Is the credit crunch really ending?

WTF?_2

phil_b wrote: »

Why does everybody refering to the average house-price/earning ratio just base things on one persons salary?

Most people buy a house with someone else, usually a partner. Person A earns 22k, they can get 4x their salary, they can buy an 88k house. They wont get very far... person B joins the party and they have a combined of maybe 40k. They can buy a 160k house. For that money they will get a good house.

Yes, only people doing quite well earning good money can buy a good house on their own, but why is that unreasonable? why should any 'ol bloke on the street be able to go and buy a nice house? It isnt our right to be able to afford a house.

You might be interested to know that traditional lending guidelines were 3-3.5x single salary or 2x-2.5x joint (depending on security of job), whichever was higher.

4x joint salary as in your example is very inadvisable. What happens if one of the couple loses their job for whatever reason? How about if they start a family? What if they split up?

It got to the point where it was requiring dual incomes, and even then at a stupid multiple, to buy a house. Just what sort of madness is it that young couples were putting off having kids so that they could afford the mortgage? That alone should tell you that the market was unsustainable.

fc123

!!!!!!? wrote: »

Best of luck - I hope the new business plan succeeds.

You're in the clothing biz, right? Is it true that clothes look set to take an inflation hit next, after food?

You mean go up?? Absolutely. This is a long one for those that are interested...,but I have the inside info STS............

I read (partly...it was hard work) the Fred Harrison book recently...and to precis...the essence of the book was that as a cost goes down (say in making the item) the land cost ie; the rent/cost to trade absorbs the reduced cost....therefore...cost of premises soars as margins have increased.

If I look back over the past decade with hindsight (a lot of I may add) this theory has def been true.

I know the ex factory prices of most of the clothing sold in the UK in the chains. Many have been achieving a X 15 mark up (eg ex factory cost ; £3.....end retail price in UK £45)

Without going on and on..years back a UK factory would produce item @ £5 ex factory and it would retail on the High St @ £13. These were the standard mark ups and all costs related to those sums.

They all moved offshore (sensible considering UK labour costs..the min wage killed off many factories as they used to pay on piece work...the min wage changed their rules....I'm not agreeing with this....it's just fact)

Primark set the cat amongst the pidgeons....the majority of their stock is cancelled orders (sold on at a loss by factory), leftovers and surplus colours (again offloaded at a loss) plus huge volume orders on basics whereby the factory will accept a micro profit per item just for continuity of work.
ABF (Primark) are applying the same principles to their pricing as Tescos did in the 70's / 80's.
This then creates a new benchmark of price (a low one) so teenagers (like my daughter) believe that it is normal for a top to cost only £2....anything over is 'expensive'.


Now we are in a situation where the UK is Overshopped ;way too much product out there for the population to buy and use.
It's the ' Too much Stuff syndrome'. To add to this, we can't afford to have enough space to actually store all the stuff......the rise of storage centres in the past 15 yrs backs this one up.

OH quoted fitted cupboards to a customer @ £3k...she decided the stuff wasn't worth the cost of the storage solution....so binned the clothes instead.

So....the deflating prices (but increased margins for most) plus the fast fashion trend....led to volumes being sold that were unthinkable 20 yrs ago.

However, Ms Average has hit a snag.......all this stuff is taking up too much space.....the mags are decreeing a return to purchasing in sensible quantities (all a load of journo twaddle I may add...but they have to have something to write about) combined with an increase in her monthly fixed costs (mortgage/rent, fuel, food) and she's becoming more discerning in her spending.
I translate it as buying less (not the fashionable dictat of buying 'better quality'.........it's all coming out the same factories anyway).

This has been showing for the past 12 months and the chains have to make up the shortfall in the volume sales......less volume so crank up the unit price.
Primark raised ALL their prices by 35% last summer but the impact of £6 for a dress rather than £4 was not particularly noticeable to their customers.

However, they are succeeding in wiping out a third of the Uk clothing sector (like the supermarkets did with food,yet now we realise they are not the cheapest for certain things and they have most of their suppliers in a noose)
plus Indie retailers are closing in droves. Not because they are cr#p (a la Mary Portas) but because their costs to trade are now too high.

So to conclude, clothing prices are going to have to climb to what they should be and I guess an increase of around 25% over the next year. The chains have got so used to making so much margin along with the volume that they are going to have to up prices to stay the same. A company like French Connection can cut costs intead...a lot of their stuff comes out of India; anyone can do the sums.


BUT, Mr China is wising up too. OH is sorting out a shopfit for a new chain backed by Chinese shoe mnftr....he wholesales to our friend who sells on to major UK chain. Mr China is getting !!!!!! off with their T + C's...so he's now able to bypass them and sell direct himself.



....and moi??? Well Ms Mad 'Makes in England'...own label
It's my USP and people understand what it's all about now.

The BBC prog 'Blood, Sweat and T Shirts' is fab. Shows it all as it is.

All you economist guys forget that trends come from inside, from a feeling and the populace can behave in a way that wasn't forseen in financial terms....but where I am, one can feel it happening.

fc123

Conrad wrote: »

As a mortgage broker I do not see credit losening for at least 12 months.

Lenders dont know where house prices are heading so it's caution all the way for now.
The BOE £50bn is earmarked for safe prime lending only. The point is the UK market had dozens of significant sub prime lenders until 12 months ago, yet now there are really only about 5 left lending.

People underestimate the size of the UK subprime / self cert market. I estimate 40% of all business was self cert or sub prime prior to the crunch and now only a small percentage of people in that market can access finance.

BOE must significantly reduc e rates if the mortgage / housing sector is to return to a semblance of normality, but the fear is ole Merv is way out of touch. I bet he doesnt even have a mortgage and has no real grasp on what life is like for those on the sharp end.

But the lending that has gone on the last decade wasn't NORMALITY.

It was the ,lost decade...the decade where someone like myself could have got hold of £500k's worth of tic / mortgage etc. (We didn't get that much but acquired enough without fully seeing what was happening at the time).
Also I posted before, you broker guys got a good innings.
Yrs back, one took out a mortgage and didn't change it unless one moved.

The brokers have earnt a bomb from all this churn and the fashion for fixed 3 yr deals etc.
The way things are done is chaniging again and things are not going to go back to normal.......they are going to be different.

chinagirl

Well, my DH heard an interesting point discussed on the radio last week. It was that, when the banks are indeed ready to lend money to the masses again, they will struggle to find anyone worthy of their credit. There will be so many people tainted with the brush of Defaults and CCJs that the only people left will be those with enough funds of their own, who do not wish to borrow anymore.What will the banks and moneylenders do then?

fc123

chinagirl wrote: »

Well, my DH heard an interesting point discussed on the radio last week. It was that, when the banks are indeed ready to lend money to the masses again, they will struggle to find anyone worthy of their credit. There will be so many people tainted with the brush of Defaults and CCJs that the only people left will be those with enough funds of their own, who do not wish to borrow anymore.What will the banks and moneylenders do then?

Retrain as ...um.....um...oh dear no industry left.

abaxas

People need to remember there are 2 seperate issues, the credit crunch and the misjudgement of risk. Most people assume they are the same.

The crunch will end and banks/etc will start lending freely again. However, expect to be paying the correct risk premium (rate/ltv etc) not the pre Sept 2007 one (none).

Annpan

MarkyMarkD wrote: »

brit1234's scaremongering is without foundation.

Whilst A&L and B&B may be the most closely related to NR, they are not actually "closely related".

NR were growing their lending hugely; A&L and B&B are not.

NR were hugely exposed to unsecured through "Together"; A&L and B&B are not.

And, anyway, NR's problems weren't caused by poor asset quality as is often, and incorrectly, reported. Their problems were caused by lack of funding which was in turn due to the global credit crisis, exacerbated by their poor strategy in seeking funding at the last minute rather than obtaining it for a sensible future period.

Lenders have also significantly tightened up on things like new build lending. I don't believe that there is lots of unprovided-for bad news there.

I agree that brit1234 is a bit of a scaremonger seemingly relishing in the thought of another bank collapse. Let's hope A & L and B & B come through ok for the sake of people with money invested.

brit1234

Annpan wrote: »

I agree that brit1234 is a bit of a scaremonger seemingly relishing in the thought of another bank collapse. Let's hope A & L and B & B come through ok for the sake of people with money invested.

Saversmoney up to £30,000 is protected. People with more than that have already been advised to spread to other banks in case of failure.

As for shareholders, that their fault. Shares go up and down. If they invest in a company that adopts unsustainable business then on their head be it.

Its not about scaremongering, its about understanding certain lenders have a far higher degree of risk than others. I find that these businesses saying everything is fine till the brink of collapse is a far worse moral position.:exclamati

Annpan

brit1234 wrote: »

Saversmoney up to £30,000 is protected. People with more than that have already been advised to spread to other banks in case of failure.

As for shareholders, that their fault. Shares go up and down. If they invest in a company that adopts unsustainable business then on their head be it.

Its not about scaremongering, its about understanding certain lenders have a far higher degree of risk than others. I find that these businesses saying everything is fine till the brink of collapse is a far worse moral position.:exclamati

Protected upto £35,000 actually. Hope you haven't been party to starting a run on A & L and B & B. Hopefully people won't be taking that much notice of your negative opinions without looking into it themselves. Hey ho

Pobby

Out of interest,I have a friend who is a mortgage brokes on the west coast of the USA.Overnight she has NO business,zero,zilch,didly squat!She was earning over£150k a year.

She is desperate to sell her home.Sadly during that period she saved nothing.Someone else who thought the part just ran and ran!