'House price threat to UK Economy' warns OECD.

Downgrading its growth forecast for the UK from 2.5% to 1.7% for next year the OECD, as reported in The Independent, linked here, reports as follows:

The housing market is identified as a weak point: "Renewed decline in house prices in the UK would have a negative effect on household balance sheets , and have become a more acute risk in the UK.

"Several recent signs point to renewed weaknesses in the housing market. UK residential property is perhaps 40 per cent overvalued on historic norms, the OECD suggests, though no immediate correction is foreseen.

The Government, like its predecessor, pretends this problem does not exist, indeed endeavours to sustain the ludicrous situation with its low interest rate policy, comments on which are not tolerated as discovered by Lord Young, read here.

Afternoon update following Lord Young's resignation - for the truth on the matter read the Daily Mash comment, linked here.

The 'Living Dead' of the UK Housing Market.

A report from earlier this month on the 'UK Zombies lurching towards the financial abyss' from Fatom Consulting earlier this month gets coverage in 'This is Money.co.uk' which article is linked from here. The following is the most macabre quote:

Economists at Fathom Consulting were a bit late for Halloween with their warning that the UK is in danger of creating millions of 'zombie households', but it is a sobering thought nonetheless.

They were referring to the 'living dead' of the housing market, or people who are so heavily burdened with mortgages and other debts that they are able to stay afloat only because base rates are at a 300-year low of 0.5%.

Newcastle Council squanders millions on crazed property speculation

The absolutely incredible report on how a British Council is prepared to offer 95% mortgages on worthless property on which they have already squandered forty million pounds, first revealed on Channel 4 News on Sunday evening, may now be read about online. The link is here.

Remember that Newcastle is one of the Councils falling under Lib/Dem control in recent years and that this same party of economic illiterates and left-wing incompetent weirdoes is now sharing national power in the new national 'Cameron Poliburo' see picture and video from here.

Has Bernanke surrendered to the forces of chaos?

The speech of the Federal Reserve Chairman to a joint conference with the FDIC on the USA mortgage crisis seems to have offered no hope for the watching world that there is anybody leading the nation that owns the US Dollar and is thus the controller of our globe's sole reserve currency who has the first clue of what they are about. Greenspan's whirlwind runs apparently totally outside of the control of his heir.

In the US., the mid-term elections at least provide the electorate with a chance to show their disgust at the two main parties, anger possibly leading some to a vote for a Tea Party candidate others, I hope in greater numbers, may consider the Libertarian Party which seems a better route back towards the original ideals of democracy.

In the UK the housing crisis is also the most obvious symptom of the chaos created by our two main political parties. My posting of yesterday morning hinted at the apparently already decided solution for social housing and 'buy to let' greed, transfer of the assets for practically nothing from the latter to the former is a neat idea, especially after having watched last evening's BBC Panorama Programme (no doubt exactly as was intended by our devious rulers).

Underwater mortgage paying homeowners urgently need help as they are presently unaffected by the new benefit rental cap. To avoid such families becoming entangled in such a government scheme (assuming Lib/Dem backbench opposition allows it to proceed) surely now is the moment to divide equity losses proportionately between borrowers and lenders for mortgages taken out since Brown and King deliberately chose to ramp up the property market?

UK House prices - the crunch draws closer

In response to the just released mortgage figures the FT Alphaville blog has a good summary of the present dire situation, linked here. It is aptly titled "Double trouble for UK House Prices.

Buy to let Rachmanist landlords face toasting

The Daily Mail has a delicious tale of how badly burnt the taxpayer funded buy to let greed merchants could receive their come-uppance from a collapsing property market. This landlord has had one of his thirty three properties valued at only one pound and a mortgage request refused, read it in full from here.

The Independent this morning, in an article titled "Britain stares into the abyss again as household confidence plummets" the newspaper points out that the Chancellor has now capped housing benefit payments at £400 a week for a four-bedroom property, and £250 a week for a two-bedroom home, which should stem the flow of funds to those who have grown wealthy on Rachmanism with zero labour during the years of the inflation of the property bubble.

The refusal by successive governments to address the negative equity situation of hard-working families, to which repeated suggested solutions have been made on this blog, has now continued beyond the eleventh hour.

Fannie and Freddie already cost US Taxpayers $135 Billion - UK fails to even start counting their taxpayers' exposure!

Read the really harrowing report from the Wall Street Journal, linked here.

Note the huge gaping hole in Osborne's spending cut-backs announced this week. Not one word or even a nod towards the coming UK property price collapse and the disastrous consequences for the British economy!

New FSA mortgage rules will cut supply by 50%!

A startling report comes in The Independent this morning, linked here, which spells out the obvious truth that if you make the provision of mortgages subject to sensible or prudent restraint you will necessarily reduce the supply.

The Council of Mortgage Lenders have, however, been clearly startled to discover that half of the mortgages issued over the past five years would have failed the new affordability tests proposed by the FSA. They then go on to moan that some 3.8 million of such loans have continued to perform leaving only an estimated 200,000 at risk. The key to that statistic lies, of course, in the horrendous bank bail out figures and the following sentence later in the report, I quote:

The report says much of the apparently good news resulted from an "11th-hour spending spree" by the previous Labour government.

The present house price levels have only been maintained by the billions squandered on the banks and the disgusting spending spree by Brown and Darling as a last ditch attempt to further defer the moment when they must eventually be held to account.

How many of those 3.8 million mortgages still 'working' will be still so doing in another five years of real austerity?

Coalition politics again comes into play here, see my posting beneath this and its link.

€11,111 debt per head of Ireland's population

Eleven thousand, one hundred and eleven euros and eleven centimes is the actual debt per head of Ireland's population if you divide the 50 billion of the total costs so far as announced yesterday by the population of 4,470,700 rounded up to 4.5 million. That is over 11,000 thousand euros for every man, woman and child in the country, or taking the old yardstick of 2.2 children per family a debt of €46,700 per household.

Yet the Irish Government maintains they can repay these huge amounts from a declining economy thus sparing the large foreign bankers from any losses on their purely greed driven speculative investments, read here. A quote from the linked article:

Then, as now, investors are assessing the growing risk that a eurozone member will default on its debts – a calamity for the EU. Mr Lenihan had to spend half-an-hour on the phone to fellow European finance ministers trying to reassure them there is "no question" that Ireland will have to seek external help, saying the nation is "fully funded".

Ireland has been magnificently open about its banking woes and bold in the vanguard of efforts to meet and stem the losses, but such pain is being endured to spare foreign bankers having to be bailed out by their own taxpayers. In reality the final figures can still not be fully known as most of the Irish losses are in property and as the austerity gets harsher property prices will plummet further, a dilemma belatedly now being recognised in the UK, read here.

David Cameron as Prime minister of a Coalition Government now stands in danger of making the coming House Price Collapse the personal property of the Conservative Party as he has done nothing since May to tackle the underlying issues and thus firmly pin the blame on the previous administration. Opening criminal proceedings against former Treasury Ministers would be an astute recognition of the scale of the coming disaster, but policy proposals which confront the issue, labelled as "Brown Levies" would be even cleverer.

IMF warned of abrupt UK Housing Crash in 2003!

Seeking an old posting in the archives of my blog Ironies in September 2003 to link from the posting beneath this, I came across this fascinating posting published on 18th September 2003 which I just had to repeat in full here today:
+++++

Thursday, September 18, 2003

UK Housing Crash warns IMF

According to the IMF as reported in The Independent Tony Blair would do better to stay home this weekend and worry about the economy in what is supposed to be 'his country' IMF sounds alert over housing crash

The IMF said soaring housing markets posed a threat in the UK, US, Australia, Ireland and the Netherlands, warning that "the risk of an abrupt unwinding cannot yet be ruled out".

posted by Martin at 9/18/2003 11:09:00 PM
+++++
Well folks seven years, yes that is correct a full seven years on it looks as though "an abrupt unwinding" is what we are about to get.

Jail for Gordon Brown!

It is extremely gratifying for this blogger to read a call for the jailing of the former Prime Minister, Gordon Brown, in a national newspaper. Jeremy Warner an Assistant Editor of the Daily Telegraph writes in that newspaper, linked here:

"The case is quite easily constructed; that he did willfully take the brakes off public spending, that he failed to control the recklessness of the banks, that he stripped the Bank of England of its powers of financial supervision and gave them instead to a shiny new, politically correct but wholly inept regulator, that he misled parliament over the state of the public finances....."

It may often have seemed fanciful in the boom times of recent years when I called for just such a future policy, there are several other members of the former cabinet who should eventually join him if this nation is ever to restore a working democracy. In a couple of years further in to this age of austerity the demands across the towns and villages will, I believe, achieve just that, but a good start can be made with Brown.

Introducing the Brown Levy I suggested here, here, here and here,will add to the pressure and is daily becoming a more urgent necessity in the face of the now obvious UK Property Price collapse which will simultaneously require the amended equity loss sharing arrangements long proposed on this blog..

Treasures from the threads - Number forty-seven

To an article in the Daily Telegraph this morning on the general crisis in Britain's housing market, linked here, comes this:

ikenuma

1 second ago

A three bedroom semi, with one of those bedrooms in reality a half a room, plus garage, on the outskirts of London but without the benefits of London, is in all seriousness NOT worth nearly 400 grand!!

Let's be sensible; this is first time buyer property as my parents were when they bought it for £4000 in the 1955.

Where are these first time buyers that can afford to buy such a house?
How many have 40 grand for a 10% deposit?
Which banks are daft enough or reckless enough to lend that amount?
A couple would need a joint income of £144,000 to buy that.

Are you lot nuts?
Are you living in a dream world?

Living in mainland Europe now, I am just looking at the UK and laughing at your madness. Your productivity and profitability are lagging so far behind you'll never catch up with that kind of thinking.

Ireland's Mortgage Mess - Another warning for the UK

The property price crisis remains the biggest danger§ How many times must we point this out but helplessly look on as the second government in a row does absolutely nothing to address the approaching disaster.

A report in the Irish Independent this morning, linked here, details the numbers of mortgagees within the Irish Republic having their mortgage interest payments met by the state, an incredible 17,500 recipients, such policies are not sustainable and merely serve to maintain house prices at their ludicously high levels to the benefit of nobody while steadily eroding the resources of the state!

In the USA such numbers appear microscopic, in the two years since the US Federal Government assumed responsibility for the mortgage providers Fannie Mae and Freddie Mac the cost to the Treasury in direct government aid was 150 Billion, that is correct 150 Billion dollars, see Reuters from this link if you do not believe me.

Government Ministers who rate their own wealth in the value of their property portfolios, often obtained on the basis of capital gains accrued on mortgages funded by the taxpayer, seem unlikely to be able to grasp this nettle, hence the lack of any plan let alone rational consideration of the true awfulness of the crisis being faced.

Such wealth is illusory, grasp that fact and go from there. Exchange rate depreciation and inflation will not cure the problem that exists up and down the country where professionals necessary for the provisions of community services cannot afford the properties in which their families need to live at the salary levels the local communities can afford to pay.

This blog has tried to suggest sensible solutions which I have now become tired of linking. State payments to subsidise underwater homeowners is like the squillions paid to the failed banks, waste pure and simple.

"Panic begins to grip UK Housing Market"

As this blog has long and repeatedly pointed out the real disaster in the UK economy is the coming house price collapse. Arabian Money, linked here, has also now spotted the reality, this quote comes from the linked article, headlined the same as this posting:

"..... the house price to income ratio is twice its long term average. For it to revert to this long term level requires either a doubling of salaries or a halving of house prices. It is not hard to see which option is the more likely in the current age of austerity.

But this is going to be a major shock to the UK national psyche. The bubble has been forming so long it has become accepted as a new reality. Few younger property owners remember the 1990-3 house price crash. Corrections can and do happen even in a market where supply is as tight as in the UK housing market."

(Blog editor's added emphasis)

The "End Game" Approaches

"This has been one of the most interesting days in finance ever," said Andrew Roberts, head of credit at RBS. "We are right at the tipping point. Yields are about to collapse even further, equities are about to turn over. The end game approaches, probably in next few weeks."

In the US, the 27pc collapse in existing homes sales in July leaves no doubt that America's property market cannot stand on its own feet without the prop of homebuyer tax credits. "Home sales are in free-fall. These are truly dismal numbers," said Teunis Brosens from ING.

The article from which this quote came may be read in full from here. Readers of this blog will be unsurprised that the western world has reached this point, just as we warned at the start of this summer when JC Trichet pompously departed on his holiday in St Malo claiming that all was incredibly well, indeed with all our warnings down the years, that corrupt self-serving politicians would inevitably land the world in the mess in which we now find ourselves, bankrupt and with no economic weapons left to mitigate the consequences.

Sound money or means of trusted international exchange will be required before recovery can begin. Restoring value to the property market, will be a priority alongside finding as yet unidentified honest and decent leaders. In September 2008 I put forward one idea to achieve the former objective, do Clegg and/or Cameron now have the courage to take on such an approach, and perhaps simultaneously convert to decency? A quote from that old posting:

Mortgages have always assumed the equity provided by the mortgagee is the first at risk. In this crisis that has to be changed. I suggest that for houses purchased since Gordon Brown, in the words of incoming BoE Governor King, to paraphrase 'moved the Goal Posts and excluded house prices from the CPI' any loss of value on the resale of such houses be directly proportioned between the first mortgage holder and the mortgagee. This is potentially expensive, but less so if it halts further slides in house prices. As the country is effectively bankrupt such a move will need financing and as a further step to somewhat also put the cost of the greed at the door where it lies I would further suggest the exemption of the first home from capital gains tax be withdrawn.Decency for Clegg and Cameron could be guaged as a distant possibility by an immediate large cut to UK contributions to the EU pending a halt to their ongoing and grandoise plans for ever more vainglorious enterprises and aggrandisement.

Mortgage Walkaways

The practice of walking away from a mortgage is growing as warned by this blog over the past two or three years as now reported by this report in the New York Times. Readthe warnings here, here, here and all across the archives of this blog!

The Disgusting Property Scam on Britain's Youth!

Watch the final part of the video on last Monday evening's Chancellors debate from the link below from the beginning until the start of the closing statements by the three confidence trickster prospective future Chancellors of the Exchequer:



Note how none address the questioners second main point about being able to buy a house! Now watch from 1 minute into the debate from the clip below, where Osborne and Darling excruciatingly compete for the kudos of being father to the scheme to exempt first time buyers from stamp duty on homes worth below two hundred and fifty thousand pounds, that's right an incredible two hundred and fifty thousand pounds:



An old rule of thumb for affordability of property owning for first time buyers was to first save a deposit of between five and ten per cent and then commit to a mortgage of 2.5 times the husbands salary with some consideration perhaps give to the wife's earnings. (My own first purchase was a so-called maisonette for 4250 pounds with a primary mortgage of 3400 and a higher rate top up to 4000, only just affordable on my then salary and savings given the purchase costs).

Today average house prices appear to be around 160,000 pounds and average household income around 25,000 pounds.

To return to sanity in the UK housing market young people would be unwise to invest in property, based on the above figures until either average house prices had fallen to 65,000 to 70,000 pounds or average annual incomes had risen in a static house price market to about the same level. Given the warnings of dire cuts in spending and coming tax increases, (watch along to
2 minutes 15 seconds in the second video clip above to hear Vince Cable laying out the facts on the coming decade of tax increases and spending cuts) neither seems a likely scenario although a middle way will necessarily have to be found.

As if it were not bad enough that the three main parties were planning to saddle the nation's youth with such disastrous investments for the future, (presumably to selfishly protect their and their generations' own huge property equity holdings) consider also that all their other few announced policies for the coming decade will also serve to reduce the value of UK property prices.

Allowing the national debt to massively increase and ring fencing the NHS and Foreign Aid will reduce the sums available for productive job creation, policing and education. All of which will further reduce the income earning abilities of the workforce, increase crime levels and undermine the security of the housing stock, itself an essential element in the enhancement of property values.

Young people should, therefore, especially be ready to vote in the coming election and be particularly aware of the shameless characters of all those candidates in the three main parties
who have destroyed the national economy in pursuit of their own financial gain - Not just by a disgraceful manipulation of the parliamentary expenses and pension arrangements BUT by a deliberate ramping-up of the property market, which they have now given clear notice, they will all continue.

Eventually property prices must fall to a level at which they are affordable for individuals on a slightly above average salary. Remember that fact - for it is an essential economic reality!

Walkaway Mortgagees or Drowning Householders?

Yesterday in the USA the Federal Government unveiled a new fifty billion dollar plan to aid its underwater homeowners. One blog gives its views here. Moral hazard is the phrase much used elsewhere in the USA.

In the UK we would describe those unfortunates with mortgages greater than their home values as having negative equity. Drowning seems much more apt.

It is many, many months since this blog first warned of the dangers of negative equity being likely to result in Walkaway Mortgagees and likely anarchy to follow. Finally a respected member of the mainstream media has finally awoken to the dangers, read here.

Earlier postings on this topic, together with my suggested solution, may be found by using the keywords "Walkaways" or "UK House Price Crash" in the search bar for this blog.

Strategic Mortgage Defaults - Walkaways (continued).

Two days ago I linked to an article by Larry Doyle on the growing problem in the USA of people, with good credit records and in employment, walking away from their houses and defaulting on their mortgage repayments. I did so as such an event is exactly what this blog predicted would occur one year ago to the day!

I have had some internet exchanges with the author of this original article over the past couple of days and quote the latest exchanges below:

Martin Cole says:

September 24, 2009 at 7:43 am

Larry,

Thanks for your reply, a welcome change as my suggestions this side of the pond are inevitably met with a wall of silence.

I agree the retroactive element of my proposal is a drawback, also within the US environment the impact on interest rates a potentially crippling disadvantage.

Let me discuss these factors from a UK standpoint, however, and you might then be better able to determine whether there is later applicability for the US which has the major advantage, when compared with ailing sterling, of the dollar’s reserve currency status.

Even a year ago it was obvious that the pound sterling was assuming junk status, hence my tagging of some posts on my blog with “funny money”.

Here is the key “The loss of a good credit rating earned with “funny money” is of small immediate significance and zero long-term effect” – hence the walkaways.

On the retroactivity consider a UK employee, retiring this year, who has saved a reasonable sum in a pension fund throughout his career. OK some decline would always have been a risk, but post credit-crunch he has been double zapped with both the fall in the funds value and the reduced annuity value which he can now purchase. This has been of such severity that a huge and retroactive pension fund reduction is effectively what has occurred in the private sector.

His peer who has historically ridden the inflated UK property market to the maximum and therefore done nothing to promote the true free-market system with his savings, is presently sitting on a huge untaxed and unearned apparent asset gain.

The UK Government, with the collapse of tax revenues from the City and escalating welfare bills has resorted to printing even funnier money with so-called Quantitative Easing. This is retroactive impoverishment par excellance.

When foreign lenders no longer consider sterling interest rates sufficient to cover the risks of further devaluation where can extra sterling revenue then be found? The presumed wealth of the country, wasted during the apparent high-growth years, now rests in an over-valued private property pool. No surprise then that this week the third largest political party in the country has been the first to suggest property taxes.

In the USA restoring faith in the national currency remains a viable possibility, thus a damaged credit rating might remain a deterrent to strategic mortgage defaults.

In the UK outside of the casino style banking industry, the government and the civil service, people in the country at large have noted the stark reality and will likely start to cut their own losses in far greater numbers, possibly involving agreed cross-squatting (also covered on my blog last year).

Walkaways, mutually agreed cross-squats and property taxes will dish the property market for certain …. and potentially the rule of law in the process.

Things for the UK look sombre, hence my proposal for sharing property equity losses for the period during which Gordon Brown and Mervyn King deliberately distorted inflation indexes.

I would welcome your further thoughts and will link this exchange from my blog.

Reply

Larry Doyle says:

September 24, 2009 at 8:09 am

Martin,

I find your comments to be very interesting. Your perspective from your ’side of the pond’ is on one hand understandable to anybody following economics but on the other hand very difficult to fathom for those of us on ‘this side of the pond.’

What is hard to fathom? The effective ‘taking’ of private property. I think that may create civil unrest of unprecedented proportions. Not that we may not have civil unrest for other reasons.

Suffice it to say, both the UK and US economies have real issues all of which center on excessive debt. No surprise that the sterling and greenback are each having issues.

Are we living through a multi-generational shift in the primacy of what once were two world leaders. I believe we are. To what extent? Time will tell.

Living beyond one’s means is a recipe for underperformance.

In summary, from an American perspective, I have a hard time grasping the government unilaterally assuming a degree of ownership in what was private property.

I thank you for sharing your thoughts and perspectives. I welcome continuing the dialogue on this topic as well as others.

Best.

The earlier exchanges and original article may be read from this link.

My repeated cure for Strategic Mortgage Defaults or Walkaways

Last evening, in the posting immediately beneath this, I returned to the problems of negative equity in the US and UK housing market.

I later recalled that I had proffered a solution to avoid this obvious potential problem and reviewing these blog archives I found that such a cure was offered on 22nd September 2008, exactly one year ago from the dire posting of last evening. That post may be read from here in full, it was titled 'Curing Britain's Property Price Crisis', it concluded with the following idea:

Mortgages have always assumed the equity provided by the mortgagee is the first at risk. In this crisis that has to be changed. I suggest that for houses purchased since Gordon Brown, in the words of incoming BoE Governor King, to paraphrase 'moved the Goal Posts and excluded house prices from the CPI' any loss of value on the resale of such houses be directly proportioned between the first mortgage holder and the mortgagee. This is potentially expensive, but less so if it halts further slides in house prices. As the country is effectively bankrupt such a move will need financing and as a further step to somewhat also put the cost of the greed at the door where it lies I would further suggest the exemption of the first home from capital gains tax be withdrawn.

On the first anniversary of putting forward this so obvious proposal, that was picked by the BBC News web site for recommended reading, I must once again ask on this blog, "Why are we led by such incompetents?"