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rffrydr
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 Posted: Sat Sep 22, 2007 10:20 am Post subject: British Banking/Housing |
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From the broker:
Looking at the UK Housing Market
With the problems brewing in the UK banking system, some are questioning the stability of the British financial structure and furthermore the possibility of on going rate hikes. Going forward, the situation in the housing market will remain instrumental in determining future monetary policy.
UK home prices remain at their all time highs. According to the BBC, the average cost of a home is Stg.210,578, up 9.25% from last year. Furthermore, the Rightmove Asking Price index hit all time highs in August. Though these gains have been consistent, they have been decelerating. The Y/Y growth rate in the Nationwide House Prices index has fallen off its 2003 highs. The graph below exhibits the trend since 1992.
Nationwide House Prices: Monthly 1992-2007
While the index did pick up some steam at the end of 2006, there has been some recent consolidation around 9.5%. The pick-up in housing prices was a function of the growing business in innovative mortgage products. According to a Halifax press release distributed in 2001, “UK borrowers benefit from having a wide choice of mortgage products, including variable rate loans, discounted, fixed, tracker, capped, and 'cap and collar' mortgages. In contrast, over two thirds of mortgages in Europe are fixed rate loans.” It is estimated that from 2002-2005 over ¼ of the loans made were adjustable. Lower loan standards and a diverse array of mortgage products encouraged aggressive lending. Loans for house purchases increased to Stg. 9.192B in July of 2007 from Stg. 3.431B in January of 2000. The data on mortgage approvals also expresses how the changes in lending standards encouraged the boom in the real estate sector. Approvals surged from 1.7B in mid 2001 to 6B by December of 2006. The changing housing climate in the UK however has since depressed approvals to under $4B.
UK borrowers will soon face the consequences of these loose standards. By the end of the year, 800K mortgage will be subject to re-set to significantly higher rates. The fixed mortgage average has risen from 3.99% in 2003 to 5.71 by July of 2007. Going forward, the market is left to grapple with the UK’s ability to digest these higher rates. The higher mortgage rates and resets will create major financial obstacles in the UK. One of the main indications of the continued deteriorating housing market is the large value of home equity withdrawals. The chart below shows the relationship between the per quarter value of home equity withdrawals.
According to this chart home equity withdrawals have stayed robust. Though there was a precipitous decline in the metric from 2004-2005, the most recent spike could likely be due to the rebound in home prices. The increasing value of home equities withdrawals suggests that the consumer is becoming overleveraged. Considering the upward trend interest rates, credit for the individual may face unmanageable levels. The growth in income in relationship to HEW argues for a contraction in the UK economy. According to the Bank of England data used in the above graphic, yearly income growth is approaching negative levels. Notice on the graph that in the later portion of the data set declines in income growth correlate with expansions in home equity withdrawals. This in mind, it is arguable that falling income levels forced consumers to borrow on their homes to fund purchases. Looking back to home prices, low income growth coupled with high mortgage rates suggests and affordability problem in addition to an over-leveraged housing market.
These statements in mind, it is unlikely that the BOE will hike at their next meeting. Though money supply growth and inflation do argue for the continuation of the tightening cycle, the BOE will recognize the deflationary pressures and economic stresses extending from the housing market.[/code]
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HenryTo
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| Posted: Sat Aug 30, 2008 11:13 pm Post subject: |
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Look for the Bank of England to dramatically slash interest rates heading into Christmas time.
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Darling says downturn deeper than feared
Sat Aug 30, 2008 4:30pm BST
By Christina Fincher
LONDON (Reuters) - The economic downturn is likely to be deeper and last longer than originally feared and it might turn out to be the worst for 60 years, Chancellor Alistair Darling said on Saturday.
The frank comments in a newspaper interview suggested concern at the top of the government that the economic slide will make it difficult for Prime Minister Gordon Brown to recover ground and fend off a resurgent opposition Conservative Party.
Labour has seen its opinion poll ratings plummet in the last six months and it is now languishing 21 points behind the Conservatives.
A national election must be held by mid-2010 at the latest.
Darling told the Guardian newspaper that the government had failed to get its message across and would battle to persuade a sceptical electorate it deserved another term in power.
The Guardian quoted Darling as saying economic times for the country were "arguably the worst they've been in 60 years".
"I think it's going to be more profound and long-lasting than people thought," he said.
His comments came just days before a planned package of measures designed to buffer the economy and help the government regain the political initiative.
"We've got our work cut out. This coming 12 months will be the most difficult 12 months the Labour Party has had in a generation, quite frankly," Darling said.
"We've got to rediscover the zeal which won three elections, and that is a huge problem for us at the moment. People are xxx off (angry) with us."
ASTONISHING
The BBC called the interview an "astonishing intervention" and reaction from opposition politicians was swift.
Conservative economy spokesman George Osborne chided Darling for "letting the cat out of the bag" about the real state of the economy while Liberal Democrat spokesman Vince Cable called Darling's comments a "scarcely concealed attack" on Brown himself.
The bleakness of Darling's assessment of the economy marks a departure from his previous line that Britain's flexible labour market left the country well placed to withstand the global credit crisis.
Justifying his sharp tone, Darling said honesty was the best way of dealing with the credit crisis.
"We've got a credit crunch, the like of which we have not seen in generations," he told the BBC. "That's why it's necessary for us to support the economy and help people get through these difficult times."
Some commentators suggested Darling was massaging the public ahead of a wide-ranging economic package next week.
The package will include help for those struggling with plunging property values and soaring fuel bills.
Brown is expected to kick-start his political fightback on Tuesday with a scheme to enable first-time homebuyers borrow money for a deposit from local councils.
Later in the week he will announce a fund, based on contributions from energy providers, to help families make their homes more energy efficient. Some ministers have argued the government should go even further and impose a windfall tax on energy companies but this looks unlikely at this stage.
MOUNTING GLOOM
The speed and scale of Britain's economic downturn has become increasingly apparent. Official figures last week showed the economy failed to grow in the second quarter for the first time since the early 1990s.
The pound has suffered its worst month against the dollar since sterling's ejection from Europe's Exchange Rate Mechanism in 1992 and a growing number of analysts believe the economy may have already tipped into recession.
House prices have crumbled by more than 10 percent over the past year and the number of mortgages approved for home purchase has hit a record low, suggesting no hope of recovery anytime soon.
Bank of England policymaker David Blanchflower told Reuters earlier this week that two million Britons could be out of work by Christmas and interest rate cuts were urgently needed to stop the economy heading into a prolonged slump. |
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HenryTo
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HenryTo
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| Posted: Tue May 27, 2008 9:49 am Post subject: |
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Sharp rise in UK mortgage delinquencies:
http://www.ft.com/cms/s/0/9a3c01d6-2b60-11dd-a7fc-000077b07658.html
| Quote: | More than a fifth of UK homebuyers who have a chequered credit history have fallen behind on their mortgage payments and even those with top-quality ratings have seen a statistically significant rise in delinquencies in the first three months of this year.
.....
Potentially more worrying is the small but notable increase in delinquency rates among prime mortgage-holders.
In a report on the performance of securities in this vastly larger market, S&P calculated mortgage delinquency rates for the first quarter of 2008 were 2.41 per cent while payments 90 days or more overdue were 0.79 per cent. S&P said this represented a “sharp” rise from the previous quarter when the figures were 2.11 per cent 0.62 per cent respectively.
S&P stressed that the numbers remained very small and Sean Hannigan, a director and credit analyst at S&P said: “We have seen numbers like this two years ago.” However, he added: “The difference today is that borrowers are not being helped by rising house prices as they have been in recent years,” he said. “In previous years, homebuyers in difficulty could find another lender to refinance the mortgage. It could mean that now more homes wind up in repossession.”
The fact that a rise is occurring while employment is strong and interest rates low suggests that it may not only be macroeconomic factors making it hard for homeowners to pay their debts. |
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HenryTo
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| Posted: Sat Apr 12, 2008 4:03 pm Post subject: |
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The Economist on the British housing boom, and now subsequent bust:
http://www.economist.com/world/britain/displaystory.cfm?story_id=11024646
The latest 25 bps cut has done nothing for the UK - it seems like at some point, the British government would need to move into the markets and start buying mortgages to help lower mortgage rates and mortgage resets. |
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HenryTo
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| Posted: Tue Mar 25, 2008 9:00 pm Post subject: |
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King taking a lot of heat as LIBOR surges:
http://www.bloomberg.com/apps/news?pid=20601102&sid=apjgrt9zhyfQ&refer=uk
| Quote: | Lawmakers are looking for signs that King is willing to take further action after the cost of borrowing pounds rose for 11 straight trading days, reaching the highest since December yesterday. King, who last year drew fire for not preventing a run on Northern Rock Plc, is facing calls to follow Federal Reserve Chairman Ben S. Bernanke and widen the range of collateral the central bank accepts in return for funding.
``We need to understand why King is moving at a snail's pace compared to the Fed,'' Michael Fallon, a Conservative lawmaker who sits on the Treasury Committee, said in an interview. ``It looks as if he's being pushed into widening collateral and increasing liquidity, but remains reluctant. We need to probe and find out why.''
The three-month London interbank offered rate, or Libor, for pounds climbed to 6 percent yesterday, the most since December 28. Banks worldwide are curtailing credit as writedowns and losses from the U.S. subprime mortgage market collapse mount. |
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rffrydr
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| Posted: Mon Mar 24, 2008 8:04 am Post subject: |
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From Numis on "that fateful day"
| Quote: | Wave 3 Higher impairment, recession lower loan demand and more saving: This is the traditional point in the cycle where banks see profitability decline. The surge in unsecured impairment eighteen months ago was linked to excessive indebtedness (which still remains) rather than the economy which was growing above trend with full employment. The household savings ratio is 3.4%, the 35 year average is
8.1% and the last cyclical peak was in 1992 at 11.7%. This is key to the UK’s economic performance as savings and consumption are inversely correlated and circa 70% of GDP is consumption. A return to the average savings ratio will drive recession with an increase in unemployment corporate and personal insolvency. If this drives the pound to PPP equilibrium 1.62 vs. the dollar inflation will be imported into the UK and this could drive the nightmare scenario where the BoE increases interest rates heading into recession.
How much is priced in and what is the right investment strategy: We believe that much of the risk is now priced in but in many cases the situation is binary either the stocks are worth double or nothing. Bradford & Bingley (Target price 193p) has a leveraged balance sheet and is exposed to relatively risky assets. Cattles (Target price 215p) is the most exposed to a weakening macro picture. It does have a strong balance sheet (with significant liquidity risk in 2009) and a high ROE but its assets are entirely sub prime. Its customers (40% have mortgages) will be hit hardest by credit tightening, have a propensity not to pay even in good times and have a weak employment track record. Strategically we like HBOS (Target price 1007p) which has a 44% average LTV on its predominantly prime mortgage book, the strongest liabilities franchise of any UK Bank and is being valued at just 1.1x book. |
Double or nothing: that's how you trade it.
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lmrhoades
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| Posted: Sun Mar 23, 2008 12:00 pm Post subject: |
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HOw do we trade this henry...any etf's out there to take advantage?
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HenryTo
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HenryTo
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| Posted: Mon Mar 17, 2008 1:56 am Post subject: |
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Mortgage resets due to hit the UK:
http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=536558&in_page_id=1770
| Quote: | More than 320,000 homeowners fear they won't be able to cope with the "payment shock" when their cheap fixed-rate mortgages end.
Around 1.4million face an average monthly rise of £200 while others could be asked for £500 more.
The hardest-hit are already being advised to sell their homes before they are repossessed.
Rising mortgage rates mean that fixed-rate loans taken out a few years ago at 4.3 per cent will be charged at a new fixed rate of 5.6 per cent - or at a standard variable rate of 8 per cent. |
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HenryTo
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rffrydr
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rffrydr
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rffrydr
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rffrydr
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HenryTo
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