Monday, 21 January 2008

The impossible triangle

Consider these three headlines; all of them taken from the same edition of the Times:

Mortgage lending hits a new record in 2007
Half a million homeowners miss mortgage payments
Bargain hunters reignite UK housing market

Despite the seeming contradictions in the headlines, taken together the three articles provide an almost complete narrative about today's housing market.

The first article tells us of a bumper year of household debt accumulation "Gross mortgage lending rose to its highest level last year. Figures from the Council of Mortgage Lenders (CML) show that banks lent a total of £362 billion to homeowners last year, up 5 per cent on 2006 and the highest level since records began in 1999."

To be fair, the mood of the article quickly sours when it acknowledges the recent mortgage slowdown: "lending in December was £22.6 billion, down 25 per cent on November and the lowest level in any month since May 2005."

The second article is much more unpleasant; it is about debt despair and desperation. It tells of "almost half a million cash-strapped homeowners" who have "missed a monthly repayment on their mortgage in the past six months." Since there are almost 12 million mortgages in the UK, this means that about 4 percent of borrowers are in deep trouble. Should these repayment difficulties turn into repossessions, then the UK would have financial crisis every bit as bad as the sub-prime crisis over in the US.

So far, the story is clear; too much housing debt pushing far too many households into payment difficulties. But what about the third article? How does that fit into the reality of a rapidly deteriorating property market. Can the housing market really be reigniting?

The third article is about denial. The housing crash may be upon us, but there are still plenty of people ready to drop a quote that distorts reality. The market is not crashing, it is reigniting because "bargain hunters" have appeared to save the day.

It acknowledges that "the average price of a house has fallen for a third month", but despite declining prices "activity is growing as cheap deals draw out buyers ". Miles Shipside, from Rightmove, gleefully informs us: “Some home buyers are now able to find properties that have fallen into their affordability zone, and are bagging what they see as bargains against previous prices."

So there we have it, the three corners of the UK property market triangle; debt accumulation, debtors drowning in debt, and denial that anything is wrong.

8 comments:

fakepaycheckstubs.com said...
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speedtheplow said...

Worldwide stock markets are crashing. UK property will follow very very soon. Bye bye you greedy b£$$^$*££ds.

Towjam said...

We always get a little bump in sales after the holidays.
Seems to me that the proof will be if this continues.
But then the market mentality can change to why buy now when I can get it even cheaper in 3, 6 or 9 months.

Anonymous said...

We are already at the "wait and see stage" this will just make property fall faster...house prices will be the last of our worries in this economic mess created by a culture of disgusting greed and imcompetant govt.

Bring it on, its time to flush the tubes of these parasites.

eh said...

How are LTV ratios in the UK? This and related data (e.g. debt to income) can be good indications of affordability, as well as how likely people are to experience negative equity if house price appreciation stalls or reverses. People who have no personal equity in a home (high LTV) are much more likely to walk away when they realize they owe more than the property is worth.

traderboy said...

you cant't just "walk away" from property in the UK like you can in the US...all mortgages are recourse, which means they will come after all your other assets until they force you into bankruptcy.

that's a pretty big incentive to keep paying your mortgage. i actually think the main problem in the US, and why it crashed first and hardest, is because you can just mail the keys back to the bank to satisfy your mortgage obligation. crazy, why would anyone ever lend like this????

Towjam said...

"you cant't just "walk away" from property in the UK like you can in the US...all mortgages are recourse, which means they will come after all your other assets"

They can do the same thing here. Just have to get a judgment for the short fall between what you owed and what they sold it for.
But would it worth it to the lender to try to get blood from a stone.

"you can just mail the keys back to the bank to satisfy your mortgage obligation"

You can send them the key but you still owe them the money

traderboy said...

trust me, in the UK you will get the bailifs round trying to sieze all your assets. defaulting is not an easy option.

"You can send them the key but you still owe them the money"
in the US? even on a non-recourse loan? how do they get the money back off you then if it's non-recourse?