800,000 "zombie households" only survive due to low rates

brit1234

Rinoa wrote: »

Pretty much so. People missing a payment on their mortgage is not exactly new.

No but what is interesting is if the % of people missing payments is increasing or decreasing. I'm sure it would be far higher if emergency level interest rates weren't put in.

Wookster

brit1234 wrote: »

No but what is interesting is if the % of people missing payments is increasing or decreasing. I'm sure it would be far higher if emergency level interest rates weren't put in.

My guess is that cumulative inflation from 2008 to now is 15-20%, where as average salary rises have been 6-8% for the same period. This means that consumers have seen a disposable income drop of up to 12%.

Were it not for low interest rates, the level of default would be much higher.

Meanwhile, back in Texas, we're creating an economy dependant on rock bottom interest rates. Japan, here we come.

Financial repression is here.

Loughton_Monkey

zom·bie

   /ˈzɒmbi/ Show Spelled[zom-bee] Show IPA
noun

1. (in voodoo) a. the body of a dead person given the semblance of life, but mute and will-less, by a supernatural force, usually for some evil purpose.

b. the supernatural force itself.



2. Informal . a. a person whose behavior or responses are wooden, listless, or seemingly rote; automaton.

b. an eccentric or peculiar person.

Definition 1(a) describes Gordon Brown.
Definition 1(b) describes Tony Blair.
Definition 2(a) describes Ed Balls
Definition 2(b) describes Ed Miliband

So all this article proves is that any issue with house prices is 100% down to the Labour Party.

Michelle-Matched-Bettor

Graham_Devon wrote: »

800,000 mortgages subject to forebearance seems quite a lot!!

It IS a lot!:D

chucky

I like these threads with the sensationalist headline that once you drill down into the data or information it shows the reason journalist wrote it, to get attention and Internet page hits on his story.

HAMISH_MCTAVISH

‘forbearance’, which means the owner has either missed a payment or made one late.

W

T

F

?

Making a payment late, even by a day, means you are now officially "in forbearance" and a "zombie household".

I give up.

sabretoothtigger

zombie would imply life beyond death and possibly in an infectious way

Have to agree with Hamish on that one. Something like the bank bailout in usa is more suitable where some mortgages have never received a single payment yet the 'owners' live in there for years. Infectious because obviously there is latent undiscovered supply.
Im not aware of the UK being as bad as this or even similar

Graham_Devon

Theres a much better article on this in the financial times. This is money is part of the mail group, so a bit sensationalist.

Financial times includes snippets such as:

Britain may face a long and difficult road to recovery because the housing and credit boom earlier in the decade has led to a generation of “zombie households” among low-income groups who cannot save enough to ever repay their debts and begin spending again, according to a new study.

Citing data from the Financial Services Authority, Mr Armstrong noted that of 12,000 separate mortgage products available in the UK in 2007, 8,000 were aimed at the credit constrained. Over 40 per cent of mortgages generated in the years before the boom are interest-only and those borrowers are no further towards repaying their debts than they were five years ago.

Moreover, the FSA estimates that between 5 to 8 per cent of all mortgages are only avoiding foreclosure because banks are showing “forbearance.”

The zombie households seem to be classed as people who will simply never be able to save enough to repay their debts. Just service them. And theres a question hanging over whether they will be able to even service them, at just 2% base rates.

To have 8000 of the 12,000 mortgages available aimed at the credit constrained in 2007 backs up every argument that lax lending was a massive issue. You just cannot argue against the numbers.

Graham_Devon

And another blow to some of the regular's arguments....those doing the borrowing, were not the ones who now have the assets. This is often stated on here to suggest lending was backed up by assets, therefore it's actually ok....

From this eagle's-eye perspective, it doesn't matter too much for the economic outlook that we're all saddled with monster debts. But a new paper by Angus Armstrong, of the National Institute of Economic and Social Research, suggests some reasons we might need to think again.

One problem is, the people taking on more credit and those buying up assets were often not the same people. Armstrong points out that income inequality increased dramatically in the runup to the crisis, while "consumption inequality" – the gap in living standards between the richest and the poorest – barely changed.

Detailed data on who lent what to whom is hard to come by, but Armstrong suggests one likely explanation is that the rich saved more as their incomes shot up while the poor took out a rising amount of credit, not to invest, but simply to make ends meet or keep up with the neighbours.

In fact, the sophisticated mortgage-backed security market, which allowed banks to package up home loans and sell them on, helped to transfer the savings of wealthy investors – whose investment funds bought up mortgage-backed securities by the bucketful – to poorer borrowers. Mortgage rates fell; loan-to-value ratios shot up; the borrowing boom went on.

The 800,000 appears in this article to suggest people in arears right NOW. Not just those having missed a payment at any point...

And that brings us to a second problem: today, the FSA believes up to 8% of mortgages are in "forbearance", with borrowers in arrears but their lenders reluctant to foreclose because that would mean crystallising losses on thousands of loans.

Armstrong says these paralysed households resemble Japan's "zombie firms" of the 1990s – effectively insolvent, but kept going by their banks. Without the unlikely event of an economic upturn, the result is likely to be complete paralysis on the lower rungs of the housing ladder.

HAMISH_MCTAVISH

Graham_Devon wrote: »

The 800,000 appears in this article to suggest people in arears right NOW. Not just those having missed a payment at any point...

‘forbearance’, which means the owner has either missed a payment or made one late.

I think the first article is pretty clear.:)

They have now expanded the definition of "forbearance" to include even a single late payment.

!!!!!!.... Talk about desperate to create headlines.