There will not be a crash

jamescredmond

like most of joe public, I pay the mortgage on the property that provides me with a family home and don't involve myself in the minutiae of the housing market.

that is, until just recently.

studying some of the posts re subject, I then started to scan the dedicated sites in the hope of shedding some light.

guess what.

all I've unearthed is a lot of confused and contradictory hot air coming from experts in the field who seem unable to find anything remotely resembling 'concensus'.

IMHO, for what it's worth, the all-deciding factor is 'affordability' i.e. historically low int.rates (thanks to the previous poster who provided data on this) and low unemployment.

I read of the no. of mortgagees who will come off the fixed-rate deals at some point this year and who will doubtless feel the pinch.
but I'm unclear as to what proportion of the market, in percentage terms, the fixed-rate deals represent.
if the figure is relatively low and if people can continue to meet their mortgage obligations (assuming int.rates remain more or less static), then doesn't it follow that mortgagees will simply baton down the hatches and sit tight, while ftb'ers will struggle to find property due to restricted supply and stricter lending criteria? (taking repo's/btl'ers off-loading out of the equation).

if this scenario is correct then it would follow that the term 'crash' should be replaced by 'stagnation'.

err.. I think...

BobProperty

PasturesNew wrote: »

1] Mention has been made of the last crash and repossessions. The BTL lending as it is did not exist back then. The current BTL lending was a result of a change in the law in 1996 (?) when ASTs were introduced; this meant that banks would not be stuck with sitting tenants devaluing properties by 50%. So somebody spotted this and approached the banks saying "look, they're short term renters, you can repossess and get them out in a few months" and the gravy train set off.

Correct. Though I'd actually say lenders changed their policy to match the changes in the tenancy law. Prior to 1996(?) all the loans I had for property were "commercial".

PasturesNew wrote: »

2] Some people are confusing residential mortgages with BTL lending. BTL lending is a commercial loan and has the ability to be recalled quicker and more ruthlessly than residential mortgages. Residential mortgages/real people are dealt with more sympathetically and there are rights. With BTL it is simply a defaulted transaction that needs to be addressed; there's no fair/unfair about it.

We wait to see how lenders will treat this. In some cases it could get like the US where there's no point in repo'ing the property as it's dropped so much in value. Check some of the recent auction results for city centre flats, there's been stuff sold at 50-60% off previous prices.

PasturesNew wrote: »

3] While I do not dispute the existence in (all?) BTL contracts of a clause requiring the borrower to maintain their LTV, I'd like to see two things, especially from Squattie:
3a] A number of links to well known BTL organisations where the clause can be seen by all
3b] Links from reputable landlord/property/mortgage websites where people were experiencing this problem and were being asked for a top up cheque and were on the boards asking for help; these posts should be from people who actively posted on those boards prior to 31/12/07 as some measure of authenticity and whose history can be seen (if anybody cares to) reading back through their BTL journey to the point where they've suddenly been hit with the letter.

Don't hold you breath.
3a] None
3b] None
Would be my likely answers.

The_Dangerman

fc123 wrote: »

Off topic but you are a hetero bloke of 23 ...so lots to learn.

Some tips;
1; 1st date in an old Escort. Go Dutch.
2; 2nd date " .....offer to pay all but accept half if offered.
3; 3rd date " ......pay all.

When you are sure that she fancies you not the car...pick her up in it.
I wish you luck but 2 decades time.....who knows...plus don't assume good health can be maintained by avoiding fags and trotting to the gym.

My Hubby went stone deaf (a hereditory disease) at age 40...super fit bloke. Had op so ok now BUT you never know what is around the corner.
Enjoy being 23

My bro had an Aston...2 years later he has a very high maintenance wife and couple of babies. She judged him by the car....not quite how real life turned out.

Who says I'm looking for a relationship

And your hubby is a perfect example of why it's important to live for now, to some extent. It's all well and good having a eye for the future, and I do too, but not much good if you drop down dead next week.

The_Dangerman

Laughing_Man wrote: »

Having read this thread I fell compelled to post even though I have nothing of merit to contribute.

Those that are arguing with dangerthingy, did you seriously expect to persuade him that anything could go wrong in the property market, or the small part of it he claims to own? He was only looking to stroke his ego.

This country, well its population anyway, has alot invested in its housing stock, both literally and figuratively. We all need this housing boom to have really been about supply and demand, not cheap credit and speculation. We need BTL to be a legitimate investment strategy that can outperform a traditional pension, in which only a very few have invested poorly. We definately need a soft landing to be a plausible outcome for a bubble this big, despite what may have happened or be happening elsewhere. Or as a worst case we need to able to believe that a crash, if it comes, will only affect a very small number of us in a limited sort of way; that such a huge upswing means we can't have far to fall. Because the alternatives to these views are too dire to contemplate. So most people will insist these things are so with no real interest in conflicting information.

I'm not claiming any special knowledge for myself about this and I won't bother with facts or figures or even my own opinion (although I think you can guess what it is). I only ask those that agree with the statements above: have you truly, objectively, dispassionately evaluated the entire range of information available to you? Or do you believe merely what you need to?

Well and truely stroked :rotfl:

The last point you made I agree with 100%. Many desperately HOPE there will be a crash, because they want a house, ignoring the positives of high employment, low interest rates, more households being created than houses being built, etc.

HelpWhereIcan

Generali wrote: »

Even that's the wrong way round, the inability of Americans to pay their mortgages caused the credit crunch.

The linkage went thusly:

1. Traditionally in the US people bought on a fixed rate for the life of their mortgage. ....

... Please note, nothing burst the bubble as such. What we are experiencing is the impacts of the bubble bursting.

As a 'Vested Interest' (I previously thought I could only have vested interests, I did not realise I could be one :rotfl: ) I'm afraid to stick my head above the parapet and point out some other differences in the US and UK mortgage markets (as opposed to housing) but...

1. The US market still has (had?) such a thing as a 'negative amortisation' mortgage which has not been seen in the UK since the 90s. This meant that people would take out a mortgage, repay only part of the interest (so not even interest only) with the 'shortfall' being added to the mortgage and increasing the debt to be repaid at a later date (hence the name in the UK "deferred interest mortgages"). This compounded many people's problems in the US as their debt was increasing making the possibility of negative equity higher when their house failed to increase in value or fell.

2. The US had ridiculous 'teaser rates' of 1% - 2% which were given to adverse credit borrowers - people obviously hit the siht when their rate rose to 'standard levels' and the credit crunch was biting.

3. It was not unusual to see lending of 50% of net income in the US, whereas in the UK the highest was generally 45% of gross income.

4. The US had of lending at 100% to people with adverse credit - very rare to get more than 90% here (although people with only one or two, possibly older than 3 years, defaults or small CCJs could get 95% here).

5. Contrary to popular belief NINJA mortgages do not exist here in the same way as the US and self cert criteria and LTVs here were generally lower than those available in the US.

Despite what people may claim, the US lending market and the UK one are very different in terms of regulation and policy. Although we are the closest in the world to the US model, we have still not been quite as reckless.

We are in for a Rocky ride, but may not exactly mirror the US.

As a property investor myself I really would like to see some falls - better yields, cheaper properties and more distressed sales I can beat the STRs and (unfortunately) FTBs to. I just don't want to see Armagaedon.

brit1234

RE "Despite what people may claim, the US lending market and the UK one are very different in terms of regulation and policy. Although we are the closest in the world to the US model, we have still not been quite as reckless."

I have to disagree with that. We have be lent far for multiples of salary at higher interest rates than thew US. Our house prices are far more overvalued than the US combined with huge buy to let investor portfolios based on interest only mortgages we have been more than reckless.

We are looking at 40-50% falls based on todays lending standards.

Generali

As you say HelpWhereICan, things are different heer from the US but we have several factors which are likely to cause economic problems which are likely to cause falls in house prices (and problems with the real economy I suspect) in the UK:

1. Lack of long-term fixes. Hardly anyone in the UK takes out a long-term (or full term) fixed rate mortgage. As a result, almost everyone with a mortgage is likely to find that their mortgage payments are going to increase substantially if they haven't already.

2. Credit crunch. This is the biggie. Banks are suffering huge losses and are writing off billions of $ each quarter. Note that we haven't even got to the maximum point for ARM resets yet, that comes in May of this year (IIRC) so that means that this credit crunch is likely to go on for another year or more yet. Less and less money is going to be available to lend which will impact on house prices (people won't be able to borrow so much so won't be able to bid up prices); consumption (consumption financed on credit will be much reduced, Goldman Sachs is advising their clients to sell their shares in Tesco even) and investment (businesses will find it tougher to borrow to invest which will mean fewer new projects and so less employment).

3. Despite incomes being higher in the US and taxes much lower, house prices are substantially higher in the UK. I read about Ben Bernanke's house being worth $800k odd. Do you reckon Mervyn King lives in a 3 bed in Clapham, what he could get in London for the same money?

HelpWhereIcan

brit1234 wrote: »

I have to disagree with that. We have be lent far for multiples of salary at higher interest rates than thew US. Our house prices are far more overvalued than the US combined with huge buy to let investor portfolios based on interest only mortgages we have been more than reckless.

We are looking at 40-50% falls based on todays lending standards.

http://www.mortgagestrategy.co.uk/cgi-bin/item.cgi?id=159541&d=pnd&h=pndh&f=pndf

How did the US mortgage lending industry get to this point?.... Irrational exuberance that petered out after the internet stock bubble migrated to the mortgage sector, as home prices skyrocketed and consumers used their home equity as piggybanks to fund vacations, second homes and buy-to-let purchases.

http://www.mortgagestrategy.co.uk/cgi-bin/item.cgi?id=148731&d=pnd&h=pndh&f=pndf

Lenders in the US have been aggressively and successfully targeting high risk borrowers in recent years. High LTV borrowing of 100% and above, coupled with relaxed criteria, has led to sub-prime borrowers obtaining loans without laying down deposits or verifying their income.

To put this in context, can you imagine what would happen if specialist lenders in the UK offered 100% mortgages with no income verification to sub-prime borrowers? You'd expect a huge rise in new lending, followed shortly by a sharp spike in arrears. It's a classic boom and bust scenario and it's happening in the US right now.

http://www.mortgagestrategy.co.uk/cgi-bin/item.cgi?id=156714&d=pnd&h=pndh&f=pndf

The government should not bail out delinquents because that would reward ignorant home buyers who were told by their brokers they could afford $500,000 houses in California even if they earned just $50,000 a year.

:eek:
http://www.mortgagestrategy.co.uk/cgi-bin/item.cgi?id=156001&d=pnd&h=pndh&f=pndf

In the US, premiums are have been given to brokers who sell mortgages at rates higher than those offered by the lender.
For example, a broker could sell a mortgage of $100,000 at a rate of 6.25% even though the lender is offering $100,000 at 6%. If the broker did this he would be paid a cash rebate based on that extra .25% or $1000.

http://en.wikipedia.org/wiki/Debt-to-income_ratio

In the U.S., for conforming loans, the following limits are currently typical:

Conventional financing limits are typically 28/36.
FHA limits are typically 31/43.[2]
VA limits are only calculated with one DTI of 41. (This is effectively equal to 41/41, although VA does not use that notation.)

Nonconforming loans
Back ratio limits up to 55 have become common in recent years for nonconforming loans. The recent spate of defaults by subprime borrowers may produce a market correction that revises these limits downward again. However, how large the adjustment will be remains to be seen.

talksalot81

pickles110564 wrote: »

Sorry to have to *iss on your matches but house prices not falling in our area, still solid employment, our company taking on new staff for £28k per year with no previous expierence, salary goes to £35k after 3 years as long as you have got a good service record.They can do overtime to boost salary to £40k plus and all they need is a clean driving license.

I dont know where exactly you are from, but the figures you quote are not typical. Even with doctorate level education, in my part of the country, one will be very very lucky to get the salary you quote. Beyond medics, legal professionals and the fortunate financial services professionals, there are literally handfulls of people earning this much.

HelpWhereIcan

Generali wrote: »

As you say HelpWhereICan, things are different heer from the US but we have several factors which are likely to cause economic problems which are likely to cause falls in house prices (and problems with the real economy I suspect) in the UK:

1. Lack of long-term fixes. Hardly anyone in the UK takes out a long-term (or full term) fixed rate mortgage. As a result, almost everyone with a mortgage is likely to find that their mortgage payments are going to increase substantially if they haven't already.

2. Credit crunch. This is the biggie. Banks are suffering huge losses and are writing off billions of $ each quarter. Note that we haven't even got to the maximum point for ARM resets yet, that comes in May of this year (IIRC) so that means that this credit crunch is likely to go on for another year or more yet. Less and less money is going to be available to lend which will impact on house prices (people won't be able to borrow so much so won't be able to bid up prices); consumption (consumption financed on credit will be much reduced, Goldman Sachs is advising their clients to sell their shares in Tesco even) and investment (businesses will find it tougher to borrow to invest which will mean fewer new projects and so less employment).

3. Despite incomes being higher in the US and taxes much lower, house prices are substantially higher in the UK. I read about Ben Bernanke's house being worth $800k odd. Do you reckon Mervyn King lives in a 3 bed in Clapham, what he could get in London for the same money?

I agree. There are things in the mortgage market that point to a downturn in prices and that the credit crunch is the major one.

UK resets I agree have yet to peak and some will suffer because of that. However, the 'Reset Shock' here in the UK is generally lower than in the US where average LTVs have been higher, teaser rates have been very low in recent years and where some have been on negative amortisation mortgages.

Just because I find myself somewhere between Assetz Plc and cgnao in my outlook for the housing market, does not mean that I don't agree there are dark days to come!!!