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

chucky

wotsthat wrote: »

Rather than worry about a journalists interpretation of what the FSA did or didn't say why not look at the BOE financial stability report from December 2011 from where the numbers come from.

http://www.bankofengland.co.uk/publications/Documents/fsr/2011/fsrfull1112.pdf Page 30



Some scary stuff but immediately we see that 8%, rather than 5% - 8%, is journalists preferred number (better headlines?). Arrears would have been 1.7% without forbearance or about half the arrears of the early nineties.

The poor guy also doesn't understand that any mortgage that goes into forbearance swicthes to an interest only loan, so that is why he's getting confused between the difference numbers in repayment mortgages and interest only mortgages.

The bigger shame is that when it says up to 8% he thinks it has to be exactly 8%. Not a surprise really.

wotsthat

Graham_Devon wrote: »

Half the arrears of the early nineties, with interest rates what, 2000% higher than they are now?

Can't compare simply on arears while ignoring the biggest factor there is.

We can compare - that's exactly what the FSA and BoE have done. If we don't compare data over time we end up a single data point and it gets a bit mumsnet with no context applied to that single point of data. It also means you can't see the direction of any trend.

It would be nice to know how many loans of the early nineties were subject to forbearance. That might add another layer of context. Clearly it would have been called being treated sympathetically at the time.

The data's difficult and even the BoE say that the 5% - 8% is only a suggestion rather than a statement of fact.

Talking of mumsnet were mortgage holders really paying 2000% more in interest in the early nineties? The average mortgage rate now is 3.5% so that would make the average rate 70% in the early nineties.

chris_m

wotsthat wrote: »

Talking of mumsnet were mortgage holders really paying 2000% more in interest in the early nineties? The average mortgage rate now is 3.5% so that would make the average rate 70% in the early nineties.

2000%? I think the person who stated that must be mathematically challenged or is a statistician who likes juggling calculations to get a good headline figure - the old "lies, lies and damned statistics" trick.

The most I think I paid in the early 90s was around 12%, approximately 3.5x what the average is now - say 350%.
The difference, though, would only be 8.5%, therefore roughly 2.4 times the current average or 240% more than now.

Emy1501

How do these figures compare to 2008,2009 and 2010? Rates are only going to one way now and therefore if the problem has got worse over the past 3 years then it's going to be a problem going forward. If its improving then the hope will be that people are sorting out their financing before a decent jump in rates.

sabretoothtigger

I remember you could get 10% on your savings, I think the base rate was even above that briefly. It was great for savers at the time

chucky

Emy1501 wrote: »

Rates are only going to one way now

Rates can stay the same or go up, I count that as 2 different ways. Your math is slightly skewed I believe.

DannyRadclif

Graham_Devon wrote: »

Don't shoot the messenger.

http://www.thisismoney.co.uk/money/mortgageshome/article-2139370/NIESR-warns-zombie-families-kept-afloat-cheap-mortgages.html

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

The 21st C slave - chained powerlessly to a mortgage on a house that isn't worth half its supposed value.

It's not wealth it's debt. The only wealth created from it is the bonuses that bankers get from the mortgage interest on all those larger mortgages. You cannot spend your house and when you sell the next one just costs more.

This can't be the country any of our Grandfathers fought for. These "zombie" families cooked their own selfish geese. Time to make this market correct and learn from a better generation that rewarded hard work rather than hard debt.

Yes it will be hard when the market corrects and there will be many repossessions, but we have been through these cycles before and we will again.

DannyRadclif

sabretoothtigger wrote: »

I remember you could get 10% on your savings, I think the base rate was even above that briefly. It was great for savers at the time

It wasn't long ago I was getting 7%, on a fixed rate savings that went well into the 0.5% rate slash. It has come to an end now so I am buying bullion because there is nowhere else to store wealth safely.

N1AK

Graham_Devon wrote: »

Don't shoot the messenger.

http://www.thisismoney.co.uk/money/mortgageshome/article-2139370/NIESR-warns-zombie-families-kept-afloat-cheap-mortgages.html

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

The article seems pretty scare-mongery to me. It starts by claming changes in house prices are a cost/benefit to owners, which in most cases is irrelevant. If all cars dropped in vaue by 50% I'd be chuffed because I could buy a better new one next time

The stats on forbearance are pretty fluffy and the zombie households label is basically made up nonsense. It's saying that everyone who would struggle to keep their house if interest rates rose (to an unspecified level) and couldn't renegotiate with their bank is a zombie household. They could potentially be called high leveraged or at risk, but zombie is just a cool sounding, yet irrelevant, term.

I'd struggle to pay the mortgage if the IR increased to 30% and the bank wouldn't let me extend the payment period. Where do you draw the line?

DannyRadclif

N1AK wrote: »

The article seems pretty scare-mongery to me.

The future of the global financial crisis is pretty scary to me.