Bank of England loses control of UK mortgage interest rates!

As long predicted on this blog, the utter stupidity of the low interest rate policy is finally resulting in an interest rate market breakout beyond the control of the Mervyn King and his over-paid, inflation-proofed minions at the BoE.

Millions of homeowners will soon be hit by the consequences of monumental mismanagement on a truly massive scale.

News of the higher interest rates effective from many lenders from today is linked here.

3 years at 0.5% interest - Gross negligence in governance!

First the Chancellor of the Exchequer in the grotesque form of Gorden Brown handed over monetary policy to the Bank of England in the form of the MPC. Now the mortgage providers have acted, after many years of utter incompetence and particularly the last three years of one half of one percentage point interest rates and large scale money printing dressed up as QE.

Soon, just as Parliament gave its powers to the EU and thus became an irrelevance and mere source of pensions and perks for its members, the Bank of England will be irrelevant in the relationship between borrower and lender. The QE and low interest rates brought in following the 2008 collapse in the economy have clearly merely bought a little time while making matters worse. Read one report here.

The Bank of Ireland today raised its UK mortgage rate SVR from 2.99% to 4.49%, read here. More comment on similar coming increases is here.

The moochers and looters have sat and twiddled their thumbs for years, now the consequences will be seen. Some of the many warnings made by this blogger down the years may be read from here.

How not to solve the UK House Price Crisis!

Housing Crisis remains at root of our ongoing economic disaster!

From time to time this blog returns to the housing disaster which affects almost the entire english speaking world. Our leaders try to ignore it, presumably as they either hope it will go away or convince themselves that inflation will cause it to disappear.

In the past this blog has proposed some suggested cures, but I have now tired of re-posting the various links. A survey from the USA today, however, has such startling facts on the ongoing crisis that I felt it necessary to briefly return to the topic (in spite of all the excitement of the continuing slow-motion collapse of the euro). Here are some of the lowlights:

Only those homeowners under thirty and over fifty are now in the majority in thinking that their home equity will add to their retirement funds.

22.5% of all homeowners with a mortgage are now underwater.

68% reported that if they lost their job they would not be able to continue with their mortgage payments after nine months. Typical unemployment extends to almost 10 months

Americans dumped upon by their own politicians, must now face nothing but almost complete dismay, as European leaders continue to play russian roulette with the world's economy!

IMF wary of "steep drop" in UK house prices!

The latest Article IV notice on the UK economy is here. Titled "Union Jack be nimble, be quick" presumably a sign of the trivialisation of the Fund following the arrival of Mme Lagarde. There are few reasons to smile in the content. The Daily Telegraph, in its coverage this morning, selects this portion to quote:

The scale of household debt remained a threat to the recovery, it added, warning that the Bank of England would have to raise interest rates “gradually” due to the “potentially large effects of higher interest rates on growth”.

“In particular, growth remains vulnerable to a steep drop in house prices, which in turn are highly sensitive to short-term interest rates,” said the Article IV notice, the IMF’s annual “health check” on the economy.

I first suggested a means of easing the plight of the UK house price crisis in September 2008, as again quoted below, since I have repeatedly warned of the danger of Walkaways and horrors of negative equity, read here:

'What value maturing mortgages' Ironies Too Sunday 21/9/08- A "Professor" whose name I twice missed, but one time member of the Bank of England's Monetary Committee was doing the rounds of the 24 hour TV news channel last week stating that mortgages were worth their face value on maturity. It was clear from the interview with the clearly demented Prime Minister Gordon Brown on Friday on Sky News, that it is this mistaken view that is now driving the British nation into ever deeper bankruptcy. Let me explain. 1) If I am a supposed homeowner with a mortgage of eighty per cent of previous values I have a 20 percent share of that price. If prices fall by 10 percent I still have an equity share of 10 per cent and will therefore continue with my mortgage payments in the expectation of future house price rises and a desire not to lose that 10 per cent stake. 2) If I am a supposed homeowner with a mortgage of ninety per cent of previous values I have a 10 per cent share of that price. If prices fall by 20 per cent I have negative equity of 10 per cent and if prices are forecast to continue to fall I have zero incentive to continue the mortgage payments on a property over-valued by 10 per cent. As prices fall and re-possessions mount there will be a growing stock of unoccupied housing exposed to squatters and/or a tumbling rental market causing more foreclosures in the buy to let sector further exacerbating the problem. Hence the panic in the property industry to hide the true depth of the collapse. A mortgage maturing in 20 odd years at face value with inflation above 5 per cent is worth very little on present day values. A mortgage maturing several years in the future in a high inflation environment with no interest payments being made is on a discounted cash flow basis effectively worthless. The losses must lie with the mortgage lenders who made the loans on their assessments of present and future property prices, they can hardly now expect the borrowers to bear the full brunt of their 'professional' errors, if they do (as seems to be the case at present) then they are likely to be mistaken in my view. That is why the Halifax will now likely end by bringing down Lloyds TSB. Where Britain and Brown (if still in post) go from there is anybodies' guess! (Emphasis in last sentence added by blog editor 2/8/11)

My suggested cure was posted the following day, linked here.

Walkaways, UK Property Crisis,

It has been a while since this blog re-visited this painful topic. Entering the title of this post in the blog's search bar will yield many posts, amongst which are some proposing a possible solution whereby the pending disaster could well have been somewhat mitigated, if not averted, or read them by merely clicking here.

What prompted my return to the topic, other than the fall in mortgages issued in April, as announced this week, and this detailed analysis from the Wall Street Journal, linked here, has been the huge switch to interest only loans in the UK, effectively making your lender your landlord, and soon, almost inevitably also to be your evictor, as interest rates rise, as they eventually must, with inflation now above 5%.

How can the Ministers of the Coalition Government have done nothing to avert this coming catastrophe, merely sitting on their hands over the last twelve months while all around them chaos mounts.  Another large fall in property prices is just round the corner, which must surely be practically certain to be the final straw for the hard-pressed and long-suffering British taxpayer!

'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)