Why the UK is in deep trouble

[Graemsay]

There was a rather bearish report on the FT Alphaville blog today entitled Why the British economy is in very deep trouble, which says that the country is basically stuffed.

The short version is that nearly 60% of economic output is dependent on debt, and this is being paid down. So there's virtually no chance of serious growth in the foreseeable.

If you want the full story then the original Tullet Prebon Strategy Note is up on the web. It's very bearish in an academic / economics way, rather than the Doom and Gloom buy gold, farmland and baked beans style.

 

[Piston Broke]

Interesting.
So how much of Australia's economy is reliant on debt? (at much hogher rates)
And how much debt is non productive, given that our debt is mainly private?

 

[Aaron Sice]

- Net mortgage borrowing, critical to the real estate and construction sectors, has crashed, from £113bn in 2007-08 to a derisory £3bn last year.

mortgage lending down 97%.......?

and the housing market has only lost 22%.....?

mmmm - me thinks there are some bad times ahead for the UK market.

So how much of Australia's economy is reliant on debt? (at much higher rates)

that would be a very interesting calculation. i think you should clarify that question into "how much of Australia's economy is reliant on debt for growth?"

 

[Tony3008]

mortgage lending down 97%.......?

and the housing market has only lost 22%.....?

mmmm - me thinks there are some bad times ahead for the UK market.

No, he reckons prices have to drop a further 22% - from their 2010 average which will be well down on the pre-GFC peak

 

[Graemsay]

Piston Broke, I do sometimes wonder about whether the Oz economy is in a risky position too.

Aaron, we've currently got interest rates at 0.5% over here, and there are people paying less than 1% on their mortgages.

To put it another way, I live in Richmond (the London one, not the Yorkshire or Melbourne ones), and for the price of a typical one bedroom flat I could cover the rent on this place.

Prices are falling slowly, but I think that the low rates have temporarily put a floor under them. Perhaps when they start to rise again in the next year or so we'll see the market take more of a downward slide.

 

[BV]

To put it another way, I live in Richmond (the London one, not the Yorkshire or Melbourne ones), and for the price of a typical one bedroom flat I could cover the rent on this place[/URL

Graeme
You lost me there.
Are you saying that your rent is too high or that the above property rents too low?

 

[kum yin lau]

Hi, any mortgage brokers in UK willing to lend to overseas residents?

KY

 

[tom32]

Hi, any mortgage brokers in UK willing to lend to overseas residents?

KY

I imagine he is talking of rate trackers.

New business will not be at 1% now. The rates over there were often locked in at an amount above OCR. Compare that to Australia where rates below about 3% make no difference to the mortgage rate unless you jag a rate tracker here, where the biggest appears to be a 5 year rate tracher appears the longest you can get.

Noticed Loans.com.au has a rate tracker loan for 5 years. If you thought Australia was going to go to **** getting on a rate tracker would be one way to take advantage of it. At 1% a mortgage is not much of an imposition really, is it?

On them lending in Australia it is part of the reason the AUD is so high at present. People borrowing funds in low interest rate environments like the UK, USA, Japan and then depositing them here in Australia taking the margin and any relative movement in the exchange rates.

 

[Graemsay]

The risk with taking out a UK mortgage is that the Pound is pretty weak right now, whereas the Aussie Dollar is at its peak. If things returned to historic levels (and there's a risk that'll happen over the medium term) then your mortgage suddenly becomes 50% bigger. Add in rising rates...

There were some fantastic mortgage deals on offer a few years back. A 25 year fix at 4.99% for the lifetime of the loan was the one I remember.

I found a heat map of London property prices earlier. Look at the yields in the West End, which are down at the 3% level. There's a real boom in the super prime market, as foreign buyers (particularly Greeks, Italians, Russians, Greeks and Arabs) are buying houses as a hedge against political risks at home.

Like a lot of safe havens, I have a nasty suspicion that they're overpaying for the privilege.

 

[vbplease]

To put it another way, I live in Richmond (the London one, not the Yorkshire or Melbourne ones), and for the price of a typical one bedroom flat I could cover the rent on this place.

Graeme
You lost me there.
Are you saying that your rent is too high or that the above property rents too low?

I think you mean the other way around Graeme? For the price of renting a 1bed flat, you could cover the mortgage on the 5bed house - both around 1000pcm.

 

[vbplease]

Hi, any mortgage brokers in UK willing to lend to overseas residents?

The risk with taking out a UK mortgage is that the Pound is pretty weak right now, whereas the Aussie Dollar is at its peak. If things returned to historic levels (and there's a risk that'll happen over the medium term) then your mortgage suddenly becomes 50% bigger. Add in rising rates...

I wonder if any AU lender would be willing to lend on a UK property? Ideally in 6months once UK rates have increased, property has dropped, but the exchange rate stays the same, then returns to historic levels?

 

[Graemsay]

BV, sorry I missed your post above earlier.

I tend to take the view that rents track what people can afford to spend on a dwelling, whereas prices can contain a large speculative element.

Rents in London have risen pretty sharply over the last year (circa 7%), particularly against a background of static wages, and are probably a bit on the high side right now. Ironically, one of the drivers is the lack of mortgages and expensive property prices preventing people from buying.

At the same time, I think that property is still overpriced here, particularly in prime central London, but low interest rates mean that there aren't forced sellers (hence my comments comparing the cost of a £1.5 million five bedroom house to a one bedroom unit).

For someone like myself who's taking a short position against the housing market it's a disaster. And it's led some commentators to question whether supporting profligate borrowers at the expense of savers is a good thing.

For the country as a whole, a 30% or 40% collapse in prices would probably wipe out an already fragile banking system. The misery of a minority of would be homeowners pales into insignificance against this.

 

[Property Meister]

The risk with taking out a UK mortgage is that the Pound is pretty weak right now, whereas the Aussie Dollar is at its peak. If things returned to historic levels (and there's a risk that'll happen over the medium term) then your mortgage suddenly becomes 50% bigger. Add in rising rates...

are you absolutely sure??? taking into currency fluctations only, you send AUD into pounds, get a good rate, and in a couple of years time, your pounds are worth more in AUD so you've made instant gains!!

 

[Belbo]

are you absolutely sure??? taking into currency fluctations only, you send AUD into pounds, get a good rate, and in a couple of years time, your pounds are worth more in AUD so you've made instant gains!!

But are you willing to bet on it?

 

[Ocean Architect]

The UK has the same problem as the states - no manufacturing. There's only so long you can borrow and consume until the debt comes due and gets out of control. It isn't exactly rocket science

 

[AlmostBob]

the thread title just reminded me of

 

[Graemsay]

are you absolutely sure??? taking into currency fluctations only, you send AUD into pounds, get a good rate, and in a couple of years time, your pounds are worth more in AUD so you've made instant gains!!

Sorry, I was meaning borrowing in the GBP and transferring to the AUD.

But I agree about investments going from AUD to GBP. I reckon that buying UK stocks might not be a bad bet, particularly if you get an uplift from a strengthening Pound.

 

[Property Meister]

But are you willing to bet on it?

not willing to bet on it, however, if I could get a basic property in a basic area in the UK, at this point in time, I would, yields are fantastic over there and you are positively geared from day 1