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  • FIRST POST
    • Former MSE Helen
    • By Former MSE Helen 13th Mar 12, 12:58 PM
    • 2,324Posts
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    Former MSE Helen
    'The UKs mortgage ticking time bomb' blog discussion
    • #1
    • 13th Mar 12, 12:58 PM
    'The UKs mortgage ticking time bomb' blog discussion 13th Mar 12 at 12:58 PM
    This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.





    Please click 'post reply' to discuss below.
    Last edited by Former MSE Helen; 13-03-2012 at 1:01 PM.
Page 1
    • Mobeer
    • By Mobeer 13th Mar 12, 9:47 PM
    • 1,792 Posts
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    Mobeer
    • #2
    • 13th Mar 12, 9:47 PM
    • #2
    • 13th Mar 12, 9:47 PM
    What would be interesting would be to know how many borrowers (or what proportion) switched from repayment to interest-only to avoid repossession. I suspect the real time bomb is many many people on interest-only having no means to repay when their mortgage becomes due for repayment.
    • tgroom57
    • By tgroom57 14th Mar 12, 8:05 AM
    • 1,371 Posts
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    tgroom57
    • #3
    • 14th Mar 12, 8:05 AM
    • #3
    • 14th Mar 12, 8:05 AM
    The banks won't lend big sums and they aren't interested in lending small sums. What are they lending ?

    • Percy1983
    • By Percy1983 15th Mar 12, 11:51 AM
    • 4,994 Posts
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    Percy1983
    • #4
    • 15th Mar 12, 11:51 AM
    • #4
    • 15th Mar 12, 11:51 AM
    I suppose this the problem when an emergency low then becomes the 'norm'

    In many respects the long its left the worse the pain so surely the answer is lets just get it over with.
    Have my first business premises (+4th business) 01/11/2017
    Quit day job to run 3 businesses 08/02/2017
    Started third business 25/06/2016
    Son born 13/09/2015
    Started a second business 03/08/2013
    Officially the owner of my own business since 13/01/2012
    • smala01
    • By smala01 15th Mar 12, 2:51 PM
    • 153 Posts
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    smala01
    • #5
    • 15th Mar 12, 2:51 PM
    • #5
    • 15th Mar 12, 2:51 PM
    This of course benefits those who refused to pay over inflated property prices, and hence continued to rent or bought a smaller house.

    Those who considered historical norms and concluded that a mortgage might become unaffordable in the future, and hence continued to rent or bought a smaller house.

    Those who financially planned for children or the eventuality of a redundency, and hence continued to rent or bought a smaller house.

    Martin: by your tone we should have all said "what hell" over indulged in the biggest mortgage we could get and then expect the government to come and bail us out.
    • wymondham
    • By wymondham 15th Mar 12, 4:02 PM
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    wymondham
    • #6
    • 15th Mar 12, 4:02 PM
    • #6
    • 15th Mar 12, 4:02 PM
    In many respects the long its left the worse the pain so surely the answer is lets just get it over with.
    Originally posted by Percy1983
    Indeed, but the Government is trying everything possible to draw this process out (supposedly fixing things!), but making it ultimately much worse.
    • oldvicar
    • By oldvicar 16th Mar 12, 4:27 AM
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    oldvicar
    • #7
    • 16th Mar 12, 4:27 AM
    • #7
    • 16th Mar 12, 4:27 AM
    One vital piece of DIY self help is missing from Martin's list:

    STOP TAKING ON MORE DEBT: If you can't easily afford a big hike in your mortgage costs, as well as the extra spending or new loan for a shiny new car/kitchen/bathroom/whatever then dont do it, don't take out another loan because you know it will end in tears. If you can easily afford both, then STOP, don't do it - instead save up from your excess income before making the purchase.

    It shouldn't surprise anybody that mortgage rates will go back up at some stage, that has always been a certainty. The 'time bomb' effect is that some people have foolishly ignored the fact, and will suffer far more than they otherwise needed to by loading up on extra spending commitments and/or more debt. It's summed up nicely in Martin's blog as:

    Rising bills dont simply flick back into place like elastic. The pain of increased costs out-balances the joy from when they fell. People have re-jigged their finances around new lower rates and locked into other commitments.
    by from Martin's Blog
    It used to be called profligacy.

    [/end_sermon]
    • torbrex
    • By torbrex 16th Mar 12, 4:51 AM
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    torbrex
    • #8
    • 16th Mar 12, 4:51 AM
    • #8
    • 16th Mar 12, 4:51 AM
    What can I say but "Ah didums"

    It is the low interest rates that are encouraging people to take on debt that they can't afford and if they are stupid enough not to foresee an increase in interest rates then tough.

    It is time that the BoE and the government realised that low interest rates do not reduce debt, rather, they increase the actual amount of debt owed by saying that borrowing a larger sum than needed is easier than it used to be.

    I took my mortgage out in 1992 when base rates were at 8% and (I think) my interest rate for that was 11%, it would seem that those days are largely forgotten. I had to think long and hard about whether to take on that debt and I had to plan ahead for other possible demands on my income such as car breakdowns, house maintenance and, as today, possible job loss.

    If anything the banks should be putting their borrowing rates up by more to stop people taking on more debt than they can afford and help put a stop to the spiral of debt this country has got itself into.


    (sorry for the rant/ramble)
    Last edited by torbrex; 16-03-2012 at 4:55 AM.
    • shortchanged
    • By shortchanged 16th Mar 12, 10:01 AM
    • 5,416 Posts
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    shortchanged
    • #9
    • 16th Mar 12, 10:01 AM
    • #9
    • 16th Mar 12, 10:01 AM
    What is amazing though is how many people think high house prices are a great thing. Of course these are the property speculators and investors.

    What this country badly needs is to get out of the notion that property is an investment and see it for what is simply is, a place for people to live.

    The governments need to start thinking about ways to make property much less attractive to investors be a it a hefty tax on property flipping for example and above all do not let the banks go back to the days of loose lending, ever.
    Why are we here?......................because we are not all there.
    • wozearly
    • By wozearly 17th Mar 12, 12:23 PM
    • 202 Posts
    • 210 Thanks
    wozearly
    If anything the banks should be putting their borrowing rates up by more to stop people taking on more debt than they can afford and help put a stop to the spiral of debt this country has got itself into.
    Originally posted by torbrex
    If the problem is that people take on more debt than they can afford, raising the cost of debt isn't necessarily a good solution.

    It might lower the amount of debt they take on, and some people might now decide not to because the higher price is unaffordable or puts too much risk on their finances, but its analogous to raising the price of alcohol to encourage people to drink responsibly. It looks good on paper, but the reality is that people may drink slightly less (but just as irresponsibly) or will reallocate spending from other things - the main beneficiary of artificial price rises is always the seller, not the consumer or wider society.

    If the aim was to restrict borrowing, mandating stricter criteria on who could borrow and how much they could borrow would be more effective. But there's not likely to be much appetite for the government to do this in the mortgage market where there's already a shortage of buyers and housebuilding because of lack of availability for finance.

    That would leave the only available recourse to housebuilders and sellers being to drop their prices to what buyers can actually afford. Not necessarily a bad thing, but it would trigger problems with negative equity and the government getting blamed for pushing people whose debts were previously fine into a situation where they're now "trapped in their homes".
    • michaels
    • By michaels 21st Mar 12, 10:41 PM
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    michaels
    How may top economists or politicians predicted the credit crunch (and I am not talking predicting a property price crash), and the huge structural changes in the lending market.

    You could have sensibly borrowed 80% ltv at 3% income and chosen a 5 year fix but have bought a property that has fallen in value by 13% and now rather than being able to remortgage instead be stuck on an svr 5.5% over base. I don't think anyone could have predicted that situation. So even if you had worked out that at 10% base rate with an svr at 12% you could pay the mortgage no one could have predicted that they might be facing an svr of 12% with base rates at only 6 or 7%.

    Lots of people are being hit by this who have not made any of the mistakes that the property bears seem to think caused the crash and were just unlucky that they chose the prudent option of a fix rather than the more risky tracker option.
    Cool heads and compromise
    • samizdat
    • By samizdat 22nd Mar 12, 5:59 PM
    • 396 Posts
    • 147 Thanks
    samizdat
    Martin, I think you are missing an important point, which is that banks themselves are facing higher funding costs, and that the sort of margins over Base Rate that were charged in the decade or so leading up to the Lehman collapse reflected an era of unsustainably cheap funding. That was why we had a crisis!

    There was a huge supply of mortgage finance, predicated on the idea of ever-increasing house prices, and borrowers who apparently could never default, even if they didn't even have a job at the time of application! Self-cert, liars loans, and a whole industry of brokers whose only job was to churn people through an ever-expanding bubble of debt.

    Of course mortgages were cheap! Those times have gone forever, and we should all be thankful for that, because as we now know it was just unrealistic, and did not fairly reflect the true risks of lending against property.
  • fahmeeda52
    1st time going for mortgage
    Hi Friends

    Me and my mrs thinking to go for the mortgage? We don't know any thing about mortgage. This is our 1st time plan to buy a house on mortgage.

    We live in Easter London Beckton. We both are working in Asda. I am a manager & my Mrs is a Baker. Our annual income is around 40 to 45 k. Our age is in between 38 to 40.

    Could you please guide us about how mortgage works, how to go for it, which is a best mortgage for us. And do you know any good mortgage broker or adviser?

    We both really appreciate your help & guidance in this matter.

    Thanks
  • Mozette
    Not so much that People have re-jigged their finances around new lower rates and locked into other commitments. more that the low mortgage rates have helped to alleviate the increases in food and fuel and transport and so on; a lot of people have static pay or pay cuts, and the idea of "building up a war chest" is a lovely thought, but what with?
    And houses still cost a ridiculous amount, but rent only goes one way. Damned if you do, damned if you don't.
    Until the tory policy of making the poor poorer and the rich richer stops, much of an increase will be a disaster for a lot of people.
    • HAMISH_MCTAVISH
    • By HAMISH_MCTAVISH 11th Feb 14, 9:01 PM
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    HAMISH_MCTAVISH
    Timebomb defused...

    Mr Carney and his MPC colleagues will not return to Mervyn King's policy of institutionalised, formal silence on the direction of interest rates.

    I expect him to say on Wednesday that he expects interest rates to remain at their current low levels for some considerable time. And to repeat that as and when they do rise, they will not return to the levels we took for granted as normal in the boom years.

    He will continue to signal his conviction that the price of money will remain historically cheap for years to come, because the massive indebtedness of the UK means any recovery would be snuffed out by interest rates that only six years ago we would have regarded as unexceptional.
    Or as Robert Peston just put it....

    "A one-eyed monkey could look at the Bank of England's new forecast for inflation and confidently predict that interest rates will remain low for some time.”
    http://www.bbc.co.uk/news/business-26145697
    The great enemy of the truth is very often not the lie deliberate, contrived, and dishonest but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.
    -- President John F. Kennedy
    • shortchanged
    • By shortchanged 11th Feb 14, 9:31 PM
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    shortchanged
    But won't this massive indebtedness never go away if we continue to have a low interest rate economy, because all a low interest rate economy will do is encourage people to take on more debt? Is that the master plan?
    Why are we here?......................because we are not all there.
    • HAMISH_MCTAVISH
    • By HAMISH_MCTAVISH 11th Feb 14, 10:04 PM
    • 26,462 Posts
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    HAMISH_MCTAVISH
    But won't this massive indebtedness never go away if we continue to have a low interest rate economy, because all a low interest rate economy will do is encourage people to take on more debt?
    Originally posted by shortchanged
    Correct.

    Which then further limits the ability to raise rates.

    Is that the master plan?
    No... just economic reality.

    Ultra-Low rates are in all probability here for the very long term.
    The great enemy of the truth is very often not the lie deliberate, contrived, and dishonest but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.
    -- President John F. Kennedy
    • shortchanged
    • By shortchanged 11th Feb 14, 11:56 PM
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    • 8,597 Thanks
    shortchanged
    Problem is Hamish is that people are going to start demanding higher wages before long as the economy recovers and then there will be the resultant inflationary pressures. What are the options then?
    Why are we here?......................because we are not all there.
    • HAMISH_MCTAVISH
    • By HAMISH_MCTAVISH 12th Feb 14, 4:30 PM
    • 26,462 Posts
    • 60,800 Thanks
    HAMISH_MCTAVISH
    people are going to start demanding higher wages before long as the economy recovers and then there will be the resultant inflationary pressures.

    What are the options then?
    Originally posted by shortchanged
    To raise rates.

    But with increasing wages, and an economic recovery putting more people back into work, rate rises are not a problem.

    And while base rates will rise, they won't rise quickly or by very much.

    As Ed Conway noted today....

    The main message of todays Inflation Report is that the Bank of England wont be lifting interest rates anytime soon.

    However, the supplementary message is that when rates do rise, itll happen very gradually.

    And they wont get high for a long, long time.

    Indeed, while before the crisis a normal level for rates might have been 5%, the new normal is likely to be closer to 2.5%.
    http://www.edmundconway.com/2014/02/what-todays-inflation-report-means-for-you-and-your-mortgage/

    And don't forget, in addition to this, it's been made pretty clear by the BOE previously on a number of occasions that they expect mortgage margins above base rate to reduce when base rates finally do rise.

    Or as Mervyn King put it to the Treasury Select Committee, when base rates rise "the spread between the bank rate and the rates banks charge would undoubtedly narrow".

    So to recap, base rates staying low for a long time, and only rising gradually when they do rise, the new normal for rates likely to be 2.5%, and mortgage margins above base to shrink.

    Not much of a ticking time bomb..... More like a damp squib.
    The great enemy of the truth is very often not the lie deliberate, contrived, and dishonest but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.
    -- President John F. Kennedy
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