A REAL Mortgage Crisis Coming?

Generali

kingkano wrote: »

A true gent thanks very much. :beer: (I was hoping I had remembered it right lol)

70% of 70% I make to be 49% so yah.

Also, the figure of 70% of 70% is of people of working age. I'd expect more retirees to have paid off their mortgage.

gingin_2

Can someone please explain to me (and excuse my ignorance), what exactly the banks are doing to high risk customers in general who are looking to remortgage? What if I had a 95% ltv and mortgage was at 5x my income multiple and I needed to remortgage in the next 2 months? When I read on the Mortgages board, the offers coming through still seem quite low (say going from a fix of 4.5% to 7%) given the risk in the current economic climate.

Also, if house prices do fall say 20% in 2 years time (or more) and I borrowed at a LTV of 95% 6 months ago and need to remortgage, what will happen?


I accept that these questions might be lame but I do have to say that I this is not my situation and I just hear conflicting news as to what is /will /might happen.

ixwood

Generali, what's your take on the whole credit crunch/contraction? Will it have serious long terms effects, or just blow over?

With countless dodgy financial derivitives and insurance and ratings buisness still unwinding, it seems a complete mess with long term consequences.

exil

sarkin wrote: »

HERE YOU GO. NO MORE LENDING TO NEW CUSTOMERS WE ARE CLOSED FOR NEW BUSINESS

News: Company News
21 February 2008
Breaking News
A&L to scale back mortgage offering

Alliance & Leicester (A&L) is retreating from the mortgage market after revealing it had suffered £185m losses in the wake of the credit crunch, knocking 30% off last year’s profits.
Following the news of the losses, shares slumped to a record low of 428p yesterday and were 472p at the time of going to press. The problems have forced the bank to cut back its lending, with Chris Rhodes, finance director and acting chief executive, revealing A&L would concentrate on keeping its existing customers during the coming year rather than seek out new borrowers by offering market-leading mortgage rates.
In yesterday’s trading statement, Rhodes commented: “We expect net new mortgage lending to be negative this year. We expect to concentrate on customer retention."
Danny Clarke, equity analyst at Shore Capital, said A&L was effectively pulling out of the mortgage market as it shifted its focus towards its funding. He added: “It is another example of dislocation in the market. I think it is probably the correct strategy. As a consequence of protecting what they have, A&L’s mortgage books will contract as they change focus. They are dependant on the wholesale markets and will not be as active as they have been.”
Clarke said lender had to focus on pulling back lending unless the markets opened up again. He added: “If that happens I feel they will revert back to their lending strategy of last year but it is unlikely the market will be the same once things do get moving again.”

Which is not the same as saying they are closed to new business. In fact

http://www.alliance-leicester.co.uk/mortgages/index.asp?page=home&ct=primarymenu

That doesn't look like "closed to new business" to me.

Generali

ixwood wrote: »

Generali, what's your take on the whole credit crunch/contraction? Will it have serious long terms effects, or just blow over?

With countless dodgy financial derivitives and insurance and ratings buisness still unwinding, it seems a complete mess with long term consequences.

The trouble is with predictions is there's nothing quite as hard to predict as the future.

A few takes on what might happen (most opimistic to least):

1. It all blows over in a year or so. There are losses but the point of securitisation is that they are spread widely and so a lot of people lose a little money. Even the $14,800,000,000 that UBS has reported isn't that much compared to the money that flows through their books each decade. Modern companies' use of small inventories also means that investment and employment levels are kept up to roughly where they are now. It may be that much of that investment comes from new sources (eg. Sovereign Wealth Funds) rather than pension funds and banks as at present.

2. A few minor banks face runs as happened in the 70s. Liabilities are taken on by governments and GDP growth is pushed down a little as funds available to borrow for productive investment fall. Short recessions in the US and Europe as companies are forced to retrench. People lose their jobs and in many cases they face reposession as a result.

3. The money has to be repaid. If consumers have to repay their debts (rather than merely service them) over the course of the next few years then a pretty nasty recession is likely to ensue, possibly coupled with deflation as consumers have to reduce their spending not only to fall into line with incomes but to below their incomes to repay sums borrowed. The economies of Asia will be badly hit too at this point. Worldwide recession results. This is the point at which things get bad.

4. No. 2. happens plus a return to protectionism led by the US. Consumers will have to pay more as they are forced by their governments to buy goods produced locally rather than cheaper (and often better) imports. That's when real incomes start to be hit hard and it will really hurt given the benefits of globalisation that most have had recently.

5. No 3 plus No 4. A depression results that will be written about 70 years from now in the way that 1930s America is today.

6. It's worse than that. A big investment bank goes bust and the interconnected derrivatives contracts are impossible to unwind. The rest of the financial structure is taken out and the world's financial system grinds to a halt. We return to agrarianism and half the world's population is dead in 2 years.

Frankly, I feel that 1-6 is also the order of how likely things are to unwind. Never vote for protectionism, no matter how seductive it sounds. It's worth remembering that there are many shades of grey between 1 and 6 too. We can go from 1 to 1.1 or 1.6 rather than from 1 to 2.

No matter what the outcome, I can't see any way that house prices can't be a lot lower in 5 years time than today. You can also add in to the mix the retirement of baby boomers who are likely to want to turn assets into cash or at least safe and income generating investments. The most valuable asset most baby boomers own is their family house which can be sold for a smaller place.

We'll see though. We live in Interesting Times.

Feel free to question me on this as I try to keep it brief and so lose clarity sometimes.

epz_2

Generali wrote: »

6. It's worse than that. A big investment bank goes bust and the interconnected derrivatives contracts are impossible to unwind. The rest of the financial structure is taken out and the world's financial system grinds to a halt. We return to agrarianism and half the world's population is dead in 2 years.

even i with my apocaliptic leanings refuse to belive a banking system going t!ts up could take out the food supply in the west which has roughly 0.5% of the population producing most of the food it needs anyway, most of the big areas in the rest of the world lets be honest aint that far off agrarianism at the moment.

personallly i would quite like the idea of a clean slate start society with a work or die attitude but if i recall in the 70s oil crisis people did 3 day weeks and were perfectly happy except for the lights going out and public sector strikes.

Generali

epz wrote: »

even i with my apocaliptic leanings refuse to belive a banking system going t!ts up could take out the food supply in the west which has roughly 0.5% of the population producing most of the food it needs anyway, most of the big areas in the rest of the world lets be honest aint that far off agrarianism at the moment.

personallly i would quite like the idea of a clean slate start society with a work or die attitude but if i recall in the 70s oil crisis people did 3 day weeks and were perfectly till the lights went out.

TBH I wanted to put a 'tin hat brigade' option in there hence the final view - I don't think that's a likely outcome by any means. Given the interconnectedness of things and very short stocks of most things in the supply chain it would be interesting to see what happened if the financial system that allows a lot of that to be done went belly up.

I understand that the general thinking in UK Govt is that we're 2 days away from bread riots if supply chains are cut.

ManAtHome

epz wrote: »

in the 70s oil crisis people did 3 day weeks and were perfectly happy except for the lights going out and public sector strikes.

Depends ow long people can manage without overtime and bonuses (and possibly part salary) - wasn't the same level of debt to service then.

SquatNow

Can I add my prediction:

By late summer 2008 large numbers of people will have moved in government run temporary accomodation located at community centers and disused airfields.

The current problems are ramping up towards breaking point. Once the watershed is past, noting will be out of bounds for the government.

If you're thinking of going bankrupt, do it now. Pretty soon you wont be allowed to due to the risks of large numbers of people declaring themselves bankrupt and destablising the banking system.

It's a one way street folks... we walk down it to the camps or we break the law and fight are way back the other way.

subjecttocontract

Should I stock up with tinned food just in case ?