Storm Clouds on the horizon

Generali

IveSeenTheLight wrote: »

I didn't realise the government still sent people to Australia
http://en.wikipedia.org/wiki/Convicts_in_Australia

When I got to Passport Control they asked me if I had a criminal record.

I said that I didn't know that I still needed one.

(c) Harry Lauder, 1910.

Generali

Really2 wrote: »

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.

Also, under the new rules (Basle II/III) it is prohibitively expensive to lend on high LTV/low deposit mortgages. Couple that with very limited funds available for loan as banks are having to top up their reserves (due to Basle III) and it's very hard for banks to lend mortgages to high LTV customers.

Assuming 3% for a 65% mortgage, a realistic rate for a 95% mortgage at the moment would be about 12%. 95% should be about 4x as expensive as a 65% mortgage for the bank to maintain profit margins AIUI.

ILW

Thrugelmir wrote: »

Some highlights.

Mortgage market legacy issues


Retail Deposits

So it does appear that the currently low BoE rate could actually be restricting further lending and therefore growth. Strange times.

Generali

ILW wrote: »

So it does appear that the currently low BoE rate could actually be restricting further lending and therefore growth. Strange times.

It's a 'liquidity trap'. If people don't want to borrow money then no price is low enough to make it attractive to do so.

ILW

It also seems that the legacy issue on older tracker mortgages is causing the banks problems. I believe most had something like a 3% collar which was never inforced. Maybe they should look into that again.

HAMISH_MCTAVISH

ILW wrote: »

I believe most had something like a 3% collar which was never inforced. Maybe they should look into that again.

I don't think that's the case.

Many, such as all the old Nationwide and Lloyds mortgages which are quite a significant percentage of the market, have a 2% above base capped SVR with no collar.

Wookster

Generali wrote: »

It's a 'liquidity trap'. If people don't want to borrow money then no price is low enough to make it attractive to do so.

People with money also don't want to lend money. Corporates are sitting on gigantic piles of cash but are extremely reluctant to invest any of it due to the uncertain times we live in.

There was an excellent piece on Alphaville about 'high powered money'

Ultimately cash needs to be used to produce, rather than sit in bank accounts or be used predominantly for speculative purposes.... Otherwise there isn't much hope for recovery.

HAMISH_MCTAVISH

Generali wrote: »

If people don't want to borrow money then no price is low enough to make it attractive to do so.

I disagree.

There are a lot of people and businesses out there quite happy to borrow money. Just not on the terms the banks are currently willing to lend it at.

The "Mexican standoff" is alive and well in the lending markets just as much as the housing market.

abaxas

HAMISH_MCTAVISH wrote: »

I disagree.

There are a lot of people and businesses out there quite happy to borrow money. Just not on the terms the banks are currently willing to lend it at.

The "Mexican standoff" is alive and well in the lending markets just as much as the housing market.

You cant hold a standoff when one party holds all the guns, while the other only has limp celery.

ILW

Wookster wrote: »

People with money also don't want to lend money. Corporates are sitting on gigantic piles of cash but are extremely reluctant to invest any of it due to the uncertain times we live in.

There was an excellent piece on Alphaville about 'high powered money'

Ultimately cash needs to be used to produce, rather than sit in bank accounts or be used predominantly for speculative purposes.... Otherwise there isn't much hope for recovery.

Money sat in bank accounts is generally loaned out to others. It is not just sitting there doing nothing.