Housing Market Speculation

Rumors are rife that the British Government is about to do something to assist home buyers, but this is surely a very controversial area to tinker with. They seemed quite prepared to stand by while the mortgage industry got itself into a proper pickle by a great deal of injudicious lending. Could they not see that the mortgage 'free for all' that preceded the present crises could not go on forever? It's difficult to guess what their intentions are so we will have to wait and see. However, they have got themselves into a bit of a mess, and have seemingly set many of the devices in their own minefields.

The trouble is that when a mess has been created is it wise to allow those who are responsible to sort it out. Unfortunately you don't always have a choice. Oh sure, you have the ballot box every five years or so, to try to make a bad situation better, but frequently all you get is more of the same. Then they wonder why so many people don't turn up to vote.

It is frequently reported in the press that UK government borrowings are at almost unprecedented levels, so where are all the billions they are to throw at the property market coming from. Is it money being spent to help desperate people, or to bail out a desperate government becoming increasingly aware of its own shortcomings. There is a world of difference in doing something to help a homeowner avoid repossession and assisting someone who saw the booming market as an easy way of making a fast buck. There is little doubt that the 'Buy to Let' market attracted many investors not particularly skilled in finance. Speculative investment has always borne an element of risk and in such instances it is not up to governments to bail out investors through the tax system.

So we must wait and see. There has been a high degree of election fever on the other side of the Atlantic. It will be followed before too long by electoral activity this side of 'the pond'. Before then there will be attempts to shore up quite a few flagging reputations. Only time will tell if that is possible!

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More Mortgage Gloom

It would seem that those anticipating an early end to mortgage problems for lenders and borrowers alike, will have to wait for quite some time.

There has been further speculation that the US Government may still have to bail out mortgage giants Fannie Mae and Freddie Mac Also Kenneth Rogoff, ex chief economist at the International Monetary Fund, has predicted that one of the really big investment banks could go under during the coming months. These are worrying trends indeed, particularly in the light of the mammoth losses already sustained by the leading players.

In the present malaise there have been many job losses and you could be forgiven for wondering where it is all going to end. It is well known that in the UK the Bank of England had to step in to support the Northern Rock Bank, and the US authorities have signalled their intention to follow suit if organizations such as Bear Stearns are similarly threatened.

There is speculation in Wall Street that Lehman Brothers is following a range of measures to strengthen its arm. As with many of their contemporaries it is apparent the sub prime mortgage market has cost Lehman dearly. Their problems may be intensified if the US commercial property market follows what has happened in the residential sector.

It could be more than a coincidence that the Chinese Bank ICBC, is reported to have overtaken HSBC as the world's most profitable bank, at a time when their superb Olympics is drawing to a close. With Europe, the UK, and the US, striving to avoid official recession, Asia is striding ahead, and there are undoubtedly bargains to be had by shrewd and cash rich investors. Testing times seem set to continue and it would be interesting to be able to move forward a year or two to determine the final outcome. In the meantime we must wait and see, and of course hope that established, and hitherto respected Western banks weather the storm.

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Housing Repossessions

It was recently reported in Yahoo News that foreclosures are still on the increase, in the USA.

This is a worrying trend because although housing repossessions in the UK, are nothing like as high as they are in the US, it seems that there is a severe knock on effect.

Economy - Thursday - Yahoo! News

Economy - Thursday - Yahoo! News: "U.S. home foreclosures spike

"Foreclosure filings jumped 55% in July vs. last year to 272,171 homes, just shy of May's record 273,001, RealtyTrac said. That's one per 464 households and signals that the nation's housing woes are deepening. Meanwhile, bank seizures of property almost tripled from last year to 77,295 in the biggest gain since records began in '05. Nev., Calif. and Fla. were hit hard.

Median single-family home prices in metro areas fell 7.6% in Q2 vs. a year before to $206,500, as rising foreclosures drove down values, the Nat'l Assoc. of Realtors said. Discount window loans to banks from the Fed averaged $17.7 bil in the week ended Aug. 13, breaking the prior week's record of $17.37 bil. Brokerages borrowed nothing. ECB official: economy healthy"

There has been much publicity, that Banks and other mortgage sources both sides of the Atlantic, have very much been caught out by the downturn in the property market. It had become customary to strengthen liquidity and potential profits by swap arrangements. As more people in the US are unable to meet their obligations, it is possible that those UK banks most involved in such arrangements, could sustain further losses.

There's no gain without pain, is something that may apply particularly to buy to let investors, as banks struggle to protect their own interests, through a tightening of lending policies.

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Bridging Loans Are A Serious Matter

A bridging loan may be negotiated to assist buyers to purchase another property before they have sold their own. It may be that someone has seen a house that they particularly like, offered for sale, but which is attractive to other prospective purchasers as well. In an endeavour to beat the opposition, they may be tempted to negotiate a bridge to enable them to make an offer, which might normally have had to wait, until they had sold their own property.

Bridging loans are not something that should be contemplated without serious consideration. They are usually provided by high street banks, and may be subject to higher interest rates and arrangement fees than those applied to normal mortgages. If the applicant then fails to sell their original property, within a reasonable time, they could become burdened with a level of total repayments that could cause them financial hardship. They would be liable for repayments on their original mortgage and on their bridging loan as well.

You can guess what could happen in a slow housing market. It would be a real worry if the original property was not sold for a year or two. It could become worth far less than the asking price, and where finances were becoming overstretched both the borrower and the lender would have cause for concern. Imagine what could happen if the first property had to be forcibly sold under the hammer!

As far as bridging loans are concerned it pays to be cautious. Whatever you do try not to bite off more than you can chew. It is disappointing to want to move, and to have found an ideal home, and then find that you can't proceed because a buyer hasn't been found for your existing property. Unless you are very sure about what you are doing, a bridging loan may not be the best answer. There will be other houses that you like just as much, when you are in a better position to proceed.

Don't be impetuous. There are always overpriced loans that may seem tempting when other considerations are holding you back. Be assured, that many are the times when prospective buyers have believed they have lost out, and then been rewarded with something even more desirable, after waiting until their circumstances matched their opportunities.

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Is Mortgage Bribe - Just A Jibe?

The highly respected Liberal Democrat Shadow Chancellor, Vince Cable, has suggested that measures the British New Labour Government is contemplating, amount to nothing less than trying to bribe people to buy houses in a falling market!

Indeed it would seem that Prime Minister Gordon Brown's economic policy, when he was chancellor, may have been so inexorably linked to house price inflation that his party's only way out is to try to re-inflate the bubble. As they lurch from one crisis to another they are throwing more money at the failed Northern Rock Mortgage Bank. Apparently £3 Billion, £3000,000,000, is being converted from a loan to equity, and it is feared that taxpayers might not see a return on their enforced 'investment'.

There has been much talk, of so-called amateur investors, catching a cold over buy -to-let investments. That is unfortunate, but those who really come out with egg on their faces, are a few well to do bankers, and of course the Government, who seem to have allowed circumstances to overtake them, and now to be clutching at straws. Some senior bank officials have kept their jobs and others have fared well with bonuses and the like. But if the government continue to throw taxpayers money about like confetti they could be torn to shreds at the ballot box.

Mr Cable has been a voice in the wilderness, but has spoken with the authority of one who knows a thing or two about financial issues. In fact he seems to be quoted more frequently than George Osborne who is his opposite number in the British Conservative party. Of course a certain Alistair Darling is now the Chancellor, but what was a good job is now something of a poison chalice, and a reshuffle could see someone not so close to Mr Brown being offered the position, more as punishment than reward!

There is a tendency to blame outside forces, particularly the United States sub prime market, for all ills. Nobody forced British Banks to invest in the United States mortgage market, and in any event it seems that injudicious internal home lending, is much to blame for the predicament in the UK,

Mr Cable for one thinks the UK Government continue to get it wrong. For British taxpayers to have to subsidize dodgy mortgage deals without so much as a House of Commons vote, might just be one mouthful too much to swallow!

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Bye, Bye, Buy To Let!

It has been reported, that up to 200,000 buy-to-let borrowers have seen their investments plummet, as the downturn in the UK housing market continues. This figure seems sure to grow as the relative slump in house prices continues, but it should be remembered that the downturn followed a period of unprecedented growth.

Unfortunately, it seems that many people viewed housing as a treasure trail, particularly those whose experience of such matters was limited. Lenders must take their share of the blame, because in many instances they stoked up the buy-to-let market, sometimes without full consideration of the experience or financial status of their mortgage borrowers.

If a market becomes overheated the bubble will eventually burst. It happened with the dotcoms and now a similar thing has happened to those who got into the buy-to-let market at the wrong time. Of course timing is everything. Oh, what wonderful thing hindsight is! Even the experts don't always get their timing right, but they are able to read the signs before situations get really bad, otherwise they wouldn't be experts would they?

Apparently there are around a million buy to let mortgages in the UK and in the region of 200,000 of those were taken out at the height of the boom. Therefore, many buy-to-let borrowers are either in negative equity or on the verge of being so. If you compare the figure of 1000,000 buy to let mortgages, with the figure of 30,000 ten years ago you can grasp the scale of the issues involved.

It seems now that people will think twice before investing in buy-to-let properties, and that mortgage loan companies, will probably think three times before deciding whom to lend to. It may not quite be bye, bye to the buy-to-let market, but there will certainly be a period of enforced restraint by lenders and borrowers alike.

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Vince Cable Warned About Negative Equity

It looks like Vince Cable, Shadow Chancellor of the British Liberal Democrat Party, was right when he said that many people in the UK, would soon face negative equity.
The last similar crisis in the UK was in the years 1990-93, and Mr Cable is not the only significant authority to issue warnings on negative equity reaching similar if not worse proportions.

Mr Cable was quick to emphasize, that most people experience negative equity in a purely theoretical sense, because they don't have to move, and can sustain their payments. However, he went on to say that as much assistance as possible must be provided to homeowners with severe mortgage problems. The Lib Dem Shadow Chancellor has become a highly respected authority since he stood in as leader before Nick Clegg was elected, during December 2007.

The ratings agency, Standard and Poor's has suggested that if the current fall in house prices continues at the current rate, the number of people affected could be 1.7 million by mid 2009. That is higher than it was in 1990-93, and the situation could become much worse, if gloomier forecasts prove to be correct.

The Council of Mortgage Lenders has urged homeowners to bear in mind that negative equity only becomes a problem if you have to move. However, with unprecedented increases in energy prices, and other basic commodities such as food, and petrol at the pumps, many people are becoming increasingly worried.

In the USA, President George Bush has sanctioned measures to assist homeowners struggling to pay their mortgages. There has been some talk of similar measures being adapted in the UK, where Parliament has now adjourned for the summer recess.

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