Credit deflation and the reflation cycle to come (part 2)

[Democorruptcy]

As expected:

Quote

 

Homeowners struggling to pay their mortgage due to Coronavirus will be able to extend their mortgage payment holiday for a further three months, or start making reduced payments, in proposals published today.

Published 22 May 2020

From:

HM Treasury

ongoing mortgage support for homeowners still struggling with impact of Coronavirus

application period for a mortgage holiday also extended

lenders will contact their customers to discuss options

The availability of a three month mortgage holiday was first announced in March as part of an unprecedented package of support for individuals, businesses and the economy. Over 1.8 million mortgage payment holidays were taken up, and the first of these will be coming to an end in June. So to give people the certainty they need, they will be contacted by their lender to discuss a way forward. Where consumers can afford to re-start mortgage payments, it is in their best interest to do so. However, if people are still struggling and need help, a full extension of the mortgage holiday for a further three months will be available as one of the options open to them.

The Financial Conduct Authority (FCA) has published new draft guidance today for lenders which will set out the expectations for firms and the options available to their customers. This includes extending the application period for a mortgage holiday until 31 October so customers that have not yet had a payment holiday and are experiencing financial difficulty will be able to request one. The current ban on repossessions of homes will be continued to the same date.

https://www.gov.uk/government/news/help-with-mortgages-to-continue-for-homeowners-affected-by-coronavirus?

 

 

[AWW]

It won't be long before we see stories in the papers along the lines of "I didn't realise that taking a mortgage holiday meant my term would be extended / my payments increased".

I think this ends with a small debt jubilee for mortgage holders.

[Harley]

13 minutes ago, AWW said:

I think this ends with a small debt jubilee for mortgage holders.

Or 100 year mortgages, plus your first born!

[Alifelessbinary]

17 hours ago, sancho panza said:

Bob, you've got me wrong.This is exactly what I'm saying.The idea that somehow a man off the street can make conduct a rapport building excercise with an EA over a period of time which will result in said EA turning down cool  hard cash and giving said rapport builder the lead on something worth having is the sort of thing that ends up with you waking up face down in your cornflakes.

If an EA offered me something then it means the people that line his pockets with cash on a weekly basis don't want it.

That may well happen in the coming years,as small developers tend to get crushed in the early stages of market meltdowns as they don't have the govt's ear.The people that have the govt's ear tend to go later in the cycle.

My attitude to EA's is very dismissive I admit.If they're ringing me for a bid they have no other options.We bought my Mum a flat in 2008 or so(can't remember completion year)-on at £175k or so(but it had to be one of four flats/corner plot/4th/5th floor/my dear old mum is eccentric/right view of the harbour etc.The EA assured me it was 'worth every penny','great invesmtent at that price''loads of other interested parties' etc etc.......I bid £115k,settled at £120k.The idea that rapport building would have got me anything otehr than shafted is utter bollocks.

A good friend of mine used to work as a conveyancer and some of the stories from local EA's and their quite blatant abuse of the isolated/elderly were soemthing to behold.

It's interesting you mention cool hard cash,because I have a good friend who's a developer-very straight guy who wouldn't do that sort of thing-I've often wondered if he'd get better discounts.

For what it's worth,I don't blame EA's/developers,that's business.It was ever thus.

Of course an EA isn’t going to turn down a ‘finders fee’ over rapport built up with a man from the street, but you can build Improve your place in the queue. There is a healthy disdained for EA’s on this thread but you can’t carry that through with your interacts. You still need to know your market and be clear on your maximum bid, but in a sticky market it might take months for the vendor to finally face reality and come back.

As an example when I brought my current house in 2010 I went to see loads of local agents, most were idiots but a few seemed decent. I treated them with respect and was clear what I was looking for,. After a few weeks I started to receive probate and development opportunities. While it was clear these had been turned down by developers, they were still great opportunities. I never saw them come online. 

In a strong market you won’t get a sniff at these opportunities, but in a downturn things change. Just because a developer turns down an opportunity doesn’t mean it is a bad deal.

EAs responsibility is with the vendor and their fee is linked with the sale price so you’re naive if you think they are going to sell less through rapport. Rapport however can open up opportunities and that’s something most people Miss as they lack experience. 

 

 

[DurhamBorn]

Just road mapping todays borrowing figures  and projected over a year i think the inflation the printing will cause and the affect down the road is 16% nominal off house price (just government borrowing).In affect £470 billion is going to be moved from housing equity to government.

I cant see any way the government can continue the massive welfare spending long term without a massive increase in inflation and wealth transfer.

The inflation road map keeps moving higher across the cycle and is now showing a top out in 28/30 of 26%.Thats maximum,but expected has moved up to 13%+

The UK is in clown world economics.Inflation assets are going to be critical to protect wealth.The more you road map the numbers and the response its becoming pretty clear housing equity and pension wealth in bonds and a lot of stocks is going to pay for this.The only assets that will come out in front will be ones who can leverage the inflation and pass it on before everyone else.

People 50 who were expecting equity release in 10 years and pension drawdown from their lifestyle type funds are going to be destroyed this cycle.

Clown world has arrived.

 

[Agent ZigZag]

Depressing reading that Durham. What depresses me is that I consider an industrial led recovery will be a half arse approach by the London elite. To achieve this the London centric mind set needs to be binned, with vision and strong leadership required. I fear all of these are missing from the decision makers. I want to be proved very much wrong.

[AWW]

9 minutes ago, Agent ZigZag said:

Depressing reading that Durham. What depresses me is that I consider an industrial led recovery will be a half arse approach by the London elite. To achieve this the London centric mind set needs to be binned, with vision and strong leadership required. I fear all of these are missing from the decision makers. I want to be proved very much wrong.

That London-centric mindset isn't going away anytime soon; it has been around for far too long. It's ingrained. Look at HS2. A fraction of those billions could have been spent improving trans Pennine links, or making it easier to travel around the south east without having to go into London.  But no, we need to get more people into London, more quickly.  It's a policy failure going back decades.

[Sugarlips]

32 minutes ago, DurhamBorn said:

Just road mapping todays borrowing figures  and projected over a year i think the inflation the printing will cause and the affect down the road is 16% nominal off house price (just government borrowing).In affect £470 billion is going to be moved from housing equity to government.

I cant see any way the government can continue the massive welfare spending long term without a massive increase in inflation and wealth transfer.

The inflation road map keeps moving higher across the cycle and is now showing a top out in 28/30 of 26%.Thats maximum,but expected has moved up to 13%+

The UK is in clown world economics.Inflation assets are going to be critical to protect wealth.The more you road map the numbers and the response its becoming pretty clear housing equity and pension wealth in bonds and a lot of stocks is going to pay for this.The only assets that will come out in front will be ones who can leverage the inflation and pass it on before everyone else.

People 50 who were expecting equity release in 10 years and pension drawdown from their lifestyle type funds are going to be destroyed this cycle.

Clown world has arrived.

 

Thanks for this DB, as far as I can see, the only time inflation has run up like that was ‘72 - ‘82, source: 

https://www.macrotrends.net/countries/GBR/united-kingdom/inflation-rate-cpi

I’m too young to remember that however I do know my parents bought a 2 up 2 down in Botley, Oxford for circa £600 in 1972 and sold it is 1979 for £18,000.

I appreciate history only rhymes but is there not the possibility that lower end but quality freehold housing stock will weather the storm better than the roadmap (which presumably has a catchall formula  for the whole housing market)?

[Eventually Right]

It's the 3 year anniversary of the original thread starting on ToS today-thanks for starting it back in 2017 DB, it's been a hell of a ride so far!

[sancho panza]

Banks pulling 90% LTV's for now.

https://www.which.co.uk/news/2020/05/banks-withdraw-nine-in-10-low-deposit-mortgages-whats-next-for-first-time-buyers/

'Nine in 10 mortgage deals for buyers with small deposits have been withdrawn in the past two months, but could better news be on the way for first-time buyers?'

https://www.dailymail.co.uk/news/article-8338405/First-time-buyers-face-mortgage-crisis-firms-withdraw-lower-offers-fearing-house-price-crash.html
'The number of mortgage deals for customers with a 10 per cent deposit has dropped from 780 in March to just 87, Moneyfacts revealed today. Meanwhile, the number 5% deals stands at just 30 - less than a tenth of the figure two months ago.'

 

Meanwhile one for @Harley s woodshed

 

 

[sancho panza]

56 minutes ago, Alifelessbinary said:

Of course an EA isn’t going to turn down a ‘finders fee’ over rapport built up with a man from the street, but you can build Improve your place in the queue. There is a healthy disdained for EA’s on this thread but you can’t carry that through with your interacts. You still need to know your market and be clear on your maximum bid, but in a sticky market it might take months for the vendor to finally face reality and come back.

As an example when I brought my current house in 2010 I went to see loads of local agents, most were idiots but a few seemed decent. I treated them with respect and was clear what I was looking for,. After a few weeks I started to receive probate and development opportunities. While it was clear these had been turned down by developers, they were still great opportunities. I never saw them come online. 

In a strong market you won’t get a sniff at these opportunities, but in a downturn things change. Just because a developer turns down an opportunity doesn’t mean it is a bad deal.

EAs responsibility is with the vendor and their fee is linked with the sale price so you’re naive if you think they are going to sell less through rapport. Rapport however can open up opportunities and that’s something most people Miss as they lack experience.

I haven't dealt in property much so I'm probably in the naieve/inexperienced camp.

[JMD]

5 hours ago, Harley said:

Yep, that throws up my dilemma:  total return versus yield.  I'm beginning to favour total return using a formula like one of the largest company's in the chosen sector with the best fundamentals and a yield above the average for the sector.  

Harley, I like (investment) formulas, purely as a guide of course... after all they can always be 'made to fit' if they don't look right! (or is that just me?!)

But have you modified your thinking on how to achieve a total return? I may be misremembering, but I thought you previously said something along the lines of achieving a total return for a sector (I believe you breakdown many sectors), by selecting 2 'good' (value, reflation) stocks and 2 'good' smart beta etfs/funds (sorry, paraphrasing you).

[Castlevania]

1 hour ago, Alifelessbinary said:

Of course an EA isn’t going to turn down a ‘finders fee’ over rapport built up with a man from the street, but you can build Improve your place in the queue. There is a healthy disdained for EA’s on this thread but you can’t carry that through with your interacts. You still need to know your market and be clear on your maximum bid, but in a sticky market it might take months for the vendor to finally face reality and come back.

As an example when I brought my current house in 2010 I went to see loads of local agents, most were idiots but a few seemed decent. I treated them with respect and was clear what I was looking for,. After a few weeks I started to receive probate and development opportunities. While it was clear these had been turned down by developers, they were still great opportunities. I never saw them come online. 

In a strong market you won’t get a sniff at these opportunities, but in a downturn things change. Just because a developer turns down an opportunity doesn’t mean it is a bad deal.

EAs responsibility is with the vendor and their fee is linked with the sale price so you’re naive if you think they are going to sell less through rapport. Rapport however can open up opportunities and that’s something most people Miss as they lack experience. 

 

 

Or use a buying agent. 

[Bobthebuilder]

7 minutes ago, sancho panza said:

As an example when I brought my current house in 2010 I went to see loads of local agents, most were idiots but a few seemed decent. I treated them with respect and was clear what I was looking for

That is what i found. Its a good idea to have a mortgage in principle letter from your bank showing your deposit and agreed mortgage amount and show this to the agent on viewing. I am talking probate type properties here not general market.

With the potential inflation DB has just written about, i am at a loss to think what might be best going forward if you are looking to buy a home at the moment. I like DBs sons set up, its a good hedge.

[JMD]

1 hour ago, AWW said:

It won't be long before we see stories in the papers along the lines of "I didn't realise that taking a mortgage holiday meant my term would be extended / my payments increased".

I think this ends with a small debt jubilee for mortgage holders.

Aren't t 'Debt Jubilees' so last century/millennium!

...Why not instead treat all private debtors similarly and fairly - not to mention equitably (the new catchword). So, just like those fines levied in the small-claims courts, or on those charged with benefit fraud, lets just settle for £2/week extra for the next 60 years. (repayments can increase when able, except we all know that they never will)

[Talking Monkey]

1 hour ago, DurhamBorn said:

Just road mapping todays borrowing figures  and projected over a year i think the inflation the printing will cause and the affect down the road is 16% nominal off house price (just government borrowing).In affect £470 billion is going to be moved from housing equity to government.

I cant see any way the government can continue the massive welfare spending long term without a massive increase in inflation and wealth transfer.

The inflation road map keeps moving higher across the cycle and is now showing a top out in 28/30 of 26%.Thats maximum,but expected has moved up to 13%+

The UK is in clown world economics.Inflation assets are going to be critical to protect wealth.The more you road map the numbers and the response its becoming pretty clear housing equity and pension wealth in bonds and a lot of stocks is going to pay for this.The only assets that will come out in front will be ones who can leverage the inflation and pass it on before everyone else.

People 50 who were expecting equity release in 10 years and pension drawdown from their lifestyle type funds are going to be destroyed this cycle.

Clown world has arrived.

 

DB you've mentioned previously that the QE being done over the next 18 months is the last time that it can be done. With the lockdown and the government covering consumption does the fact a large portion of new QE will go to cover consumption mean less for infra spending and in turn the reflation cycle evolving differently than you would have anticipated say a year ago.

[Loki]

4 minutes ago, Talking Monkey said:

DB you've mentioned previously that the QE being done over the next 18 months is the last time that it can be done. With the lockdown and the government covering consumption does the fact a large portion of new QE will go to cover consumption mean less for infra spending and in turn the reflation cycle evolving differently than you would have anticipated say a year ago.

That's an excellent question 

[AWW]

31 minutes ago, Castlevania said:

Or use a buying agent. 

Used one last year, although we didn't end up buying anything. We told him we weren't in a rush, what we were looking for and our budget.  He said it would be tight, the market is turning and only buy something you absolutely love in a market like this one. He also used potential rental yield as a measure of value, which is more sophisticated than the usual "one down the road sold for x, therefore this one is worth x plus 10%" method used by EAs. The phrase that sticks with me is, "If someone outbids you, it just means they love it more than you do". Many of the places we considered are still on the market a year later; some are reduced.

That's the difference between a buying agent and a selling agent. They are paid to advise you and work in your best interests.

[CVG]

33 minutes ago, AWW said:

Used one last year, although we didn't end up buying anything. We told him we weren't in a rush, what we were looking for and our budget.  He said it would be tight, the market is turning and only buy something you absolutely love in a market like this one. He also used potential rental yield as a measure of value, which is more sophisticated than the usual "one down the road sold for x, therefore this one is worth x plus 10%" method used by EAs. The phrase that sticks with me is, "If someone outbids you, it just means they love it more than you do". Many of the places we considered are still on the market a year later; some are reduced.

That's the difference between a buying agent and a selling agent. They are paid to advise you and work in your best interests.

If you don't mind saying, out of interest, how much did that service cost?

[AWW]

8 minutes ago, CVG said:

If you don't mind saying, out of interest, how much did that service cost?

As we didn't end up going down the road of purchasing anything, he only charged £100.  I think if we'd ended up having our hands held all the way through to completion, it was about £500, which I would consider money well spent when spending huge sums in a market that one has little experience of. You can spend a lot more if you want someone to actually search and shortlist properties for you, and deal with EAs on your behalf.

[JMD]

3 hours ago, Alifelessbinary said:

Of course an EA isn’t going to turn down a ‘finders fee’ over rapport built up with a man from the street, but you can build Improve your place in the queue. There is a healthy disdained for EA’s on this thread but you can’t carry that through with your interacts. You still need to know your market and be clear on your maximum bid, but in a sticky market it might take months for the vendor to finally face reality and come back.

As an example when I brought my current house in 2010 I went to see loads of local agents, most were idiots but a few seemed decent. I treated them with respect and was clear what I was looking for,. After a few weeks I started to receive probate and development opportunities. While it was clear these had been turned down by developers, they were still great opportunities. I never saw them come online. 

In a strong market you won’t get a sniff at these opportunities, but in a downturn things change. Just because a developer turns down an opportunity doesn’t mean it is a bad deal.

EAs responsibility is with the vendor and their fee is linked with the sale price so you’re naive if you think they are going to sell less through rapport. Rapport however can open up opportunities and that’s something most people Miss as they lack experience. 

Its an interesting discussion. I'm as cynical as many others here, however I think it should be pointed out that EA's work in sales(!), therefore it follows that there are far too many moral hazard pot-holes for them to fall down.  

A friend once said to me - that regardless of the actual job (whether it be doctor, builder, 'social media mogul'!) - in terms of the individual's approach to their job/decisions and moral judgement calls they make when performing their work - the fundamental difference between so-called (trusted) 'professionals' and (untrustworthy) 'cowboys'... is that when faced with a difficult decision: professionals will usually and vociferously argue amongst themselves if there is any doubt about which path is in their clients best interest; whereas 'cowboys' are just in race-to-the-bottom mode, and will merely favour the option that lets them break for lunch early!!! (apologies to those who read to end, no great moral lesson here!)      

Anyway I guess my personal thinking is that human behaviour is overwhelmingly driven by (human) character (mostly positive) and (systemic/capitalist?) moral hazards (good and bad)... therefore I do fear for the future, so perhaps last words best left to the immortal words of Hill Street Blues, Michael Conrad - 'Let's be careful out there'. 

[JMD]

3 hours ago, DurhamBorn said:

Just road mapping todays borrowing figures  and projected over a year i think the inflation the printing will cause and the affect down the road is 16% nominal off house price (just government borrowing).In affect £470 billion is going to be moved from housing equity to government.

I cant see any way the government can continue the massive welfare spending long term without a massive increase in inflation and wealth transfer.

The inflation road map keeps moving higher across the cycle and is now showing a top out in 28/30 of 26%.Thats maximum,but expected has moved up to 13%+

The UK is in clown world economics.Inflation assets are going to be critical to protect wealth.The more you road map the numbers and the response its becoming pretty clear housing equity and pension wealth in bonds and a lot of stocks is going to pay for this.The only assets that will come out in front will be ones who can leverage the inflation and pass it on before everyone else.

People 50 who were expecting equity release in 10 years and pension drawdown from their lifestyle type funds are going to be destroyed this cycle.

DB, can you comment more about the 'wealth transfer' part? Have you some ideas on the type of policies, etc.

I think pension taxes have been mentioned before. And i suppose residential house equity will eventually be taxed? (i.e. social care costs will be 'capped' in order to 'win gullible votes', but it will just be paid for by other found means)  

I guess it will be the 'easy to reach' assets that will be stolen first. So for example it would be a good idea to move money from a sipp (using tax free sum) and into isa's, because pension wealth is so massive (compared to total isa wealth, actually its quiet a stark difference) it will surely be too irresistible for government not to go after (again, again, again).

[DurhamBorn]

2 hours ago, Sugarlips said:

Thanks for this DB, as far as I can see, the only time inflation has run up like that was ‘72 - ‘82, source: 

https://www.macrotrends.net/countries/GBR/united-kingdom/inflation-rate-cpi

I’m too young to remember that however I do know my parents bought a 2 up 2 down in Botley, Oxford for circa £600 in 1972 and sold it is 1979 for £18,000.

I appreciate history only rhymes but is there not the possibility that lower end but quality freehold housing stock will weather the storm better than the roadmap (which presumably has a catchall formula  for the whole housing market)?

Yes there is,and i admit i do very very little work on house prices because they dont affect me.The only work i do is more low level and out of interest,plus the fact i promised my partner a holiday home on the coast if silver hits a certain level .

The difference with the 70s though is house prices are starting from a much higher level,and we started the 70s as an industrial waged country,so wages grew with the inflation.We arent in that position now.Rates are going to increase faster than wages mid cycle,a 4% SVR might be a 33% increase where wages go up 7%,the next year at 6% is another 50% increase where wages go up 8% etc.Its servicing the debts that will be the problem.

[Talking Monkey]

1 minute ago, DurhamBorn said:

Yes there is,and i admit i do very very little work on house prices because they dont affect me.The only work i do is more low level and out of interest,plus the fact i promised my partner a holiday home on the coast if silver hits a certain level .

The difference with the 70s though is house prices are starting from a much higher level,and we started the 70s as an industrial waged country,so wages grew with the inflation.We arent in that position now.Rates are going to increase faster than wages mid cycle,a 4% SVR might be a 33% increase where wages go up 7%,the next year at 6% is another 50% increase where wages go up 8% etc.Its servicing the debts that will be the problem.

I've thought about the wage inflation a lot and beyond the minimum wage moving up I can't see huge increases on the higher tiers. Automation and tech along with offshoring (I still expect it to continue) will suppress wage inflation. I can't see the white collar worker on say 35K having his wages keep up anywhere near the rate of inflation

[JMD]

2 hours ago, sancho panza said:

Meanwhile one for @Harley s woodshed

 

SP how/where/why did you find that? Damn you (not really) I can't now not unsee it!?

It certainly does make depressing viewing, maybe even inspiration for Wes Craven's next 'nightmare on elm street' film... but surely mainly it is just crammed full of that moral-hazard I was speaking about? i.e. aren't most bubbles aided/abetted by easy lending? 

However, I still agree it can still be taken out to the woodshed for special attention!