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Monday 21 April 2008 4.31pm
interesting reading, but I really can't see much fall in the prices around here (se1) as we are a very sought after area, so close to the centre of everything.
I wasn't aware of this LTV thing but as we're not the most expensive place in the city for property, I can see things either staying the same or still going up.
the media seem to be causing a possible crash through sonstant negativity.
Tuesday 22 April 2008 7.41am
Ivanhoe wrote:
urbanite wrote:
It stikes me, getting back to the original article that sparked this thread, that we're all exposed to the credit mess that has developed over the last few years, be we a good or bad borrower, and this will inevtably lead to a downturn in house prices.

Yes, assuming that we're all borrowers, which is not necessarily true.

If the company you work for can't refinance its debt, you're out of a job. If your credit card company decides you're too high risk, you might need to dig into your savings to fund your day-to-day expenses. If the bank holding your savings goes bust, you might only get some of your cash - months later. If you need that cash, you might be turfed out of your home.

Everyone relies on credit institutions in one way or another.
Tuesday 22 April 2008 8.38am
reece wrote:
If the company you work for can't refinance its debt, you're out of a job.
A healthy company, with decent levels of debt and a good track record, will always be able to borrow money. If you're not working for such a company, then you're at risk whether there's a credit crunch or not.

reece wrote:
If your credit card company decides you're too high risk, you might need to dig into your savings to fund your day-to-day expenses.
No. Not unless you are using your credit card to fund day to day expenses

reece wrote:
If the bank holding your savings goes bust, you might only get some of your cash - months later.
No. Unless the bank you save with is not regulated and/or unless you've got over 35k in savings (in which case, it's only the amount over 35k which is at risk)

reece wrote:
If you need that cash, you might be turfed out of your home.
I don't understand what this sentence relates to. Why would I need access to my savings in order to pay the rent?

reece wrote:
Everyone relies on credit institutions in one way or another.
No. I'm sorry, but this is not true. You can try the "7 degrees of separation" type of argument, but you end up with such an indirect connection that you might as well talk about butterflies in rainforests.
...if you press it, they will come.
Tuesday 22 April 2008 8.50am
As gross yields on property are currently no more than 5-6% (and often as little as 2-3%); and as the only reason for accepting a lower rate of return on your cash than you can get from a bank is that you expect capital appreciation, something is going to have to move as risk is repriced.

Rents will rise (in places like London where there is a property shortage) and property values will drop in real terms

If property prices remain the same, and inflation reaches 10%, within 7 years property values will have halved in real terms, but not reduced in absolute terms. Gordon Brown wins again!
Tuesday 22 April 2008 10.32am
Ivanhoe wrote:
A healthy company, with decent levels of debt and a good track record, will always be able to borrow money. If you're not working for such a company, then you're at risk whether there's a credit crunch or not.

They can't ALWAYS borrow money. They MAY be able to, but at what cost? Show me that they'll ALWAYS remain profitable with higher interest payments.

I dare say that the majority of people do not know the true state of affairs of the business they work for. Most people don't download their employer's accounts from Company House, and I have never heard of businesses explaining their debt cover, creditor terms, insurance policies or debt factoring to their employees. Have you?

When Northern Rock was the UK's fifth largest bank, do you think employees thought they were sailing close to the wind?

Ivanhoe wrote:
reece wrote:
If your credit card company decides you're too high risk, you might need to dig into your savings to fund your day-to-day expenses.
No. Not unless you are using your credit card to fund day to day expenses

Plenty of people make their subsistence purchases (food, petrol, transport) by card, settling up to 56 days later. That is "funding day to day expenses", and it's common. It also equals a month worth of expenses you don't need to carry round - it sits in your savings account.

Ivanhoe wrote:
reece wrote:
If the bank holding your savings goes bust, you might only get some of your cash - months later.
No. Unless the bank you save with is not regulated and/or unless you've got over 35k in savings (in which case, it's only the amount over 35k which is at risk)

Yes - a bank in administration is NOT falling over to give depositors' cash back. See
thisismoney."The FSCS aims to pay within six months of a firm going bust."
"Multiple bank names under single depositor FSA registration" means if you have 35k with Natwest and 35k with RBS, you will NOT be getting 70k.

Ivanhoe wrote:
reece wrote:
If you need that cash, you might be turfed out of your home.
I don't understand what this sentence relates to. Why would I need access to my savings in order to pay the rent?

Any of the above factors, or other unusual (but not implausible) circumstances. You need a new engine for your car. Your airline goes bust while you're in Hong Kong (insurers don't pay your insured expenses in advance).

Ivanhoe wrote:
reece wrote:
Everyone relies on credit institutions in one way or another.
No. I'm sorry, but this is not true. You can try the "7 degrees of separation" type of argument, but you end up with such an indirect connection that you might as well talk about butterflies in rainforests.

Please re-read the above if you still disagree.
Tuesday 22 April 2008 10.39am
I should think Ivanhoe is so stupid that he wouldn't understand debt factoring even if his employer told him about it.



:)
Tuesday 22 April 2008 11.34am
Thanks Mapmaker. Financial naivety is, as I think you know, a speciality of mine. And as long as my employer keeps paying me for it, then I'll keep on with it ;0)

Reece, I still don't go with what you're saying, I'm afraid. You've pointed out a few niche/minority situations, but that's neither here nor there.

1) Companies do give a lot of information. As you say, a lot of this is in their annual report. And a lot of co's DO share this with their -ees, even if they are not shareholders (in which case they would get a copy of the AR by default).

2)your point about credit cards doesn't answer the original point. I asked why I'd need to use my cc for everyday purchases. You replied by saying that (my paraphrase) "some people do, and they keep the money in their savings a/cs to offset it". So in effect, they DO NOT NEED to use a cc; are only using it to gain a little interest, and wouldn't be disadvantaged if their cc was withdrawn (other than the matter of a tiny bit of interest).

3)Really. Thanks for pointing out the fine print of the FSCS. That adds nothing.

4) you've answered my Q: "Why would I need to use my savings to pay the rent?" by telling me that my car might need a new engine. Do we need a translator or are you going to persist in answering A DIFFERENT QUESTION?

...if you press it, they will come.
Tuesday 22 April 2008 11.41am
Bloggie wrote:
interesting reading, but I really can't see much fall in the prices around here (se1) as we are a very sought after area, so close to the centre of everything.
I wasn't aware of this LTV thing but as we're not the most expensive place in the city for property, I can see things either staying the same or still going up.
the media seem to be causing a possible crash through sonstant negativity.

Oh purlease! With more and more mortgages being pulled every week, how are people supposed to fund increasing prices? (Even if they were insane enough to buy into a rapidly falling market) This is the basic flaw in the old 'prices will continue going up, it's supply and demand, innit?' argument. Demand isn't just desire - but desire plus ability to pay. With the latter removed, the demand to live in our sought-after area will fall - and so will prices. They are already.

This crash is not being caused by press negativity - it's being caused by a banking industry on the brink of insolvency reining in its lending after a ridiculous credit boom. And bust ALWAYS follows boom.
Tuesday 22 April 2008 12.28pm
Ivanhoe wrote:
Reece, I still don't go with what you're saying, I'm afraid. You've pointed out a few niche/minority situations, but that's neither here nor there.

Perhaps you didn't join the dots to put together a bigger risk picture.
Egg banking cancelling 161,000 credit cards isn't "niche", nor is the near-collapse of Northern Rock or Bear Stearns. Where have you stashed 6-months worth of rent that allows you to sit calmly while the administrators play with your bank's books?

Ivanhoe wrote:
1) Companies do give a lot of information.

What's the average interest rate suffered by your employer in its borrowings, what rate is it renegotiating with its bankers, and what rate is break-even? What gets the chop when it's time to cut costs?

Not everyone can work for BP or Shell - some companies actually have to manage their cash. What is your employer's creditor days figure? Is it going up? How do its suppliers feel about that? Would they like a bit more security, maybe? Can your employer afford to pay sooner?

When are your employer's pinch points for cash? Do they fluctuate much during a month? How close do they get to reaching their overdraft limits? Do their customers always pay promptly every month? Are they dependent on a small number of large customers? How are those customers doing financially? Are those customers able to secure finance at an affordable price?

Ivanhoe wrote:
2)...they...wouldn't be disadvantaged if their cc was withdrawn

Provided they have the cash to cover it, and have access to that cash in all circumstances.

You may think that you could be insulated from the intangible turbulence seen by bankers on their computer screens, but it's just not possible. Then again, perhaps these risks don't apply to you. Maybe you're senior management at Shell, own your home outright and have a nugget of gold in your safe.

Ivanhoe wrote:
4)...you going to persist in answering A DIFFERENT QUESTION?

I don't believe that it's really that difficult. It doesn't take very much for powers beyond your control to screw you hard. The credit market is one of those powers.
Tuesday 22 April 2008 3.04pm
reece wrote:
It doesn't take very much for powers beyond your control to screw you hard. The credit market is one of those powers.

As far as I can see, the quote above is really the summary of your argument.

However, my argument is that if you are working for a company which is in decent shape (and no, they don't necessarily have to be Shell. Just a company with reasonable interest cover. After all, unless you're suggesting that interest rates are going to double or treble, a company has to be pretty unhealthy in terms of cash generation and/or already on the verge of collapse for a rise of 1 or 2% to tip them into insolvency.), and you aren't personally mortgaged/otherwise indebted up to your ears, then you're unlikely to be "screwed hard" (however much you may want it)

...if you press it, they will come.
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