Where Does It Go? - UK Money Blog £

Could Google be a way to predict trends, enough so that it could point to investments?

Its an interesting idea, introduced by Hitwise when they ask if the housing market has hit rock bottom - pointing to a levelling off of the decline in Google searches for “Houses For Sale”

Certainly looking at searches for trends for “houses for sale” in Google trends doesn’t share the level off, with a decline still shown, almost 50% down on the same time last year due to a shortage of mortgages

Also look at spending power - “DIY” is down about 30% from last year, but is experiencing an upswing in the last month.

Are people finding they do have more disposable income, or are they trying to tart up their houses as much as possible to make them easier to sell in this tough market?

But is everyone feeling the blues and booking themselves on holiday? Looks like search trends for “holiday” are on their way up.

Could you maybe let search volume govern investment choices? Indeed, could you not build a search engine that looked for company names in the vicinity of certain “buzz” works such as Buy, Sell, Good, Bad, and make a call on possible share options? I’ll tell you if it works after I make my first million

Technorati Tags: google, trends, economy, mortgages, buy a house, blog, uk, money

A very informative YouTube video on how the sub-prime market rocked the UK, ending up with the nationalisation of Northern Rock.

It includes a very easy to understand guide on how the banks planned out the sub-prime lending scheme, using Collaterised Loan Obligations (CLO).

The Collaterised Loan Obligations bankers used are less regulated than normal banking.

How The Banks Bet Your Money UK & US part 1

Basically bankers borrow money at a low rate from say pension funds, then buy sub-prime mortgages which gave an income greater than the low interest they were paying. This gave an estimated 26% a year return on investments per year. Big figures for a greedy banker.

It’ll be similar if you used a 0% credit card to buy a buy to let flat - whilst you have tenants you earn enough money to pay off your credit card bill and make a good amount of profit - but if for some reason your tenant cannot pay, you’re left with debts you cannot afford.

Of course, it didn’t end up like that. The banks even leant to people with no asset, jobs or capital, so often they had a specific term for them - NINJA (No Income No Job or Assets) - a derogatory term used by high income bankers to describe the sacrificial lambs that would provide their bonuses. When those NINJA’s couldn’t pay their mortgages, the income for the CLO dries up and the banks are left with huge loans to pay off. Ergo - the Credit Crunch.

If you thought that was informative, the other parts of the programme are available here:
Part 2
Part 3
Part 4
Part 5

I live in a pretty seaside town in Cornwall which has a lot of Londoners coming down buying up holiday homes; great for them but the locals are now priced right out of the market.  Buying a house in my parents day was a natural step to adulthood; these days the prices are so inflated its not even considered, especially on Cornwall wages which average the lowest of the country.

Buying your own home is a UK obsession - Margret Thatcher’s move to let all council house be bought by their renters in the 80-90s via S125 has meant a lot more people of that generation now own former council property.  This I think has helped fuel the consumer splurge, with former tenants finding themselves jumping upwards from working class (The Brits are still obsessed with class; sorry) and taking out secured loans to cover in many cases frivolous spending - who needs a kitchen refurb every two years?

An interesting post by the New York Times property expert David Leonhardt offers a buy or rent calculator - it basically shows that sometimes its best to rent rather than tie up your money in a speculative bubble.  (Graph in $’s but same principle for £’s)

A basic rule of thumb touted in the article by David is to divide the price of your house on the market with your annual rental.  If the ratio is above 20 the monthly cost of ownership exceeds the cost of renting.

My figures…

Pay £700 a month rent on a £300,000 valued house; £8400 a year rental outgoings - I get a ratio of 35.71% (!)

This is typical for the county.  This is obviously way over what I want to tie up my money in - I’m thinking I’ll only now ever get a mortgage if I can get an LTV (Loan to Value) under 50%. 

Those sitting in their over priced houses smugly are in no real better position - if they sell their house they have to buy another over priced house

EDIT - 17 July

Found a good site explaining the tradeoffs in more details here - What Should you Pay for Your House?

Tags: mortgages, housing bubble, cornwall, uk

And so it if that I start to see the credit crunch squeeze on my nearest and dearest.

My girlfriends sister has two kids and a now estranged husband, a divorce pending if they can bear to stay in the same room as each other to sign the papers. 

An emotional time for everyone involved exasperated by the fact their shared house in a pleasant up and coming seaside town is now rolling towards negative equity.  The mother and two children are left in the house whilst the husband who was the main breadwinner has moved into another house with his new girlfriend. 

Only a few months have past, but due to the many memories leading up to the breakup, and sheer un-affordability, mother and children aged 2 & 4 are wanting to move out.  Already a few months behind on mortgage payments, with a secured loan on the house to fix up the house a few years ago, house prices have gone down 10% leaving zero or less equity in the house.  Even moving costs, but faced with the prospect of moving and still owing money to the bank puts pressure on a situation that is grim in the first place.

Bankruptcy is being discussed, and there seems little way out aside from that.  Problem being there, if a voluntary repossession takes place, the council class it as voluntary homelessness and no help will be coming to help rehouse.  Hopefully a visit to the CAB will help find some other options.

A lot of critics in the paper at the moment are saying the credit crunch is welcomed, payback for all those people who over extended themselves looking for easy money.  But that ignores so many real life situations where all that was wanted was a stable and safe home to bring up children. 

The criminals in this venture to my mind are the banks, greedy in their profit margins, gambling even with more information than the average citizen that house prices will carry on upwards forever.

Lets not forget that if all their mortgagee’s can’t pay, the banks don’t lose their money - they get the property. Thats why its called a secured loan.

All the belly aching in by the banks are about their immediate profits - eventually they will make their money back by selling on all their repossessions, ready to capitalise (literally) on the next boom when confidence is high.

Food, fuel and energy prices are spiraling in contrast, decreasing disposable income.  Getting nagged by the girlfriend we haven’t gone out to dinner recently is the consequence for me so far, pitiful little compared to her sister and many others in the real economy.

And so people turn for the scapegoats - the current one in the UK seems to be Gordon Brown and his 10p tax bracket.  Its a little misguided - I’d say its the bubble bursting over house prices which no government could sustain.  Running the country is simple - just keep everyone’s standards of living rising and you’ll coast along.  With all the rhetoric soring about spin, sleaze and making an impact on the world stage, just the money in people’s back pockets being full or empty is what it all comes down to in the end in this country. 

Will this time be the last?  Will a recession turn into a depression turn into revolution?  Maybe not this time, but until then mothers face the threat of repossession whilst banks get guaranteed loans. 

Tags: creditcrunch, mortgage, citizens advice, politics, economy