How far will house prices fall [volume 4]

How far will house prices fall [volume 4]

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BlackLabel

13,251 posts

87 months

Tuesday 31st July 2018
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Just out of interest anyone following what is happening to the really expensive stuff in London - One Hyde Park type developments or £20m+ Central London houses etc?

I assume that this kind of stock is bought by rich foreigners, footballers, celebrities etc. Are they seeing the same falls in value that “cheaper” London stock is seeing?

p1stonhead

24,902 posts

131 months

Tuesday 31st July 2018
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Rovinghawk

13,300 posts

122 months

Tuesday 31st July 2018
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BlackLabel said:
Just out of interest anyone following what is happening to the really expensive stuff in London - One Hyde Park type developments or £20m+ Central London houses etc?

I assume that this kind of stock is bought by rich foreigners, footballers, celebrities etc. Are they seeing the same falls in value that “cheaper” London stock is seeing?
I'd presume they're sufficiently individual that it's difficult to assess a trend with them, ie very small dataset.

stongle

4,088 posts

126 months

Wednesday 1st August 2018
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ClaphamGT3 said:
I agree with your point about Brexit.

Whilst your analysis of the theory of interest rates works as a summary it doesn't really take in the reality. You don't need to know as much about the subject as you clearly do to recognise that, had you had a bunch of economists undertaking a desk-top exercise on the UK economy with no outside intervention or pressure, we probably wouldn't be in the position we're in today.
I think you are correct, the problem we have is low rates and QE etc are just can kicking exercises. When you want to reverse it, you'll in a whole world of hurt. Just ask Trump.

I can't see ant room to raise rates currently, in fact post whatever Brexit becomes we're probably going to want to be borrowing money. Big time. Large infrastructure spend / sovereign wealth / fiscal policies will be required to ease Brexit uncertainty (short term damage). A low rate environment massively helps here.

're the point on 30yr bank mortgage cost, the bank cost to build a 30 year mortgage product would likely be in the 4-4.5% range. Rate hedge 3% plus, bank levy around .1%, leverage ratio .5% + securitization costs (credit spread higher due to duration risks I guess). I think you need to be off your rocker to go that far out on a mortgage unless you have a massively stable job with low wage inflation or are really sh*t managing money.

Anyhoo, in the area of London I'm in, it's micro regions. Some streets are still selling in a day or so - others stagnant. This is all 600-1m. Other streets hang around for ages. Houses are a store of wealth in the UK, the political and BoE agendas correlate on not screwing up a consumer / debt lead economy. If Labour gets in however, all bets are off.

nikaiyo2

3,382 posts

159 months

Wednesday 1st August 2018
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stuckmojo said:
They are in most countries. France, Italy, etc. In the UK the mortgage products are awful in comparison.
Yeah I think in most of the US they are fixed for life.

p1stonhead said:
30 years is a hell of a long time to fix a loan for. And banks would cover the worst case scenario so it would be ludicrously expensive. A ten year fix is a lot more expensive than a 2 year fix, so imagine a 30 year fix.

Banks lose out if they have to cover rises but also the consumer also loses out with a drop in interest rates during fixed deals. I lost thousands on my previous 5 year fix at something like 5% when the base rate tanked.
I think this is where my understanding falls down...

Why would a bank need to cover "worst case," if they commit say £200k today to me to buy a flat, they have paid that £200k to a 3rd party today at todays interest rates, they do not have to "go back to market" in 12 months for more funds for this loan, so why do they need to "cover" potential rate rises? Is it just opportunity cost against what they could potentially lend it for at date X in the future?

Is the cost for a 10 year fix now not more about market pricing and differential pricing, the banks would rather have people on a shorter fix than a long term fix, so if the entire market was fixed for life as standard then this differential would be removed?

It just seems to make so much more sense to have mortgages that are a known constant unless altered by the borrower.

z4RRSchris

9,765 posts

143 months

Wednesday 1st August 2018
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BlackLabel said:
Just out of interest anyone following what is happening to the really expensive stuff in London - One Hyde Park type developments or £20m+ Central London houses etc?

I assume that this kind of stock is bought by rich foreigners, footballers, celebrities etc. Are they seeing the same falls in value that “cheaper” London stock is seeing?
i do expensive.

rich foreigners, - yes + locals.
footballers, - not rich enough
celebrities - not rich enough


CaptainSlow

10,288 posts

176 months

Wednesday 1st August 2018
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nikaiyo2 said:
I think this is where my understanding falls down...

Why would a bank need to cover "worst case," if they commit say £200k today to me to buy a flat, they have paid that £200k to a 3rd party today at todays interest rates, they do not have to "go back to market" in 12 months for more funds for this loan, so why do they need to "cover" potential rate rises? Is it just opportunity cost against what they could potentially lend it for at date X in the future?

Is the cost for a 10 year fix now not more about market pricing and differential pricing, the banks would rather have people on a shorter fix than a long term fix, so if the entire market was fixed for life as standard then this differential would be removed?

It just seems to make so much more sense to have mortgages that are a known constant unless altered by the borrower.
In the UK, mortgage borrowers prefer the seemingly lower costs of fixing for shorter periods. Longer term fixed periods would be more available if there were a demand.

As for the banks, if not deposit funded, they match fund the loans...ie go out to the market a borrow the funds for the same period and profile they expect to be lending for.

wisbech

1,862 posts

85 months

Wednesday 1st August 2018
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The market that does have fixed long term mortgages is the USA, and there it is the government that sources the money (Fannie mae & Mac can issue 30 year bonds as they have govt guarantee)

In the U.K., without that guarantee, who would be willing to give money to a building society for 25 years without a decent risk premium? The longest I can find is a Lloyd’s 2040 bond and a Barclays 2049 - which is 4.1%. Not sure what overheads and margin you need to put on that for retail lending.

CaptainSlow

10,288 posts

176 months

Wednesday 1st August 2018
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Building Societies typically deposit fund, banks or indeed B Socs can and do go to the money markets for long term funding..not usually via issuing bonds.

Sheepshanks

23,394 posts

83 months

Wednesday 1st August 2018
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nikaiyo2 said:
I think this is where my understanding falls down...

Why would a bank need to cover "worst case," if they commit say £200k today to me to buy a flat, they have paid that £200k to a 3rd party today at todays interest rates, they do not have to "go back to market" in 12 months for more funds for this loan, so why do they need to "cover" potential rate rises?
...because the person that deposited that £200K with them will ask for it back if the rate of interest they're getting is less than the market rate. If the bank has borrowed the money to loan it out then the issue is they can't borrow money themselves for 25 years at rates that would allow them to be competitive.

FocusRS3

3,411 posts

55 months

Wednesday 1st August 2018
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Lots of these threads running now, sorry I'm late to the party.

I think the mkt has been falling 'quietly' for some time in London and the surrounds and whilst I agree it will be soft for some time I don't think the rug is going to get pulled.

Cleary political concerns are weighing heavy and for the South East a labour government will hurt the most.

No harm in taking profit and sitting out for a while if that's a possibility

AstonZagato

10,185 posts

174 months

Wednesday 1st August 2018
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CaptainSlow said:
Building Societies typically deposit fund, banks or indeed B Socs can and do go to the money markets for long term funding..not usually via issuing bonds.
Which was why Northern Rock failed, IIRC. Lent long, funded short. Funding dried up, bank falls over.

stongle

4,088 posts

126 months

Wednesday 1st August 2018
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AstonZagato said:
Which was why Northern Rock failed, IIRC. Lent long, funded short. Funding dried up, bank falls over.
That's quite some PH brevity.

You've just described a building societies business model, reliance in retail deposits and prolongation. Northern Rock and more acutely Lehmans (that was funding mega size mortgage books, ABS, CDO etc); relied upon wholesale funding markets that dried up when the stench of default raised its head (in fact Lehmans was probably pushed under by pre default haircut ramping - creditors wanted to reduce their LTV as it were). The underlying reason that Northern, Lehman etc went under was both excess carry trading and over leveraged.

It's worrying in the UK that people do not understand basic bank function. Extension of credit and maturity transformation are what a bank does. The inability to understand the difference between a call account and fixed term loan is astounding. Banks act as the on/off ramp for monetary policy it's the very vehicle enabling iPhones, plasmas and whatever consumer sh*te people splurge on. It's not the individuals fault, but A failure of the education system to explain modern day economics. Here's a scary stat (for the sky's falling market crash mo keys). EUROZONE bank balance sheet is 320% of the total EU (inc UK plac) GDP.

Donbot

1,668 posts

91 months

Wednesday 1st August 2018
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Sheepshanks said:
...because the person that deposited that £200K with them will ask for it back if the rate of interest they're getting is less than the market rate. If the bank has borrowed the money to loan it out then the issue is they can't borrow money themselves for 25 years at rates that would allow them to be competitive.
I thought when people borrowed money it just went on a number merry-go-round of people/companies/governments pulling it out of their ass. Hence financial meltdowns.

Tango13

6,163 posts

140 months

Wednesday 1st August 2018
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FocusRS3 said:
Lots of these threads running now, sorry I'm late to the party.

I think the mkt has been falling 'quietly' for some time in London and the surrounds and whilst I agree it will be soft for some time I don't think the rug is going to get pulled.

Cleary political concerns are weighing heavy and for the South East a labour government will hurt the most.

No harm in taking profit and sitting out for a while if that's a possibility
I'd agree with all of that /\

I was planning on renting for a while and seeing which way things went but the right property came along at the right price so I'm buying once again.

Having moved North I can both up-size and be mortgage free smile

stongle

4,088 posts

126 months

Wednesday 1st August 2018
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Donbot said:
I thought when people borrowed money it just went on a number merry-go-round of people/companies/governments pulling it out of their ass. Hence financial meltdowns.
Case in point. It's not even 0.01% funny how poor understanding is of finance and monetary factors.

Given we export more financial service than cars is a fookin disgrace

The sad fact is, one black swan event wipes out most well built sausage stamping PH company directors. Most of this thread is anecdotal at best, and the obsession with interest rates is misplaced (as recent central bank meetings have clearly described).


nikaiyo2

3,382 posts

159 months

Wednesday 1st August 2018
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Life time mortgages are a bit clearer thanks for the info.

wisbech

1,862 posts

85 months

Wednesday 1st August 2018
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CaptainSlow said:
Building Societies typically deposit fund, banks or indeed B Socs can and do go to the money markets for long term funding..not usually via issuing bonds.
For money market funding instruments- what’s the usual length? Didn’t think it went out to 25 years.

hyphen

19,482 posts

54 months

Thursday 2nd August 2018
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So what do we think?

https://www.standard.co.uk/business/entrepreneurs-...

A new estate agent startup, their USP being that they lend you the cash to buy your next home whilst selling yours!

mike74

2,342 posts

96 months

Thursday 2nd August 2018
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hyphen said:
So what do we think?

https://www.standard.co.uk/business/entrepreneurs-...

A new estate agent startup, their USP being that they lend you the cash to buy your next home whilst selling yours!
Given that over half the houses currently on the market have asking prices (and vendors) so delusional that they fail to achieve a sale and subsequently get withdrawn and there's another large proportion of the market who are prepared to leave their property sat for years in some cases at kite flying asking prices... I don't see how they can make much of a go of this other than with the very small proportion of genuine, realistic and motivated vendors who are willing to price the property sensibly from the start to achieve a relatively quick and easy sale.
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