Why it will be worse than before...

Gorgeous_George

It is different this time

THIS crash is caused by the credit crunch and this is why low BofE interest rates will not/cannot save the day.

julz is about right except it is not a vicious cycle - it's a downwards spiral - no circles involved.

GG

tradetime

julz1982 wrote: »

Lots of points in there but this one stood out, actually as far as the bank is concerned you have not paid the bank back at all, you still owe them £100k, all you have done is serviced the debt for 17 years. This has not helped their lending ratio at all. They still have a £100k liability.

Ha ha, I did warn you I was neither an economist or an accountant That's fair comment, can see the logic of that. Although in fairness I was thinking more about the risks of losses by banks rather than asset : loan ratios. Regardless, I now understand your point and it seems valid.

julz1982 wrote: »

This is my point, every loan that was taken out to be paid back as interest only, will not be paying back the loans the banks made they will just be covering the costs. The banks need to have Assets of X to justify lending of Y (all banks have different ratios and i dont know them). They overlent and Y got way to big but they didnt mind as they thought X would cover it. It turns out X was in fact only worth x and its getting smaller all the time. Solution to keep ratios in tact and banks solvent is to reduce Y, but Y will not be reducing on any IO loans, Y will be the same. This is why the banks are instead making X bigger, through rights issues and Sovereign wealth funds.

Quite, as long as they can raise capital, survival would be expected.

julz1982 wrote: »

This is why the mortgage market is so tight and will only get tighter, and it doesnt matter what someone would pay for your house last year, if this year they will only be loaned 90% at 3x their earnings, thats what you will get for it today. In a few years time, once everything has shaken down, fundamentals alone will stop the decline, that will be when houses are affordable, at 3x earnings.

It is actually quite possible mortgages will get tighter, certainly they will get more expensive and banks will refocus their business to other areas. Given the BTL market is perceived to pose significant risk, if indeed this is true, it is in banks interests to make it more difficult for buyers, as someone needs to occupy all those rental properties so the mortgages can be serviced.

julz1982 wrote: »

All above is just my opinion, i have been wrong before and i will be wrong again, im not psychic, just making a prediction based on the facts as i see them. I see nothing that will stop the decline until then.

It seems a fair opinion, no-one knows how this will play out, even the financial sector doesn't know and they created the situation.

Generali

Just to make the point clear, for a bank the asset is the mortgage, the liability is the cash in the savings accounts they are lending and the house is security in case the borrower can't repay.

For the mortgage borrower the asset is the house and the liability is the mortgage.

The size of the banks assets don't change with the value of the house unless the borrower defaults.

Gorgeous_George

julz1982 wrote: »

Lots of points in there but this one stood out, actually as far as the bank is concerned you have not paid the bank back at all, you still owe them £100k, all you have done is serviced the debt for 17 years. This has not helped their lending ratio at all. They still have a £100k liability.

The bank may have £100K liability (or mortgage asset) - but it is not worth the same as £100K at the start of the loan. The debt will have reduced by the effects of inflation.

GG

amcluesent

The problem is easily solved. A political party will campaign on a policy of stealing money from anyone who has savings to give to those currently in distress. So long as more voters are in distress than have savings, the party will win. It's called democracy!

neverdespairgirl

Gorgeous_George wrote: »

To the optimist, the glass is half full.
To the pessimist, the glass is half empty.
To the engineer, the glass is twice as big as it needs to be.

Oy. GG. Your new sig. I made that joke a couple of days ago....

tradetime

Given the havoc that has been wreaked on the US economy in particular their financial system not to mention the rest of the financial world by the mortgage backed securities from the US, I posed the question on the savings and investing board as to what systemic risk our own mortgage backed securities may pose should we have a significant meltdown in the housing market. No-one seemed to know, or be willing to comment.
Recently I came across a chart, and knowing how much folks on here like charts, I thought I'd share it. I have not read the full report from which this graph is an excert, mainly because it costs about £25 and I don't really need to spend that money just to find out we're deep in the smelly stuff.

Essentially the article proposes that the hammering the US financial system has taken in the wake of the US property collapse is likely to be a mere blip compared to what may face Europe.
The study was done by a gentleman by the name of Alan Hall of Elliot Wave International


"Figure 5 shows total RMBS issues expressed as a percentage of GDP for nine countries. The U.K. still leads, but Ireland, the Netherlands and Spain also embraced the securities at the heart of the collapsing debt structure. Although Deutsche Bank and Societe Generale bought into the mania, Germany and France seem to have generally avoided direct participation. The surprise is the United States, which, when compared to Europe, looks like the epitome of fiscal conservatism. For this puny ratio the firm of Bear Stearns no longer exists? Either the 'subprime' debacle in the U.S. was much ado about nothing, or the havoc wreaked on the U.S. financial system and economy by a relatively low ratio of RMBS to GDP bodes far greater ill for much of Europe when their own bubbles burst."

Generali

tradetime wrote: »

Given the havoc that has been wreaked on the US economy in particular their financial system not to mention the rest of the financial world by the mortgage backed securities from the US, I posed the question on the savings and investing board as to what systemic risk our own mortgage backed securities may pose should we have a significant meltdown in the housing market. No-one seemed to know, or be willing to comment.
Recently I came across a chart, and knowing how much folks on here like charts, I thought I'd share it. I have not read the full report from which this graph is an excert, mainly because it costs about £25 and I don't really need to spend that money just to find out we're deep in the smelly stuff.

Essentially the article proposes that the hammering the US financial system has taken in the wake of the US property collapse is likely to be a mere blip compared to what may face Europe.
The study was done by a gentleman by the name of Alan Hall of Elliot Wave International


"Figure 5 shows total RMBS issues expressed as a percentage of GDP for nine countries. The U.K. still leads, but Ireland, the Netherlands and Spain also embraced the securities at the heart of the collapsing debt structure. Although Deutsche Bank and Societe Generale bought into the mania, Germany and France seem to have generally avoided direct participation. The surprise is the United States, which, when compared to Europe, looks like the epitome of fiscal conservatism. For this puny ratio the firm of Bear Stearns no longer exists? Either the 'subprime' debacle in the U.S. was much ado about nothing, or the havoc wreaked on the U.S. financial system and economy by a relatively low ratio of RMBS to GDP bodes far greater ill for much of Europe when their own bubbles burst."

With respect the graph is [EMAIL="!!!!"]!!!![/EMAIL]. Virtually every mortgage that isn't a 'jumbo loan' (jumbo loan = above $400k I think) and isn't sub-prime is securitised through Freddie Mac in the US. Whilst there may be a particular definition that gets around this (Freddie Mac loans don't count for example) it's a nonsense to imagine that US mortgages haven't been securitised in large numbers.

tradetime

Generali wrote: »

With respect the graph is [EMAIL="!!!!"]!!!![/EMAIL]. Virtually every mortgage that isn't a 'jumbo loan' (jumbo loan = above $400k I think) and isn't sub-prime is securitised through Freddie Mac in the US. Whilst there may be a particular definition that gets around this (Freddie Mac loans don't count for example) it's a nonsense to imagine that US mortgages haven't been securitised in large numbers.

Possibly, as I said I have not purchsed the study, amm not sure whether it makes any difference to your thoughts, to consider a) the price of property in the UK v US and b) translate that to the fact that the RMBS are extrapolated to a % of GDP, not sure how that compares currently but in 2006 the UK GDP was $1.93 trillion compared to US $13.13 trillion

Generali

neverdespairgirl wrote: »

It's not mere pedantry (not that I despise mere pedantry!) but there are significant differences between foreclosure and repossession in legal terms.

Would you explain the difference please?