April 09, 2007

England home buyers lose their flipping minds - 125% mortgages and "speed viewings creating an atmosphere of panic"

Why does London feel like Phoenix and Miami circa Fall 2005? You remember, those now-hilarious days where sheeple stood in lines for new condos, where multiple bids would come in on a property's first day, and where real estate clerks were telling folks that "it's different this time"

Oh, man, that seems like a million years ago. For the US. But in London, our "blow-off top" is here.

And we all know how it ends...

Here's just two proofs of housing-obsessed England losing all touch with reality:

1) The 125% mortgage - a recipe for disaster:

Want to buy but don't have a deposit? Here comes the 125 per cent mortgage - Now you can borrow beyond your property's value

First time buyers who have no deposit are being encouraged on to the housing ladder with the help of a new mortgage that allows them to borrow more than the price of the property.

Alliance and Leicester last week became the latest lender to offer a 125 per cent mortgage.

PlusMortgage works by offering a secured loan (the mortgage part) on up to 95 per cent of the value of the property and a further unsecured loan on up to a further 30 per cent of the value.

2) Speed Viewings hit London

From the Guardian (print only): Estate agents use new high-pressure tactic as shortage of homes sparks buyer frenzy

In place of conventional estate agent guided tours of properties, agents are encouraging vendors to open their doors for just one hour and invite potential buyers to view their home en masse. Such "mass viewings" are creating an atmosphere of panic among homebuyers.

37 comments:

Anonymous said...

Wonder who the largest subprime lenders are over there ????

Anonymous said...

Prediction:
London will see riots related to the real estate bubble crash there before the end of the decade.

Nice Benny Hill pic. Maybe you can put up a 'crazy saxophone' video from his old show, too. That seems to be a good representation of the UK real estate situation.

Anonymous said...

Can I get a 125% loan on a 4 million LB house and skip out with the 1 million LB?

It seems more like the lenders have gone insane, not the borrowers

Anonymous said...

It's amazing how the masses truly do act like sheeple, feeding into the feeding frenzy as they are herded to do so.

People need to learn to think for themselves! But it won't happen, just as there will always be poor people.

Those who advocate "redistributing wealth" are idiots. Let's say we did that. Then, all the fools would be stripped of their money, the wise would figure out how to hang onto it and multiply it, and we'd be back where we started.

Anonymous said...

OMG, here you go Keith, a shrimp running on an under water treadmill, to the Benny Hill theme song. LMAO.

Anonymous said...

Just like other countries always do, we invent it first and they copy and improve on it. Gotta love those 125% loans and panic showings. Now THAT'S innovation!

Anonymous said...

So how do they do 125%?

Doesn't the person need assets on which to borrow? Otherwise you could just take the money and run.

At some point the interest costs have to be too much for people...or do they do the 'option arm'/'teaser rate' thing there too?

Anonymous said...

This pic may be just right after the UK Hostage situation, have all the Brits become "fancy"?

or from this link, have they become such fat PIGS they dont fight anymore?
http://tinyurl.com/ywgnxc

look at her, about halfway down she's a tub of lard, dont the brits have any standards? do they do chin-ups anymore or run ?

no wonder they gave up?

the west is doomed if fat pigs like her are on the front line.

Anonymous said...

http://www.businessweek.com/investor/content/apr2007/pi20070409_186749.htm?chan=top+news_top+news+index_businessweek+exclusives

Keith I love the title "Its Prime Time now"!!

Anonymous said...

London real estate has become a primary method of money laundering from criminal organizations in east european countries, especially Russia, and "islamic charities" from the middle-east.

Visit areas in London like Notting Hill and all you'll see is russian gangsters and arabs driving ferraris and bentleys.

Anonymous said...

Thats nuthin.

Don't for that 125% mortgage + 50% overvalued appraisal = 175% loan!

We here in the US invented this. Its 'new technology'.

Anonymous said...

Experts agree!!!

UK FACES £459BN HOUSING CRASH

Experts fear everyone would feel the effects if house prices were to plummet

Sunday April 8,2007
By Geraint Jones Have your say(5)
THE BUBBLE is about to burst on Britain’s booming property market. Experts fear a crash is coming that could wipe at least £450billion off the value of the country’s housing stock.

The far-reaching consequences would include a spate of bankruptcies and repossessions as home owners, mortgaged to the hilt, suddenly found their biggest asset falling in value.

Thousands more would face the agonising uncertainty of negative equity, where the value of their house falls below the outstanding mortgage.

Many experts accept that a crash is not a matter of “if”, but “when”.

Despite a continuing rise in prices in the first quarter of 2007, they warn that a downturn could be only months away and that 2008 could see the 12-year boom come to an end with a “correction” at least as severe as the last crash 18 years ago, when prices plummeted by 15 per cent heralding a recession from which it took the country five years to recover.


We expect the recent rises in interest rates, negative real earnings growth and above-inflation council tax bill increases to lead to slower house price growth over the coming months Tim Crawford

The consequences today could be even more damaging, with record levels of mortgage and unsecured debt and a small army of speculators and buy-to-let enthusiasts making the market even more unpredictable.

The warnings make grim reading for Gordon Brown, whose likely tenure as Prime Minister would coincide with the crash. Many blame the Chancellor for squeezing home owners with higher taxes, and particularly his reluctance to raise stamp duty thresholds in line with house price inflation.

Experts and financial institutions are coming to the view that prevailing economic circumstances are ripe for a crash.



SEARCH NEWS / SHOWBIZ for:

The cost of property relative to people’s incomes is at a record high, reducing the supply of buyers. Interest rates have risen three times since last autumn with more increases likely, while unemployment is also rising.

Increases in the cost of gas and electricity have reduced the disposable income people need to service mortgage repayments and record levels of unsecured debt are starting to take effect.

In mid-1991, UK home owners owed £308billion to mortgage lenders. This has more than tripled to £1,025billion, a rise of 8.5 per cent a year.

In July 1993, unsecured debt totalled £52.5billion. It now stands at £212 billion, an average rise of 11 per cent a year. Yet average earnings have climbed by just 4.2 per cent a year since 1997.

A “wild card” factor will be the introduction of home sellers’ reports, due from June 1. Analysts worry that the cost and bureaucracy involved will discourage sales and depress the market.

The Council for Mortgage Lenders has admitted that their introduction will make the market more volatile.

While experts broadly agree with predictions by leading building societies and estate agents that modest rises will continue in 2007, a number are warning that next year could see the beginning of a downward spiral.

The last crash, between 1989 and 1994, saw property values dive by 15 per cent on face value and up to 40 per cent once inflation was taken into account. The result was thousands of repossessions and many home owners suffering negative equity.

If that were repeated, it would wipe at least £30,000 off the value of the average £195,000 house and £450billion off the value of Britain’s 14.62 million owner-occupied homes.

Analysts are concerned that the UK could be at the mercy of international financial forces beyond its control. The most worrying of these is the crisis engulfing the property market in the United States where sales of new homes fell 3.9 per cent to a seven-year low in February, following a 15.8 per cent drop in January. The glut of unsold homes has risen to 8.1 per cent, the worst figure since 1990.

Americans, like their British counterparts, had been relying on the housing market to fund their debt-fuelled spending and analysts fear that a housing crash will trigger a recession there which will be felt around the world.

An indication of the concern in the financial world comes from the Financial Services Authority, which has ordered banks to assess how they would cope in the event of house prices crashing by 40 per cent.

The financial watchdog said that property prices falling by that much was an “appropriate” estimate, as was the figure of 35 per cent of mortgages in default and ending with homes being repossessed.

David Miles, chief UK economist at the investment bank Morgan Stanley warned that only half the recent growth in the housing market could be explained by demand and supply. The rest was due to a speculative bubble that could be about to burst.

Mr Miles, who led a government investigation into the mortgage market two years ago, warned that speculative property investors, particularly in the buy-to-let market, have fuelled much of the latest boom. This has led to unrealistic expectations about house prices that have fuelled further inflation.

He warned: “A substantial fall in real house prices is likely at some point in the near future, though it could be one to two years away.”

An index of housing affordability which compares house prices and mortgage costs with incomes has plunged by seven per cent over the past 12 months and property is at the lowest level of affordability since 1991.

Diana Choyleva of Lombard Street Research says rising interest rates will be the final straw for the property boom.

She said: “We think there will be a correction next year, although it is unlikely to be as severe as the last crash.

“The Bank of England may have little choice but to raise interest rates further and 2008 could be a difficult year for the UK housing market.”

Professor David Smith of the University of Derby said the Bank would have to raise interest rates more sharply than expected this year, leading to a slowing of house price inflation and a downturn in 2008 or 2009.

The investment bank ABN Amro warned that UK homes were 50 per cent over-valued, making the market even more vulnerable than in the US. It blamed much of the problem on property speculation. Evidence that the UK was following the US into a property crisis came from the credit rating agency Standard & Poor’s which warned that signs of stress were emerging in the British sub-prime industry, which specialises in lending to borrowers with patchy credit histories who cannot get mortgages from traditional lenders.

The US sub-prime market has collapsed as falling house prices have created billions of dollars of bad loans.

Almost a quarter of loans to the British sub-prime sector are 30 or more days in arrears while re-possessions have tripled since the end of 2004. Sub-prime mortgages accounted for ten per cent of all new advances in the UK last year – about £30billion.

Some experts argue that if property inflation balloons and the bubble bursts the fallout will be more damaging than if the market cools more gradually.

Others warn that an already fragile market could collapse if interest rates go up again.

The Halifax’s group economist, Tim Crawford, said: “Prices continue to rise in a tight market but there are emerging signs that pressure on householders’ finances, partly due to the rise in interest rates since last summer, are dampening demand.

“We expect the recent rises in interest rates, negative real earnings growth and above-inflation council tax bill increases to lead to slower house price growth over the coming months. Sound economic fundamentals and an ongoing shortage of supply will, however, continue to support house prices.
●Additional reporting by Emily Garnham

Anonymous said...

Average rent of London is around £900 and average house price is £322104. So yearly P/E ratio is roughly almost 30!

Normal is about 11-14 or like in the US, probably close to: Price = 120 * monthly rent. This does not take into account taxes and maintenance etc etc..

It really looks like UK has even worse housing bubble than US, only two years behind schedule.

Source:
http://news.bbc.co.uk/2/shared/
spl/hi/in_depth/uk_house_prices/
regions/html/region10.stm

blogger said...

Average rent in london is 900 pounds? Uh, try PER WEEK. I'd love to see the hellhole you can rent for 900 pounds a month. 2000 pounds a month gets you a so-so 1-bedroom in London. 4000 pounds a month gets you a respectable executive-level flat.

Anonymous said...

But she adds that first-time buyers should be wary of these large loans. 'The danger of a high loan to value is if house prices fall, your borrowing will be more than the value of your home. This would effectively mean you are trapped and can't move until property prices rise again. But negative equity is only a problem if you have to move and property should always be bought with a medium to long view.'

Uh, hold on. Prices don't have to fall for you to have negative equity when you take out a 125% LTV mortgage.

Anonymous said...

If a so-so 1br is 2000 pounds per month...how do the British Bitter Renters save for a house...even after the crash?

blogger said...

I think the worldwide housing-crash caused economic meltdown will help take London's sky-high rents down too.

For now though, too much hot money competing for too few flats in London proper.

It'll change. The only question is when.

Anonymous said...

There was an article yesterday about the English banks taking a HUGE hit in the future because of their irresposible lending.

It was printed in the "Express" something. I checked the link and that particular article had been removed from the website.

Did anybody tinyurl that article? Can you find it Keith?

Anonymous said...

The picture of that British chick that was linked to by anon at 8:29 is insane. Simply insane.

How did that fat tub of goo get through basic? "So why did you hide a jelly doughnut in your footlocker, Pvt. Pyle?". "Because you were hungry...".

Where are london apts. 900 pounds (that's about $1500) a week? Must be only in the financial center where all the rich people are. Most of England is lower middle class, or so I thought. Don't think the avg. englishman makes enough to afford a $6K per month apt.

You were talking about how the dollar is trash b/c a glass of wine is like $10. Actually that means the dollar is UNDERVALUED.

Anonymous said...

Isn't a "mass viewing" just a Brit version of the open house? Why is this so revolutionary?

Oh by the way, wasn't the UK market supposed to be down 10% by now?

What's happening? Another prediction 100% wrong.

Anonymous said...

Would you happen to have any Grey Poupon, old bean? I'll be needing it for my Ramen Noodles.

Anonymous said...

"look at her, about halfway down she's a tub of lard, dont the brits have any standards? do they do chin-ups anymore or run ?"

Not when they're pregnant they don't no!!

Anonymous said...

Long Live Fred Scuttle!

Anonymous said...

Keefer, the rents will trend UP in a declining market due to demand. Lower affordability of homes due to higher interests rates will cause a higher number of potential buyers being priced out of the buying market. They can't live in tents, so they'll rent. Rents will increase!

Anonymous said...

anon said:

or from this link, have they become such fat PIGS they dont fight anymore?
http://tinyurl.com/ywgnxc


how the heck did they get her into the boat and still have the boat stay afloat?

No wonder they had to surrender, there is no way the boat she was in could have sped away. Probably had a difficult time catching up to the freighter.

Anonymous said...

Yep prices inflated in places like London, D.C., Sydney, NYC. Yes prices will indeed drop. Still, these are wonderful world cities, major centers of civilization (yes even D.C.). So its not so amazing that London center of the world for 3oo years is now and always has been pricey. they will revert to mean. Now what is insane is appreciation in shitholes like Miami, Phoenix and Vegas. Now that is the story of our times......

Anonymous said...

Don't forget that in a place like London, Paris, Sydney you are not just buying space or a place by the beach. You are buying access to all the benefits associated with residing in a lovely center of civilization. There places aint OC or SoFla. Please Keith tell us you know and appreciate the difference. Not that some douchebag in Phoenix or Orlando is capable of "getting it" you do right?

Anonymous said...

OMG talk about elitist bullshit. London hasn't been the center of jackshit for a long time, well maybe the center of the new Eurabia.

NY is a cesspool of humanity's garbage.

And DC? Oh dear god I don't even know where to begin on that.

You people need to get a clue.

blogger said...

boy, that last anon is confused. i wonder where he would think is the center of anything

London is the center of world finance today. And probably one of the top 5 cultural centers too. Even if you hate london, both those are pretty obvious.

But then again, I'd bet the last anon has never been to London. Ignorance is bliss.

Anonymous said...

Keith, I was recently in the U.K. and was astonished at the cost of living.

How do people do it? I don't think they are on as much credit and debt as US.

Even NON-property owning living is outrageous and the salaries do not seem to compensate at all.

I see typical salaries in pounds as exactly half US salaries in dollars (not unexpected given 1.96 USD per GBP rate), and yet prices for 'ordinary things' seem almost as high in pounds as in dollars.

A coffee in a typical shop is #1.50 (that is the 'script l' pound sterling key in UK).

Rents, not just property prices, are crazy, too.

How do they do it?

Anonymous said...

russian gangsters and money washers in notting hill, those people learned capability and resolution from all those years that their market did not work, but their government did, do it your self, machinists, plumbers, electricians, manufactures, farmers, ect, driving rolls royceses, god my plumber wants HOW MUCH???????????????

Anonymous said...

to the top, until the your fired comes around, around to all those that did not learn self suficiency, or just about everybody, but somebody will pay those higher prices???

Anonymous said...

dam, im on the way down!!!!!

Anonymous said...

my grandmother long departed was born in nottingham, ive never been there, as she migrated out before my time, and im approaching old, yet im wondering if russian nottingham isnt a better class of people at the top today

Anonymous said...

"But then again, I'd bet the last anon has never been to London. Ignorance is bliss. "

Keith why do you always assume that anyone who disagrees with you about a subject is uneducated in the subject?

I've spent in total about 3 years off and on in London and I agree. It is a shithole populated by Arabs. Oh wait there's the charming weather. And of course the super efficient and modern subway. The theaters are spectacular especially if I feel like going to Les Miz for the 90th time. During the summer a/c is plentiful. And of course everyone there is cheerful as sunshine and will always give you a helping hand should you need it.

Adam said...

If this headline ISN'T the sign of outright lending madness (i.e. outright greed, driving the credit bubble that in turn fuels the housing bubble), then I don't know what WOULD suffice:

http://tinyurl.com/2fmzah

A 102-year old U.K. pensioner buys a house by taking out a 25 year mortgage?

And just how long does everyone expect him to live? Talk about your irrational exhuberance!!

Unknown said...

The P/E ratio of about 30 (900€ rent/mo vs. 300000€ buying) is well valid in Spain's big cities... and the bigger the flat you seek, the bigger the difference is.