Renters pushed to breaking point as Britain's selfish homeowners gloat their hands

CLAPTON

mwpt wrote: »

Yes, and why? What caused the event in the first place? Stupidly high and reckless lending. But you advocate more lending.

Mortgage rates should never have been allowed to fall so low. Deposit requirements should have eased, and salary multiple checks enforced but perhaps not so stringently. My view is that this would have allowed house prices to fall to levels more supported by the underlying asset fundamentals, allowed more people to borrow and buy. Now instead we see prices pushed up by absurdly cheap credit, but fewer people able to afford the deposit or the salary multiple checks. That's what cheap credit does.

(and yes, lack of supply)

the 'event' that caused the 'problem' in the first place happened in the USA and by the banking system

it had nothing to do with the UK mortgage market

HAMISH_MCTAVISH

mwpt wrote: »

Yes, and why? What caused the event in the first place? Stupidly high and reckless lending. But you advocate more lending.

Hang on....

Neither UK mortgage lending nor UK house prices caused the global financial crisis.

UK lending had the square root of naff all to do with the troubles that UK banks faced, even Northern Rock, with the worst of the worst of UK mortgage books, wasn't brought down by non-performance of it's loans and in fact the the old NR 'bad bank' loan book made over a billion pounds profit last year alone.

UK banks lost £15 on overseas mortgages for every £1 they lost on UK mortgages, and most would not have needed a bailout at all if they had just stuck to British lending.

Of all the memes circulated elsewhere, the most pernicious is that somehow our troubles were caused by overlending in the UK.

It is complete and utter nonsense.

mwpt

HAMISH_MCTAVISH wrote: »

Hang on....

Neither UK mortgage lending nor UK house prices caused the global financial crisis.

UK lending had the square root of naff all to do with the troubles that UK banks faced, even Northern Rock, with the worst of the worst of UK mortgage books, wasn't brought down by non-performance of it's loans and in fact the the old NR 'bad bank' loan book made over a billion pounds profit last year alone.

UK banks lost £15 on overseas mortgages for every £1 they lost on UK mortgages, and most would not have needed a bailout at all if they had just stuck to British lending.

Of all the memes circulated elsewhere, the most pernicious is that somehow our troubles were caused by overlending in the UK.

It is complete and utter nonsense.

The last crisis was caused indeed caused by stupidly high and reckless lending. The world response was to lower rates and encourage even more debt to stimulate economies. I would prefer we did not go further down that path.

Cornucopia

mwpt wrote: »

The last crisis was caused indeed caused by stupidly high and reckless lending. The world response was to lower rates and encourage even more debt to stimulate economies. I would prefer we did not go further down that path.

Myth.........

HAMISH_MCTAVISH

mwpt wrote: »

The last crisis was caused indeed caused by stupidly high and reckless lending. The world response was to lower rates and encourage even more debt to stimulate economies. I would prefer we did not go further down that path.

Oh dear.... You really did buy into the hpc hype.

Why did we have a financial crisis? And why has the recovery been so slow?

Ask any normal person these questions, they would probably blame the banks. But then world-weary "experts" - policy makers and commentators - would usually step forward, to put them straight.

"The banks made mistakes", these wise heads will say, "but really it's all our fault, for running up so much debt. We all had a binge, and now we have to pay."

It's an excellent morality tale, which chimes well with the British tendency towards self-flagellation.

There's just one problem.

It's not really true.

http://www.bbc.co.uk/news/business-17398014

The fact of the matter is that UK banks did not get into trouble because of UK residential mortgage lending, on the whole, lending to UK residential customers was prudent and sensible.

Even in 2007, the average loan for first time buyers did not exceed 3.5 times income, and the CML stats are easily searchable if you don't believe me.

There were a number of reasons UK banks got into trouble, but irresponsible lending to UK residential mortgage holders, or the performance of UK residential loan books, were not among them.

dktreesea

ruggedtoast wrote: »

You seem to think that everyone renting a house is a twenty something surrounded by iPhones and used tickets to Magaluf.

There are plenty of working people renting in London in their thirties and forties who simply cannot buy and are stuck with the private rental sector to provide them with a family home to have kids in before they get too old.

I'm not convinced that's the case. They probably could buy, if they cut back and saved like mad. But they may have to move further afield.


I've rented this place for over a decade. It's cost me no more in rent than it would have in interest, I haven't had to pony up for any of the building maintenance over the years (.e.g. nearly £10k per flat to repair the roof and chimneys), or the building insurance. The one single main advantage though, is I have been able to live in this flat without funding a penny in capital contributions. The capital appreciation? I couldn't care less. I would have needed a £250k mortgage to buy this flat or one like it. No thank you.


I've had my fill of mortgages over the years. Yes, you make money when you sell but you need all of it to buy the next property. And in the interim, that's £1,000 a month that the house, via the bank, has guzzled for itself instead of being available for you to spend and enjoy.

HAMISH_MCTAVISH

dktreesea wrote: »

I've rented this place for over a decade. It's cost me no more in rent than it would have in interest,

I have been able to live in this flat without funding a penny in capital contributions. .

That's extremely unusual if true.

The average rental yield in the UK is around 5.5%. The average mortgage interest rate is around 3%.

The house I live in now is costing me 2.5% mortgage interest, and if I chose to rent it I could achieve a yield of around 8%. The rent would be around 50% higher than the total cost of a full repayment mortgage including both capital and interest.

Versus the alternative of renting a similar property, my house pays me very well to own it, even without capital gain.

PixelPound

mwpt wrote: »

I don't understand how you can justify this statement. Credit isn't a natural right. I take the opposite view and say that the next global crisis will again be caused because of the absurd high levels of debt, particularly (again) mortgage debt, pumped up by low rates.

One way to find out, wait

That's more because of people wanting to buy as big a house as they can, rather than what they need. What we have is FTB struggling to raise deposit, and this be the defining or limiting factor. The MMR is supposed to stress test, does it? Banks seem to me more eager on ensuring they can get money back through LTV limitations than really looking what applicants can afford through rate rises.

mwpt

HAMISH_MCTAVISH wrote: »

Oh dear.... You really did buy into the hpc hype.

http://www.bbc.co.uk/news/business-17398014

The fact of the matter is that UK banks did not get into trouble because of UK residential mortgage lending, on the whole, lending to UK residential customers was prudent and sensible.

I never said it was in the UK.

princeofpounds

The fact of the matter is that UK banks did not get into trouble because of UK residential mortgage lending, on the whole, lending to UK residential customers was prudent and sensible.

Whilst I am not here to disagree with your assertion that UK banks lost most of their money as a result of bad foreign assets - simply because I haven't examined that claim - I have to point out that this is only a fraction of the picture.


Bank failures do not happen simply because of the asset side alone. You can have a fantastically resilient mortgage book and still fail if you do not have enough equity or you have too much short term debt.


For those not familiar, equity is basically the cushion of capital that takes the profits of a bank but also take the first losses. It is the part of the capital owned by the shareholders of the bank. It is the main reason that deposits seem like such a safe investment.


For example, depending on your definition of equity, Northern Rock had Assets:Equity ratios of 40-80x. To put it bluntly, that is insane. A 'normal' bank might be something like 10-12x these days (although there are still plenty around with higher).


What this means, at the 80x level, is that just 1.25% of all mortgages need to go bad for the entire equity of the bank to be wiped out. The panic starts at a much earlier stage than that!


The point being - regardless of whether UK mortgage or US mortgage lending was good, bad or ugly, the failure of the bank can be entirely home-grown. Blaming foreign lending is a bit like blaming a strong wind when you've built your house out of straw; even a breeze would have been enough.


A similar point can be made about short term financing, which is another way a bank can fail. Banks typically lend long-term but raise money short-term, on the assumption that not everyone wants to take out their money at once. Statistically for a safe bank (which it wasn't) this tends to be true for customer deposits.


But if you start to access wholesale funding as well (from other financial institutions) that is much less reliable - these institutions have more options and tend to cut and run more quickly when they sense trouble. It is also very 'lumpy', so a lot of financing can walk out of the door in one go.


Northern Rock financed about 75% of its balance sheet via this route towards the end. 'Normal' banks tend to think things are getting tight with more than 10-15% from this source. So a similar point can be made to the lack of equity.


The reason I go to the trouble of mentioning all of this is that I think the myth that it's all the fault of foreign lending is a dangerous one, even if it was the major source of the first losses.


It might be a major source of where the trouble started, but:


- It's certainly not where the trouble stopped; British mortgages may not have started the trouble, but they surely didn't perform well afterwards.
- It's not like the nasty foreigners pushed these mortgages on our banks. These banks acquired these mortgages themselves, as part of their business.
- The asset side is only a small part of the story. Some of our banks were primed to fall over at the slightest hint of trouble.