Schadenfreude? Mich?

[peterbirks]

I think that I wrote about the dog that is Alliance & Leicester a month or so back, pointing out that they were doing everything that they could to boost a fragile bottom line in the, probably vain, hope that someone would buy them.

Well, no-one turned up and the bottom line proved even more fragile than I expected. Net income down, net mortgage lending down a horrific 33%, although they managed to boost the value of personal loans by 17% to £1.5bn.

As the options to remortgage decline, I'm worried that Joe and Joella Public will maintain their more-than-they-can-really-afford lifestyle by taking out more expensive personal loans. This will stave off the recession for a bit longer, but at a fairly serious cost.

A&L is currently capitalized at just shy of £4bn, but no-one in his right mind would pay that much for it. I reckon its best hope would be to sell itself off piecemeal.

Comments

[(Anonymous)]

Net mortgage lending down 33 per cent? Doesn't this suggest that house prices must fall or am I missing something? Please explain.

DY

Mortgage lending down

[peterbirks.livejournal.com]

Although it would suggest a fall in house prices, a number of caveats should be issued:

1) This figure includes a fall in remortgages, because house prices aren't going up any more. Hence the increase in the number of personal loans, is my guess.

2) That said, I think we can assume a lack of liquidity in the housing market as sellers refuse to accept realistic prices (those that buyers are willing or able to pay) and would rather stay put. This would contribute to fewer people moving, hence the drop in mortgage lending.

3) A lack of liquidity along these lines, if coupled with a continued dearth of first-time buyers, would definitely presage a fall in prices as sellers gradually accept that prices are lower. Clearly this fall has to come "top down" as those downsizing or emigrating are the only losers in this game. Everyone else trading up is a gainer. The problem is, they don't see this. They accept that other people's houses might be a better price, but are unwilling to see that this applies to the place they are selling as well.

4) A final possibility might have been (but wasn't) a case of A&L alone seeing a drop in mortgage lending for various reasons (lack of cash, new lending criteria) which was not industry-wide. This is not the case, though. Net mortgage lending is falling everywhere.

5) The biggest impact will be when the US housing bubble bursts, probably in late 2008/early 2009 (I get this date from when the current rash of Adjustable-rate mortgages see their initial generous rates expire). Given the tendency of the US economy to swing considerably faster and more widely than is experienced in Europe or the UK, 2010 could be a bumpy ride!

Re: Mortgage lending down

[(Anonymous)]

Alternatively, it could just mean lower or zero growth - i.e what we are seeing now. I would assume that a reduction in the number of mortgages sold often has the affect of simply slowing down the growth rate along with many other factors(e.g.if no one wants to sell, how many applications are going to be processed?). I haven't a clue as to all the variables that drive the housing market, but I suppose they have to be much more stronger to compensate for the friction created through a reduction in mortgage applications. Clearly, though, a reduction in mortgage applications doesn't translate directly into a fall in house in house prices. Though of course there must be critical points and 33% seems pretty hefty.

I'm surprised it's gone on this far, too much easy money has been made, bubbles usually end with a pop, but there are no obvious signs just yet, with interest rate cuts about to make money cheaper again.

When dark cloud on the horiozon for those hoping for a fall: I heard in passing that next year the government are offering relief of some sort for those who invest their pensions in properties. It was an idle comment and I know nothing more than that about it, but it would be unfortunate driver if true and result, perhaps in a bigger, delayed pop.

chaos