And so it begins....housing doom & gloom
In my recent post Illusions and delusions: the lure of credit and the price of debt I predicted further falls in house prices leading to negative equity and increased mortgage foreclosures as people struggle with rising prices, high debt levels and tax increases. Today's news supports my prediction.
Morgan Stanley reports today that it expects a 10% fall in UK house prices over the next two years, which will leave Lloyds TSB (the UK's biggest mortgage lender) with a negative equity overhang of about £90bn by December 2012.
The FSA warns that banks have insufficient provisions to cover anticipated defaults on mortgages and are moving people in financial difficulties on to interest-only mortgages to avoid having to increase bad debt provisions.
Although the Bank of England's weak growth forecast does suggest that base rates won't rise much for a while, increasing risk to mortgage lenders may nevertheless lead to increases in mortgage rates. I expect a significant rise in average mortgage rates within the next year or two whether or not the base rate rises. The squeeze on lending will continue, with lenders demanding high deposits and tightening of credit criteria.
Rents are already rising as more people - especially younger ones - give up on the idea of owning their home and turn to the rental sector instead. The average age of a first-time buyer has risen to 37.
Anyone remember this from the 1990s? mortgages turning bad, many households in negative equity due to falling property prices, rents skyrocketing...oh, and banks pretending it isn't happening, of course. Or are ostrich banks a more recent phenomenon?
The housing market is currently even more overvalued than the market of the 1980s that crashed spectacularly and caused misery to thousands. And households are already terribly overstretched in other areas, with falling real incomes and high debt levels.
The housing market crash twenty years ago will look like a minor blip compared to what is coming. Get out the sandbags, everyone.....
Morgan Stanley reports today that it expects a 10% fall in UK house prices over the next two years, which will leave Lloyds TSB (the UK's biggest mortgage lender) with a negative equity overhang of about £90bn by December 2012.
The FSA warns that banks have insufficient provisions to cover anticipated defaults on mortgages and are moving people in financial difficulties on to interest-only mortgages to avoid having to increase bad debt provisions.
Although the Bank of England's weak growth forecast does suggest that base rates won't rise much for a while, increasing risk to mortgage lenders may nevertheless lead to increases in mortgage rates. I expect a significant rise in average mortgage rates within the next year or two whether or not the base rate rises. The squeeze on lending will continue, with lenders demanding high deposits and tightening of credit criteria.
Rents are already rising as more people - especially younger ones - give up on the idea of owning their home and turn to the rental sector instead. The average age of a first-time buyer has risen to 37.
Anyone remember this from the 1990s? mortgages turning bad, many households in negative equity due to falling property prices, rents skyrocketing...oh, and banks pretending it isn't happening, of course. Or are ostrich banks a more recent phenomenon?
The housing market is currently even more overvalued than the market of the 1980s that crashed spectacularly and caused misery to thousands. And households are already terribly overstretched in other areas, with falling real incomes and high debt levels.
The housing market crash twenty years ago will look like a minor blip compared to what is coming. Get out the sandbags, everyone.....
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