Mortgages and the economy

#1
I am a middle class home-owner with a mortgage, job, kids etc - in short, one of millions of productive members of society contributing to the economy, and bearing the brunt of recent economic woes.

Now the banks are scrabbling to protect themselves. You may say "fair enough" but this is leaving many in the lurch when the problems are due largely to irresponsible lending and short-term profit chasing. You won't see bank executives foregoing their bonuses (although HBOS executives did buy a shedload of their own company shares....it would be nice to have that option!). My mortgage is nowhere near the upper extremity of what we could have got, but rates have increased and things are getting tight. Some unfortunates may well lose money on their homes in the long run...after the raid on pension funds and the closure of final salary schemes, many say property as the best investment vehicle.

So what can those of us in this position do? Wait on the inept government to do something? Fat chance! Something occured to me today:

What if a good proportion of mortgage holders withheld one month's payment in a co-ordinated protest? What would the impact on cash flow be? Could householders hold banks - and the government - to account if things get really tight?


http://news.bbc.co.uk/1/hi/business/7325692.stm

More mortgage deals are withdrawn

First Direct says it is worried about maintaining levels of service
More banks have withdrawn mortgage deals following First Direct's decision to suspend its entire range.

The bank, which is part of HSBC, said the withdrawal was to allow it to cope with the unprecedented demand for its range of mortgages.

The Co-operative Bank appears to have had the same problems and has withdrawn its two-year mortgage deals.

The US investment bank Lehman Brothers is also withdrawing from the UK mortgage market.

Its Southern Pacific and Preferred Mortgages will stop taking new business at the end of the day.

First Direct stressed that it is only temporarily ending mortgage offers to people who are not already its customers.

Many providers have withdrawn mortgages or raised interest rates this year, leaving some smaller banks and building societies unable to cope with demand.

First Direct says applications have been five times its usual levels.

"The flood of interest in our mortgages has meant we're taking longer than we'd like to handle applications, especially from people who are not existing customers," said First Direct chief executive Chris Pilling.

"Rather than increase interest rates dramatically to discourage new applications, we've decided to withdraw temporarily from offering mortgages to non-customers until we've cleared the backlog."

According to Moneyfacts, mortgage products on offer have fallen by 20% over the last week.

As a result of the continuing credit crisis, the interest rates at which banks lend money to each other are, unusually, far above the Bank of England's base lending rate.

And the banks are finding it much more difficult to raise money from credit markets for mortgage-backed securities.

That has made it uneconomic for some institutions to carry on offering mortgages and thousands of products have been withdrawn already this year.

Figures on Wednesday showed the number of new mortgages approved for house purchase fell slightly in February to just 73,000. This figure was 39% lower than the same month a year earlier.

Raising rates

First Direct is the first bank to withdraw its entire range to non-customers, although the Bath and Earl Shilton building societies took the same step last month.

Last week, the Nationwide building society, one of the UK's biggest mortgage lenders, raised its interest rates significantly on new fixed and tracker deals.

It said this was both because of the increased cost of raising the funds and the need to cope with demand.

Many other lenders are demanding bigger deposits with mortgages of 100% or more of a property's value having all but disappeared.

Although the number of first-time buyers and other house movers has been falling, more than a million people will see their short term fixed rate deals expire this year.

As a result, they are starting to look around to find a better deal from other lenders, as well as their existing one.

The situation has been made worse by the near-collapse of the Northern Rock.

What was the UK's busiest lender last year has now withdrawn from the market, leaving many of its customers looking for another lender.

David Hollingworth, of the mortgage brokers London and Country, said First Direct had taken a drastic step to cope with demand.

"It's been topping the best-buy tables for quite some time now. As a consequence, they have been clearly attracting a lot of interest from borrowers," he said.

"What we have seen elsewhere in the market is a continual leap-frogging of rates where lenders have been re-pricing upwards. That leaves another lender exposed to being very competitive and they receive a deluge of new business.

"That's what has been driving up rates in recent months," he added.
 
#2
If sufficient people were willing to withhold the money and take the risk of being the ones to be made example of, it might. But then again, you only have to look at how quickly the whole bank charges rebellion was quashed to see how quickly the politicos rally to protect the money-men.
 
#3
It wouldn't work. They'll always find a way of squeezing more money out of you. A mate of mine in the mortgage industry says they are all pulling mortgage products faster than he can keep up. Another mate in the city tells me today that its already gone into melt-down. The banks make no secret of that fact that they are taking cheap money from government and keeping their rates up for Joe Public to bolster profits. I feel a tad sorry for those whose only way onto the ladder was a 100%+ mortgage because now their fixed term is up, nobody will touch 'em with a barge pole. They are the first houses that will get repossessed. I think it's fairly clear that the only way the banks can make up their losses from their own greed is by milking you and I . . regular people with a job and bank account. I'm switching my accounts over to a building society . . at least I'm a shareholder that way.
 
#4
Boring Rant about New Labour/ old Tory values...

Unlike everyday solid type objects which you can buy in shops, and have a rarity/production cost value, Houses, Shares, Futures ect have a "percieved" value
For example about 5 years ago British Energy who operate Power stations had their share value drop to a level lower than the Transfer fee for Dave Beckham meaning that his Percieved value was greater than the demand for electricity in the UK.
If it costs £50,000 to build a house (excluding the cost of the land) then common sense would dictate that when finished the house is worth £60 to £70,000 when sold, But no the percieved value is much higher and when peoples perception changes it could drop lower.
What has happend to mortgages is that houses are overvalued by as much as 50% the building societies do not understand this but the people who lend the building societies money to lend to you, do.
These main lenders have decided that the property market needs to be cooled down because the additional money flowing into mortgages is being spent on short term value items like Cars and lifestyle.
So. your house is not going to be worth enough to pay off your debts which means you are going to have to work harder,
The only good thing to come of this, is that we might see some of the Parasites who have Buy to Let mortgages go to the wall.
With any luck a few banks will go as well and force the Government to nationalise housing and we can go back to calling "Property investments" Homes again.
The blame for this falls directly on Council Right to Buy policies which inflated the long term housing market, and using the remortgage available to buy junk.
We did have a manufacturing based economy, now its a financial services one...
This government has yet to learn that if you dont make stuff to sell, you starve
 
#5
The Sage of Omaha, Warren Buffett, has made vast amount of money by investing in businesses that he considered to be cheap compared to their real long profit earning and cash generating value, ie their intrinsic value rather than their perceived market value.

"In the short run, the market is a voting machine. In the long run, it's a weighing machine."

Same applies to property: after the hyped up voting machine property bubble, when now weighed in the balance found seriously wanting.

Scary that reports today suggest that unsecured lending and credit card balances are shooting up as people try to fund themselves now that cheapo mortgages and equity release schemes are done for. That is exactly what happened in the US last year.
 
#6
MrPVRd said:
I am a middle class...
Slightly off thread but what makes someone middle, upper or working class? Is there a set criteria? Or are you trying to make yourself look cleverer than the rest of us?
 
#7
Once again the headless chickens are running around predicting the end of the world, yes life in the mortgage business is going to be tough for a bit till the full costs of lending too much to the wrong people is known, then life will slowly return to normal. When I bought my first house back in the late 60s mortgages were hard to find, most building societies would anly lend to people who had been saving with them for a year, some expected you to save for even longer, and on top of that the biggest loan you coulkd get was 90% and that was only for government employees and profesionals for the vast majority 80% was tops. On top of that you then had to wait, 6 months in my case for the money to come through, though bridging was possible if you had the guaranteed letter of offer.

I suspect over the next 6 months we will have a few more scares, some justified and some not as the banks sort out just how stupid they have been.

Yes the banks directors will not become paupers overnight though I do suspect that many will be a lot less well of than they used to be and some will become unemployable in a bank again. That of course will not satisfy those who bay for their blood, many of whom of course will be those who borrowed more than they should have because they were greedy and now want to oload the blame for their own greed.
 
#8
MrPVRd said:
My mortgage is nowhere near the upper extremity of what we could have got, but rates have increased and things are getting tight.
I have highlighted two parts of your post as they illustrate a useful lesson that has been largely forgotten. The lesson is quite simply that before taking out a mortgage conduct a proper affordability estimate. Doesn't take long - how much do I want to borrow and, if rates rise to their long-term average (7- 8%) or slightly above, can I still afford to pay the mortgage. If you can't, regardless of the rate you have been offered, then the mortgage is unaffordable as tyhe risk is too great.

The problem is that many people have chosen to ignore this risk and will now, unfortunately, have to pay the price. A useful lesson re-learned, however.
 
#10
#11
Blogg said:
tomahawk6 said:
Shouldnt have gotten an adjustable rate mortgage. Always always get a fixed rate mortgage.
True but problem now is that people are coming off 2 or 3 year fixes and getting a big uplift on current payments.

In terms of a long term fixed rate, Woolwich Mortgages are offering a 10 year fix at 5.29%. Downside is that maximim loan to value is 60%

http://www.barclays.co.uk/woolwich-...ooglebrand&WT.mc_id=76484535559102-&WT.srch=1
Very much a sign of the times, at an LTV of 60% the risk of negative equity is low so you get a good rate because you are as good as gold plated security for the loan. Good low risk borrowers will become like gold dust for the banks and they will get good deals because they will need lots of them on their books. The people with 130% mortgages are going to have to pay through the nose because until they can get that LTV down they are very very risky people to be lending to.
 
#12
I wouldn't go for anything more than a 2 or 3 year fixed mortgage in my opinion in the current climate. Inflation is high (we see base foods, utilities, petrol etc recently increasing.. 107.9p/ltr of petrol... ouch).

The government just about survived the generic multi-cultural winter celebrations (previously known as Christmas), however in order to get consumers to spend in the high street stimulating economic growth, BofE interest rates need to come down. So if you are tied in for 10 years then chances are you'll lose out.

I should point out I'm not an IFA, but sharing what I know from experience, also re-mortgaging soon so I'm in the same boat.
 
#13
BobJamesCo said:
Boring Rant about New Labour/ old Tory values...

Unlike everyday solid type objects which you can buy in shops, and have a rarity/production cost value, Houses, Shares, Futures ect have a "percieved" value
For example about 5 years ago British Energy who operate Power stations had their share value drop to a level lower than the Transfer fee for Dave Beckham meaning that his Percieved value was greater than the demand for electricity in the UK.
If it costs £50,000 to build a house (excluding the cost of the land) then common sense would dictate that when finished the house is worth £60 to £70,000 when sold, But no the percieved value is much higher and when peoples perception changes it could drop lower.
What has happend to mortgages is that houses are overvalued by as much as 50% the building societies do not understand this but the people who lend the building societies money to lend to you, do.
These main lenders have decided that the property market needs to be cooled down because the additional money flowing into mortgages is being spent on short term value items like Cars and lifestyle.
So. your house is not going to be worth enough to pay off your debts which means you are going to have to work harder,
The only good thing to come of this, is that we might see some of the Parasites who have Buy to Let mortgages go to the wall.
With any luck a few banks will go as well and force the Government to nationalise housing and we can go back to calling "Property investments" Homes again.
The blame for this falls directly on Council Right to Buy policies which inflated the long term housing market, and using the remortgage available to buy junk.
We did have a manufacturing based economy, now its a financial services one...
This government has yet to learn that if you dont make stuff to sell, you starve
That is so much balls i dont know where to start.

Ive just got back from the gym, and am feelign peaky so this might ramble a bit:

Right to buy increased the UK liquid housing stock at a time when investment in real estate was low. Right to Buy enabled a large number of people to go from being tenants, to being Owners, giving them added security in the long run, and also motivating them to go out and get jobs to pay for their newly owned houses.
This motivated the (admittedly) lower end of the employment market, which in turn led to reduced unemployment and a greater tax take for UK Govt / less social spending etc etc.

''These main lenders have decided that the property market needs to be cooled down because the additional money flowing into mortgages is being spent on short term value items like Cars and lifestyle.'' - again, balls. No lender in their right mind would deliberately deflate the value of their own investments.
Also, i would be intrigued what you would define as a 'main lender' - mortgages are underwritten by their issuer, then resold as packaged debt to the market (this is where CDOs come in). In effect, their is no 'Main Lender' as the 'Main Lender' is the market overall.

Annnnd finally:

''We did have a manufacturing based economy, now its a financial services one...
This government has yet to learn that if you dont make stuff to sell, you starve'' - you are going to start spouting the latest tractor production figures soon (not that im insinuating any communist tendencies here).

Manufacturing based economies are only feasible in a low cost base country, of which the UK is not one. Further, the US is not a manufacturing based economy, or the United Arab Emirates (although its economy is inflated by finite oil reserves).
When you state 'manufacturing' you are harking back to the 1800's - in todays connected world, services and intelligence are far more valuable than goods themselves.
 

Longlenny

War Hero
Book Reviewer
#14
So BobJamesCo thinks that all people with buy to let mortgages are parasites. I am one of those 'Parasites' I have worked all my life often doing two or three jobs by getting up early and going to bed late. Why I should be a 'Parasite' just because I have worked hard and have chosen to invest my money in property, is beyond me. With any luck my investment will look after me in my old age when I am no longer able to work. Perhaps BobJamesCo is one of those tossers who are owed a living by the rest of us. The man is a tawt!
 
#15
''The government just about survived the generic multi-cultural winter celebrations (previously known as Christmas), however in order to get consumers to spend in the high street stimulating economic growth, BofE interest rates need to come down. So if you are tied in for 10 years then chances are you'll lose out.''

Right idea, wrong theory.

BofE rates will come down, this is not designed to stimulate consumer spending. the current mortgage issue is linked to interbank lending, which used to be linked to the BoE base rate. The problems have arisen as the itnerbank lending rate has delinked from the baserate, as banks confidence in each other has evaporated.

Also, as a consumer, you actually want the interest rate higher. A lower interest rate makes it cheaper to take out a loan, which leads to more liquidity in any given market. When there is lots of money around, things become expensive (ergo, inflation). Higher interest = lower inflation, as goods become more expensive.

If you owned a house today, you would want interest rates to be higher - if you want to buy one, you want them to be low when you get your mortgage, then lower immediately after to stimulate inflation (means the debt you have is actually worth less than when you first borrowed it).
 
#17
'The only good thing to come of this, is that we might see some of the Parasites who have Buy to Let mortgages go to the wall.'

I might not be an economist, but as a homeowner who rents out my house while based elsewhere, even I can see the flaw in this argument.

With fewer people able to get mortgages, some people forced to sell-up, some having their properties repossessed and no increase in social housing availability; there will be an increased demand for private rental properties, hence a potential rise in rent revenues. This will lead to an increase in landlords' income. As landlords are normally sensible(ish) people, they will have probably obtained good mortgages, which won't increase their charges disproportionately over the next year or two, so this won't completely offset the income gain. The recent changes in CGT levels will mean more money in landlords' pockets even if they do sell.

How then does any of this 'come out of this'? Please explain.

Baggy
 
#18
Just before it all went noisy, C&G offerd me a fixed rate for 7 years, at a rate which worked out as a £140 a month saving. I asked if they wanted their arm back.

Why yes! My dog IS called Lucky...how did you guess?*




(*Dog's name may in fact be Windsor. T&C apply)
 
#19
Cuddles said:
Just before it all went noisy, C&G offerd me a fixed rate for 7 years, at a rate which worked out as a £140 a month saving. I asked if they wanted their arm back.

Why yes! My dog IS called Lucky...how did you guess?*




(*Dog's name may in fact be Windsor. T&C apply)
sounds like a nice saving - did they whack on a big fat arrangement fee for that deal?
 
#20
£500 only... :twisted:

I think I come out ahead quite quickly.
 

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