2008 the year of UK subprime?

hgllgh

Why is it that the UK always seems to be a year behind the US?

The whole sub-prime meltdown in the US only begin to appear around summer of 2007 when borrowers began to come off their 2/3 year fixed rate deals.
This is when the defaulting began on masse.
With 1.4 million UK mortgages expected to be in the same position from early this year will this will be a similar subprime trigger that was pulled in the US in 2007?

If this is true then the effects of the UK subprime losses will be gaining momentum from around summer 2008 and will be biting hard at the end of the year as lenders start to "write down" their UK subprime losses?
Being a year behind the US will give the BoE a head start but will lowering interest rates make a difference? (The Fed lowered rates but to no avail)
If UK property is 50% more over valued than the US (ABN Amro) maybe its already too late for the UK regardless of interest rates?

WTF?_2

hgllgh wrote: »

Why is it that the UK always seems to be a year behind the US?

The whole sub-prime meltdown in the US only begin to appear around summer of 2007 when borrowers began to come off their 2/3 year fixed rate deals.
This is when the defaulting began on masse.
With 1.4 million UK mortgages expected to be in the same position from early this year will this will be a similar subprime trigger that was pulled in the US in 2007?

If this is true then the effects of the UK subprime losses will be gaining momentum from around summer 2008 and will be biting hard at the end of the year as lenders start to "write down" their UK subprime losses?
Being a year behind the US will give the BoE a head start but will lowering interest rates make a difference? (The Fed lowered rates but to no avail)
If UK property is 50% more over valued than the US (ABN Amro) maybe its already too late for the UK regardless of interest rates?

I think people are already feeling the fallout from buying in 2005 after the interest rate drop in August of that year and this can only get more pronounced into the medium term as prices started to really rocket after that.

Irrespective of interest rate levels today, many couldn't even afford to buy at the level the rates were back in late 2005 ... but the two year 'teaser' rates made it seem affordable. Now, faced with full SVR they simply can't afford to repay. The ones at the moment are lucky as they should have enough equity in their property to secure a remortgage even in the current climate.

As time goes on, the amount of equity available goes down from the resetters because they purchased at higher and higher prices. This makes refinancing tougher and more expensive anyway. So, even setting aside the whole 'credit crunch' thing, unless prices return to rocketing upwards like they have been over the last few years then those people simply can't afford to pay the mortgage, irrespective of interest rate cuts.

That's why the end of rampant house price inflation spells doom - it was a bubble, people, and once bubbles stop inflating, they pop.

hgllgh

!!!!!!? wrote: »

Irrespective of interest rate levels today, many couldn't even afford to buy at the level the rates were back in late 2005 ... but the two year 'teaser' rates made it seem affordable. Now, faced with full SVR they simply can't afford to repay. The ones at the moment are lucky as they should have enough equity in their property to secure a remortgage even in the current climate.

Agreed ... the only way for lenders to gain market share at high price levels was to market the teaser rates (combined with the ridiculous decision by the MPC to lower interest rates to 50 year lows) otherwise it would have been unaffordable and the bubble would have probably started popping back then.

But, you think that the 1.4 million mortgagees will be able to remortgage in the current climate?

Paul_N_4

I posted this a few weeks back when Working Lunch done a bit on sub-prime mortgage products here in the UK. This is what was shown:

Mortgage products on the market in July 07:
Sub Prime: 8148
Prime: 3803

Mortgage products on the market now (Nov 07):
Sub Prime: 2961
Prime: 3500

So many lenders were still dishing out sub-prime products right up to the summer last year, which would suggest our own fall out from sub-prime could last well into 2009 as the cheap 2 year special rates come to an end.

Also interesting is that there were MANY MORE sub-prime based mortgage products out there than 'ordinary' products, which arguably suggests they have been the more popular product. Also that over 60% of the sub-prime mortgage products were taken off the market when the US proved they were, for the most part, loss making products.

So how heavily dependent on sub-prime business were the lenders in the UK, and will the huge reduction in sub-prime products reported by the BBC, have a big impact on demand for housing? I guess we shall see over the next couple of years.

dolce_vita

As Bob Dylan once said "you don't need a weatherman to know which way the wind blows"

Just drive around a local (ex) council estate and count how many 20-30k cars you see parked outside the houses. That will tell you all you need to know.

hearts

dolce_vita wrote: »

As Bob Dylan once said "you don't need a weatherman to know which way the wind blows"

Just drive around a local (ex) council estate and count how many 20-30k cars you see parked outside the houses. That will tell you all you need to know.

I sussed it with the ref to Dylan....is the answer Drug Dealers ;-)

lynzpower

But w2ont it all be resolved when the BOE reduce to 4% next year? :wall:

Possetjohn

lynzpower wrote: »

But w2ont it all be resolved when the BOE reduce to 4% next year? :wall:

I wonder.....?,
Potential interest rates cuts are talked up a lot but a lot of things are driving inflation again (weakening pound, energy prices.....)

Mr Brown is likely to resort to his usual tools again (hiding behind the BoE of course)

hgllgh

ok, so no one has disagreed with my OP... what we are seeing now in the UK is exactly the same process that unfolded in the US last year and led to the credit crunch and US housing crash. So we can expect the same in the UK this year as 1.4 million mortgage holders come out of the 2/3 year fix ...

hearts

hgllgh wrote: »

ok, so no one has disagreed with my OP... what we are seeing now in the UK is exactly the same process that unfolded in the US last year and led to the credit crunch and US housing crash. So we can expect the same in the UK this year as 1.4 million mortgage holders come out of the 2/3 year fix ...

Hold on there m8y ;-) I don't agree with your original post. I don't expect the impact in the UK to be anywhere near what happened in the US. I think lending although lax here was a lot worse in the US. From what Ive read they would basically lend to anyone who asked. Working or not. At least here there were some checks and although the multiples were, in hindsite ridiculous there is still not going to be the fallout we have seen there. Especially with the likely Interest rate falls.

KITCHEN1_2

I also disagree.

The UK housing market has it's own issues ,but they're not that directly similar to the US in terms of sub prime.
You're going to get a lot of opinions on this subject, but there won't be many backed up with hard data, because it's hard to come by.I suspect you will have problems even getting a definition of what exactly is "sub prime".
The UK is overleaveraged and oversupplied in some areas of property investment, inarguable and typical of boom misallocation ,but regulation here has not allowed the extremes of abuse I have had related to me by contacts in the US.

I'm not bullish on property in the UK ,but I'm also not as inclined to look at the US and make an assumption that what we see there will be replicated here. This kind of psychological searching for repetitive patterns is full of investment blind alleys.