time by having nothing left to lose.
  • DervProf
    DervProf Posts: 4,035 Forumite
    ILW wrote: »
    they made need to start attracting more cash from retail savers.

    Oh no, they're not going to encourage parasitic behaviour again, are they ? ;)

    The banks have been treating savers like second class citizens for a while now. If they do require more funding from savers, they'd better hope that those who had savings before interest rates were cut haven't gone on a spending spree.
    30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.
  • IveSeenTheLight
    IveSeenTheLight Posts: 13,322 Forumite
    Generali wrote: »
    I just lost my job, home, country and most of my possessions in 2008 I'm prepared this time by having nothing left to lose.

    I didn't realise the government still sent people to Australia
    http://en.wikipedia.org/wiki/Convicts_in_Australia
    :p
    :wall:
    What we've got here is....... failure to communicate.
    Some men you just can't reach.
    :wall:
  • MacMickster
    MacMickster Posts: 3,646 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    DervProf wrote: »
    Oh no, they're not going to encourage parasitic behaviour again, are they ? ;)

    The banks have been treating savers like second class citizens for a while now. If they do require more funding from savers, they'd better hope that those who had savings before interest rates were cut haven't gone on a spending spree.

    But didn't we want to encourage savers to go on a spending spree because this would fix the economy?

    So in a nutshell the banks are stuck with too many high risk or unprofitable customers who can't or won't take their business elsewhere. (I'm not sure where elsewhere is. Surely remortgaging is just shuffling borrowers between banks like a merry go round).

    If interest rates increased significantly then it may move the merely unprofitable customers back to being profitable, but would cause the high risk borrowers to default.

    Banks are struggling to obtain funding for new borrowers so need savers to deposit more (but it is unclear where savers currently have the money that banks need them to deposit).

    Households are faced with rising unemployment, rising taxes and rising prices. We are not going to see a consumer led recovery in the UK.

    Our major trading partners are heading back into recession themselves, so we are not going to see a production led recovery.

    Due to worries about house prices we are unlikely to see a boom in construction, so this sector is unlikely to lead a recovery.

    I hope George Osborne has a trick or two up his sleeve, but I am not holding my breath.

    I suspect that the world will look a very different place when the storm finally blows over.
    "When the people fear the government there is tyranny, when the government fears the people there is liberty." - Thomas Jefferson
  • kabayiri
    kabayiri Posts: 22,740 Forumite
    Part of the Furniture 10,000 Posts
    DervProf wrote: »
    ...
    The banks have been treating savers like second class citizens for a while now. If they do require more funding from savers, they'd better hope that those who had savings before interest rates were cut haven't gone on a spending spree.

    Oops, too late.

    We realised that some of our so called 'savings accounts' were a mug's game and decided to spend big on the house instead.

    Having dealt with builders/plasterers/plumbers/etc a lot over the last 6 months I think they have come to rely on people making these sort of decisions, as new build work has dried up.

    If you want to help the local economy, sticking money into a Credit Union is a much more effective method than a big bank savings account.
  • DervProf
    DervProf Posts: 4,035 Forumite
    But didn't we want to encourage savers to go on a spending spree because this would fix the economy?

    "We" did.

    It doesn't appear to have worked. I think we might be seeing the downside of an economy reliant upon retailing and house price speculation.
    30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.
  • ILW
    ILW Posts: 18,333 Forumite
    The bit I cannot grasp (I am a bit thick though), is that most commodities are priced according to supply and demand. I would have thought that money was the same. In a situation where there is a shortage of money, one would expect interest rates (ie the price) to rise, which would in turn attract savers deposits and maybe stifle demand. The opposite seems to have happened in the sense that IRs are very low.
  • Really2
    Really2 Posts: 12,397 Forumite
    10,000 Posts Combo Breaker
    edited 19 August 2011 at 9:47AM
    ILW wrote: »
    The bit I cannot grasp (I am a bit thick though), is that most commodities are priced according to supply and demand. I would have thought that money was the same. In a situation where there is a shortage of money, one would expect interest rates (ie the price) to rise, which would in turn attract savers deposits and maybe stifle demand. The opposite seems to have happened in the sense that IRs are very low.

    I presume it is because most money is lent against assets, if the cost of raising money is to the detriment of assets (EG causes economic slowdown asset crash etc) it ends up meaning their is actually less money.

    Also the other aspect is lending, you can only lend it back out if customers are prepared to take out lending at a higher rate.
    At the moment customers are paying back lending rather than taking on more debt.
    Not saying that is right, but thats how it works in my little head. :)

    So I suppose the supply and demand is still working, but the banks issues (covering their books) are not representative of the customers supply and demand. It constricts what they can supply to customers yes, but in terms of customers demand is not that high either. Especially not for expensive debt.
    Some of that may be down to the restraints banks have had to make on lending, but that's the market.

    I presume if their was a demand for lending at higher rates banks would be offering higher interest rates to savers.
  • ILW
    ILW Posts: 18,333 Forumite
    I get the impression that there are many who would agree to pay say 7 or 8% to get a mortgage, but are not being offered it.
  • Really2
    Really2 Posts: 12,397 Forumite
    10,000 Posts Combo Breaker
    ILW wrote: »
    I get the impression that there are many who would agree to pay say 7 or 8% to get a mortgage, but are not being offered it.

    Perhaps they would if it was fixed @ 90-95% LTV.

    But then that then loops back to assets for banks in the current climate. The banks cover (deposit) could have been evaporated in a year.
    Once a house is worse less than it's deposit their is potential for loss to the bank.

    So I think you are right, there is demand at a certain level, but in the economic climate I do not think that level can be hit without increasing the banks possible exposure.
    If they lent loads out but prices slipped on 5% deposit loans they would be back trying to cover their ballance sheet again.
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