2%

[When Skies Are Grey]

Asked the IOM Bank for details on personal loans this morning...

 

For a loan of £10k, the APR is 9.5%....jeezus!!

 

Now I know that my £10k isnt going to kick start the economy but my word thats some margin over base.

[Mission]

I got the letter from the bank saying they were dropping the mortgage payments again.

[Sebrof]

I've no doubt the governments via central banks created the problem, by making credit far too cheap post 9/11 to kick start the economy. Everything else comes from that as far as I can tell.

 

Did the UK government instruct NR to offer 125% mortgages?

 

Did they instruct NR to lend on a six times salary multiple?

 

The government is culpable for failing to regulate, but the crisis was caused by the banks, not by the government.

 

Time you got that into your head.

 

S

 

 

Actually, in the US the Government regulated that a percentage of all mortgage lending had to be to the sub-prime market offering home ownership to everyone. UK banks simply followed suit.

 

So the American banks had some sort of excuse. Not so the British, who were never instructed to lend in that way.

 

S

[pongo]

So the American banks had some sort of excuse. Not so the British, who were never instructed to lend in that way.

 

With the obvious exception of NR, the British banks are not particularly in a mess because of their own bad lending. They are in a mess because of their exposure to ultimately worthless investments.

[Sebrof]

So the American banks had some sort of excuse. Not so the British, who were never instructed to lend in that way.

 

With the obvious exception of NR, the British banks are not particularly in a mess because of their own bad lending. They are in a mess because of their exposure to ultimately worthless investments.

 

Bradford and Bingley?

 

Alliance and Leicester?

 

HBOS?

 

Various smaller building soc's taken over by Nationwide?

 

And the biggest loser, RBS, has only itself to blame for massively over-stretching itself with ING.

 

Actually, they are all to blame for investing in "worthless investments". It's a banker's job to make good investments.

 

And I haven't seen a breakdown of the figures for Lloyds and Barclays. What proportion of their writedowns is attributable to UK housing loans, and how much to US housing loans?

 

S

[Chinahand]

I think in fact even NR wasn't brought down by bad lending - its mortgage book was about its only asset when things went bad.

 

The trouble is it had already sold most of it already to the extent it didn't have an income from mortgage payments to cover its on going operations - it had always assumed it could continue collateralizing and selling on its mortgage book to cover its operations. When the credit squeeze shut down that cash conveyor belt - old mortgages sold for cash to be lent out as new mortgages to become old mortgages - it had no where else to go.

 

I am not convinced by Sebrof's thesis that the housing downturn in the UK has destroyed "British" banking - more collateralization and foolish takeovers at the top of the market.

 

Yep - hubris of the worst thought, but reasonably orthoganal to the housing boom.

[Sebrof]

I think in fact even NR wasn't brought down by bad lending - its mortgage book was about its only asset when things went bad.

 

The trouble is it had already sold most of it already to the extent it didn't have an income from mortgage payments to cover its on going operations - it had always assumed it could continue collateralizing and selling on its mortgage book to cover its operations. When the credit squeeze shut down that cash conveyor belt - old mortgages sold for cash to be lent out as new mortgages to become old mortgages - it had no where else to go.

 

I am not convinced by Sebrof's thesis that the housing downturn in the UK has destroyed "British" banking - more collateralization and foolish takeovers at the top of the market.

 

I predict that Northern Rock's mortgage book will prove to be worth about 75% of it's nominal value. This represents a huge loss, and is the reason why the run developed. Everybody knew that they were effectively insolvent.

 

It remains to be seen what transpires, but I would guess that when the final sums are done, it will be found that UK housing loans will prove to be the biggest loss-maker for most institutions.

 

S

[Albert Tatlock]

I think in fact even NR wasn't brought down by bad lending - its mortgage book was about its only asset when things went bad.

 

The trouble is it had already sold most of it already to the extent it didn't have an income from mortgage payments to cover its on going operations - it had always assumed it could continue collateralizing and selling on its mortgage book to cover its operations. When the credit squeeze shut down that cash conveyor belt - old mortgages sold for cash to be lent out as new mortgages to become old mortgages - it had no where else to go.

 

I am not convinced by Sebrof's thesis that the housing downturn in the UK has destroyed "British" banking - more collateralization and foolish takeovers at the top of the market.

 

I predict that Northern Rock's mortgage book will prove to be worth about 75% of it's nominal value. This represents a huge loss, and is the reason why the run developed. Everybody knew that they were effectively insolvent.

 

It remains to be seen what transpires, but I would guess that when the final sums are done, it will be found that UK housing loans will prove to be the biggest loss-maker for most institutions.

 

S

I would agree with that, the whole problem has been asset overvaluation, but would add that this asset overvaluation has been packaged and sent round the world from the UK and US (and few other countries) - hence practically every major bank is affected to some extent.

 

Whatever people say about house prices, this overvaluation of assets has to be corrected, and the money to correct it is having to come from governments, and the consequences will lead to a major fall in house prices in the UK...driven by future 'lending within means' to avoid the same problem in the future (well for 10 years anyhoo till they forget the lesson again). This will impact Joe Average moving here for work or retirement reasons and impact our economy even if it still could grow.

 

In the meantime with substantial losses and generally less to do - with credit now not so easily available - financial institutions will continue shedding jobs, and this will impact the island IMO if credit does not start flowing by the end of this year. Here though, employment levels and employment growth are the key links to house prices (demand) and it all depends on how many jobs we lose this year IMO as to how house prices will vary. Getting credit flowing and impacting the economy will take more time than people think, hence my belief house prices here will drop by 15% by the end of this year, while we see a rise in unemployment to around the 1000/1200 mark in my estimation - predominately led by the construction, finance and retail sectors.

 

Politicians here have damaged the buffer we have between us and the UK/ROW by an over-reliance on the finance sector, failing to diversify sufficiently, and wasting much money paying premium rates on infrastructure when times were good. It is in times of recession IMO that the major effort on infrastructure should be made, when costs are lower and unemployment is on the increase. Add the fact that one in four of us work for the government and have major pensions to be paid, and I wouldn't want to be in Alan Bell's shoes this year.