2008 the year of UK subprime?

WTF?_2

danm wrote: »

This data backs up one of my previous ascertions on another thread that over a 10yr period, house prices have not fallen since the indices began.

i.e. If you are looking to buy now and hold for 10yr's, historical numbers would suggest you would experience house price appreciation. IMO if you are buying a 'home' this long term view is more importan than the "20% house price crash" messages that are thrown around.

Of course if you bought during the height of the eighties boom: "[FONT=arial,helvetica][SIZE=-1]house prices didn't regain their 1989 peak until 1997".

So for many people who bought at that time, it was over eight years before they saw their houses got back to the value they paid for them. It's not clear whether this takes into account inflation or they are just talking about nominal face values.

Given that we are now almost certainly at the peak of a massive boom in prices it doesn't make an awful lot of sense financially to buy. Unless it's a house you really, really must have and you foresee yourself living there for the best part of a decade and consider that it overrides financial concerns.


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hgllgh

danm wrote: »

Will the UK suffer the same arrears/default as the UK - UNLIKELY. Given the different lending practices and regulations, i think this is less likely. Compared to a typical US Sub-Prime borrower, a UK Sub-Prime borrower is a better credit risk and the way the products are structured as well as interest rates will have less payment shock effects.

But what are these different lending practices and regulations? Even with any different lending practices and regulations we still have 20% of loans in 2006 that
were either “subprime” or were “made to a homebuyer who offered no proof of income". (FT) ???

Also, why is a UK Sub-Prime borrower a better credit risk? Once again, there are no figures backing up what you are saying ...
"The British are deeper in the red than any other major economy. According to data from the National Institute of Economic and Social Research in London, the ratio of household debt to personal income is 1.62 in the U.K., compared with 1.42 in the U.S.."

danm wrote: »

Will this impact the banks in the same way? - NO. The size of the UK market and the way that these deals are structured when they are sold to the capital market means this is unlikley to the be the case. Only a fraction of the amount of US mortgage bonds are wrapped up in CDO's which is where the big problems were.

BUT, at the end of the day a bad loan is a bad loan is a bad loan. Either the lender or an investor is going to take the hit?

danm

Although there were obviously unscrupulous brokers, the UK did not see the same kind of predatory lending that the US has experienced. Minorities and immigrants have not been targeted and as far as i know loans are not pushed to peope whom the salesman knows will have no chance to make the repayments once the loans reset onto reversionary rates. (in some cases these rates were double)

I agree that a bad loan is a bad loan and someone will take a hit, but this is the risk (and therefore presumably priced into the underwriting decision). My point was more that we are not going to see the astounding loss numbers from the banks that we have been seeing as due to the US crisis as the UK market is not so highy leveraged.

danm

!!!!!!? wrote: »

Of course if you bought during the height of the eighties boom: "[FONT=arial,helvetica][SIZE=-1]house prices didn't regain their 1989 peak until 1997".

[FONT=arial,helvetica]So for many people who bought at that time, it was over eight years before they saw their houses got back to the value they paid for them. It's not clear whether this takes into account inflation or they are just talking about nominal face values.

[FONT=arial,helvetica]Given that we are now almost certainly at the peak of a massive boom in prices it doesn't make an awful lot of sense financially to buy. Unless it's a house you really, really must have and you foresee yourself living there for the best part of a decade and consider that it overrides financial concerns.[/FONT]


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but if in ten years time i am confident that the asset will be worth at least what i paid for it, does it make financial sense to spend Circa. £100,000 on rent with nothing to show for it at the end?.......i don't know. We're back to the buy vs rent debate

WTF?_2

danm wrote: »

but if in ten years time i am confident that the asset will be worth at least what i paid for it, does it make financial sense to spend Circa. £100,000 on rent with nothing to show for it at the end?.......i don't know. We're back to the buy vs rent debate

The asset should have increased in face value by at least an amount corresponding to inflation or you have lost out in real terms.

What I would be looking at is "could I buy this asset in 6-12 months time for less money that it costs today"? Right now the answer is most likely to be Yes for most UK properties.

Really, it's a no-brainer to not buy at or near the top of a bubble unless you have good reasons to do so (ie. got an especially good deal).

Just 'wanting' to own a place isn't a good reason to buy at the moment IMO. There will always be houses around for sale and the choice will be better once the market starts to see the foolish amateur investors bailing out in numbers.

hgllgh

danm wrote: »

but if in ten years time i am confident that the asset will be worth at least what i paid for it, does it make financial sense to spend Circa. £100,000 on rent with nothing to show for it at the end?.......i don't know. We're back to the buy vs rent debate

But that scenario is never going to bear out in reality because if the price of the asset is only worth in ten years what i pay for it now that means there will be a reduction in price before it gets back up to the same level. so buying is going to resume when the feel prices are at acceptable levels (or rather when prices can be supported by "credit crunch" lending). So say it takes 3 years to reach the bottom. That may or may not be £30,000 in rent, but, you may have saved £30,000 off the nominal price and therfore saved £60,000 over the term of the mortgage, so you are £30,000 richer... :money:

BoilerBoy

If people are dumb enough to believe that rates will stay low forever and that the conditions in which rates could rise to a point they could no longer afford their mortgage, then they have been very naive.

Thankfully, by and large our banks (bar one or two) did put the mockers on irresponsisble lending during the salad days of 2004-2005. That's why the crisis won't hit as hard here as in the US. Secondly, the sub-prime crises is worst in areas that are experiencing mass unemployment in the US. The rust-belt and some southern states - that have historically always have been able to support themselves through industry, have been decimated by the prolioferation of prosperity of eastern manufacturers in this sector. Unlike the UK, whose evolving tertiary sector has softened the blow of the death of manufacturing, teh US buried their head in the sand and hoped it would all go away. Their banks were no different and followed suit - lending masses of cash to people with unstable, part-time or no steady employment at all. It looked good on their balance sheets once upon a time.

You only have to visit that part of America to see first hand why they're in such a mess. And, generallly speaking, their ignorance of the situation is frightening. A former colleague of mine who works on the east seaboard still believes China to be a 'flash-in-the-pan', but he wonders why he can't sell his house. He's quite a bright guy, but his ignorance is astounding.

That's not to say everything is rosy in the UK. The weakening pound and investements uncertanities will mean everyone's belts will have to tighten as we repay our gluttonous debts, and what I call the 'IVA culture' will soon become a more widespread share of the populus. Things won't be pretty here - it would be difficult to say otherwise - however to suggest the crisis will be anywhere near that being experienced in the states in a huge exaggeration.

kingkano

I can't honestly agree it will be anything like the US. They were giving out mortgages to blank application forms, that means no credit check not even a check to see if the person borrowing existed!! No real affordability checks.

The UK has had self cert, higher income multiples and affordability stuff, but definitely no 'un-named blank application' mortgages. For the most part people's payments won't be skyrocketing quite as much as the US ones were, and they will be free to move lenders 'for the most part' unlike the US (as I understand).

It will be interesting to see what happens nonetheless. I can't see interest rates rocketing for the near future?

pink_muppet

I agree with Kingkano, I doubt Interest Rates will go through the roof like they have in the past, yes they may climb again even substantially but I believe they will be kept under much tighter control than they have in the past to avoid a recession

I also don't believe house prices will crash, yes I suppose in real terms they may not rise at the same rate as inflation for the forseeable future and I agree people who are buying property to make a quick buck are mad in the current climate, and in some areas that have seen massive rises in the short term may see a dip but the difference now is that we have relatively high levels of employment meaning people won't be forced to sell their homes

I understand many people may be caught out by fixed rate deals ending etc and you will always get some people that will sell cheap as they are desperate to sell but generally I think most sellers who don't absolutely need to sell will reject low offers or just take their houses off the market

I completely agree that high house prices don't help anyone, except us with a mortgage that want to move on! (and not to make money but to just have enough equity to buy another house!)

My house is currently valued at £225k, I bought it for £170k in 2004 and it is a large 4 bed detached in a nice village, if I listen to the doom mongers, my house may be worth £100k in 3 years time, but why will it?, it would only be worth that if I chose to sell it at that price which I would never do as I would be in negative equity, I think at least 70% of mortgagees would feel this way so choose not to sell, if this happened the market would collapse as nobody except the unfortunate few who couldn't afford their mortgages would be selling their houses

People who are currently renting hoping that in a few years they will be able to buy a house that is currently valued at £200k for half that price will have to search very hard for a bargain, I think it's more likely that house will still be worth around the £200k mark

the days when you could buy a 3 bed semi for £40k I'm afraid are long gone unfortunately, houses prices will never drop back to those levels, the economy would collapse if it did

dolce_vita

Pink muppet.
All I can say is you are in for a shock.



Oh.........And a lesson in how economic cycles work.
(so it's not all bad)