Bank of England may put limit on mortgage ratios

CLAPTON

Thrugelmir wrote: »

Who created mortgage securitisation?

It wasn't a US bank either.

Interesting point.
I don't know who invented securitisation

but my point is that mortgage lending in the UK didn't cause the financial crisis... maybe it didn't help resolve it but it certainly didn't cause it.

It is however a shame that all that money didn't lead to more UK house building rather than holidays and cars and general junk spending.

Graham_Devon

Conrad wrote: »

People conflate thier desire for lower prices with a vague notion the retail mortgage market was disordered.
Whilst I might agree 125% mortgages were too risky, things like self certified income mortgages have lower arrears and deliquency levels compared with standard documented mortgages.

The bigger picture is that a tiny proportion of homeowners end up repossessed, so despite all the angst and writhing over income multiples, overall we have a pretty well run marketplace.

In any event I can report that 5 x income and effective self cert (fast tracking) is still in commonplace.

Regulation seems to be detrimenting the wrong people in large part, for example a late 50 something wanting a 25 year mortgage following divorce.

I've got to say, I do love all this stuff about how we have such low levels of reposessions.

You mention no where that SMI was increased. Interest rates fell to their lowest levels for 300 years.

Come on now. Stop making the mortgage market sound so rosy, when infact, stimulus was put in place, banks were told to give longer before reposessing, and interest rates fell to a 300 year record low.

If reposessions weren't low, following all that, then I'd be really worried!

PaulF81

Uk mortgage lending has seriously stymmied the recovery. rather going out and spending, people are now deleveraging like mad. Hence why The M3 figures are so poor.

CLAPTON

PaulF81 wrote: »

Uk mortgage lending has seriously stymmied the recovery. rather going out and spending, people are now deleveraging like mad. Hence why The M3 figures are so poor.

ah a chap that opens the champagne every time consumer lending increases.

PaulF81

Not at all. If people werent having to pay off such outrageous mortgages I dare say the consumer expenditure figures would be much better, as would be the VAT haul, without additional lending. I for example am spending over 70% of my disposable take home on deleveraging at the moment.

No mortgage by 40, but my retail expenditure will suffer as a result of the greed of other generations. Their shares in M&S and Next mind, not mine.

moneyinmypocket

So when's the next housing boom coming?

PaulF81

Give you a hint. Look at big business cash reserves. There isnt a shortage of cash, its just getting hoarded. My guess is, as soon as the Special Liquidity Scheme is paid off, as soon as the requirements of Basel III are met and as soon as Greece are allowed to default, business lending is going to take off like a rocket and businesses will start to re-invest their war chests.

Thing is, I am leaning more towards equities as the next boom, if you look at equity prices over the past 2 decades, they dont look expensive, bearing in mind the FTSE100 is mainly invested in overseas businesses and the FTSE 250 is involved in blue chip and manufacturing. Market controls on the stock market? Never. History rhymes, it never repeats. any targetting of housing will be pointless. There werent two successive tulip bubbles, nor will there be two succcessive house price bubbles. The 2001-2007 blip was just that, a massive overinvestment in an asset class that took home values well above their historic value.

CRASH_BANG_WALLOP

Graham_Devon wrote: »

I've got to say, I do love all this stuff about how we have such low levels of reposessions.

You mention no where that SMI was increased. Interest rates fell to their lowest levels for 300 years.

Come on now. Stop making the mortgage market sound so rosy, when infact, stimulus was put in place, banks were told to give longer before reposessing, and interest rates fell to a 300 year record low.

If reposessions weren't low, following all that, then I'd be really worried!

and the dudes supposed to be a mortgage advisor :eek:

gagahouse

PaulF81 wrote: »

Give you a hint. Look at big business cash reserves. There isnt a shortage of cash, its just getting hoarded. My guess is, as soon as the Special Liquidity Scheme is paid off, as soon as the requirements of Basel III are met and as soon as Greece are allowed to default, business lending is going to take off like a rocket and businesses will start to re-invest their war chests.

Thing is, I am leaning more towards equities as the next boom, if you look at equity prices over the past 2 decades, they dont look expensive, bearing in mind the FTSE100 is mainly invested in overseas businesses and the FTSE 250 is involved in blue chip and manufacturing. Market controls on the stock market? Never. History rhymes, it never repeats. any targetting of housing will be pointless. There werent two successive tulip bubbles, nor will there be two succcessive house price bubbles. The 2001-2007 blip was just that, a massive overinvestment in an asset class that took home values well above their historic value.

Global trade and liquidity imbalances were at the root of it, a process that has been years in the making. The malinvestment boom will take years to work off.

As Cœur! notes these regional inflows led not just to dramatic increases in the rate of growth, but also in asset prices, whilst disincentivising what would otherwise have been natural moves to draw investment through improvements in transparency and corporate governance. Huge amounts of leverage ensued, pushing asset prices to what became in hindsight clearly unsustainable levels. When markets corrected, the Asian Financial crisis emerged.

But the Asian Financial Crisis was only the beginning. As Cœur! explains:

The shortage of liquidity created by the crisis changed risk sentiment, thereby increasing the global demand for safe assets. With the US dollar still reigning supreme, the United States became a hub for the recycling of the liquidity that was available globally [4].

All of a sudden, capital was flowing uphill, from emerging to advanced economies, a puzzle famously known as the “Lucas paradox”.

Clearly, however, the surge in capital flows to the US was mainly driven by the desire of the official sector in emerging-market and oil-exporting economies to increase their war chests of reserves and insure against global shocks, and not by utility-maximising decisions of their private sector.

Nevertheless, those inflows contributed to the decline in long-term interest rates and increased risk appetite in many of the advanced economies. The self-reinforcing interaction between risk appetite and liquidity came back with a vengeance. Of course, one should not neglect the domestic inefficiencies in advanced economies that allowed the financial crisis to occur in the first place. That said, the global dimension of the underlying forces is striking.
All of which arguably set the scene for the second round of the Asian Financial Crisis, though this time it would be the developed world edition.

As Cœur! points out, it was the backdrop of depressed yields (generated by the mass capital inflows discussed above) which created the conditions that so readily distorted the incentives of the lender-borrower relationship. In other words, banks didn’t rush into subprime loans because they were greedy and evil, but rather because the conditions they found themselves in made it the most logical course of action.

Banks, essentially, acted as they would always have been expected to act — in line with the incentives at hand. It was the incentives themselves which had been compromised thanks to the massive capital inflows experienced by developed markets in the preceding years.

http://ftalphaville.ft.com/blog/2012/02/07/872361/global-liquidity-fail-the-role-of-skewed-incentives/

CLAPTON

PaulF81 wrote: »

Not at all. If people werent having to pay off such outrageous mortgages I dare say the consumer expenditure figures would be much better, as would be the VAT haul, without additional lending. I for example am spending over 70% of my disposable take home on deleveraging at the moment.

No mortgage by 40, but my retail expenditure will suffer as a result of the greed of other generations. Their shares in M&S and Next mind, not mine.

my view is that people are paying off mortgage debt because simple maths says that if you continue to pay the same monthly amount as before the crash and now the interest rates are peanuts then debt will fall as more of the monthly payment goes to reducing the capital.

most people don't have 'outrageous ' mortgages but in fact have reasonable ones that they can manage.

also people are more risk adverse and so are modifying their demand for unsecured debt although this seems to be rising

if you are deleveraging your debt that that would seem to be a personal choice and nothing to do with excessive or outrageous mortgages or indeed of the greed of other generations