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Bank says credit fears overstated
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01/05/2008 |
Banks have overstated their exposure to mortgage-linked investments and could delay an end to the credit crunch as a result, the Bank of England says.
In its Financial Stability Report, it said fears of financial meltdown may become a self-fulfilling prophecy.
Banks previously over-willing to lend were now too cautious, even with credit-worthy borrowers, it suggested.
The worry is that by being too cautious, banks may deprive consumers and companies of much needed financing.
An increased fear of risk, prompted by a drop in the value of investments linked to mortgages, has undermined confidence in financial institutions and made them reluctant to lend to each other and consumers, the Bank added.
Credit markets "are likely to overstate significantly the losses that will ultimately be felt by the financial system and the economy as a whole", the Bank of England said.
"It will exaggerate to an even greater extent the potential damage to the real economy."
Howard Davies, director of the London School of Economics and the former head of the Financial Services Authority, said the Bank's report was a signal that the worst of the credit crisis could be over.
But he said the economy could still face other problems.
"We now may be just moving into straight forward economic recession where all kinds of other assets begin to deteriorate in quality and in price."
FEARS EXAGERATED
BBC business editor Robert Peston said the report marked a substantial shift in emphasis for the Bank of England.
"Financial institutions are currently assuming that losses on sub-prime will be on a scale without any precedent," he said.
"The Bank of England thinks their fears are exaggerated."
"It now believes that the market price of sub-prime investment products overstates likely future losses on sub-prime lending by about 100%."
The Bank estimates that UK banks still have a potential exposure of $192bn to structured credit products - such as mortgage backed securities - which they are finding difficult to sell.
That is still a higher exposure relative to the size of the economy than among US banks ($490bn) or among European financial institutions ($235bn).
Julian Jessop of Capital Economics agreed with the Bank's assessment that the immediate threat of a full-blown meltdown had been avoided, but said the central bank should not be too optimistic.
"Even if financial conditions do quickly improve, the wider economic fall-out from the credit crisis will persist for many months and, in some cases, years to come," he said.
CONDFIDENCE TO RETURN?
The report said that there was a "significant increase" in the risk that a major bank collapse or reluctance to lend would disrupt the financial system.
And it said the process of adjustment was proving "even more prolonged and difficult" than expected.
The Bank still judges that the most likely outcome is that confidence will gradually return to markets, and does not see that all the exposure will result in losses.
But the size of the problem helps to explain why the Bank was prepared to provide an additional 50bn to help ease the credit crunch facing UK banks.
The Bank of England also warned that there were potentially large exposures that have still not been declared by financial institutions.
It added that the credit crisis demonstrated that banks' risk management systems were weak, and they had not realised that risks could not be easily dispersed around the financial system but would flow back to the banks themselves.
The Bank of England said that there was a risk that "the currently elevated risk premia in some markets will persist".
"This could lead to a self-fulfilling adverse cycle in which persistent market illiquidity and falling asset prices further undermine confidence in banks and results in a sharper tightening of credit conditions," it said.
LENDING DRYING UP
The report demonstrates how quickly lending is drying up.
The Bank's quarterly survey of credit conditions shows that lenders are tightening up credit sharply not just on home loans, but also on household lending and commercial loans to companies.
And the sources of future loans in wholesale money markets have also contracted sharply.
The market for "asset-backed securities" such as sub-prime and other mortgages has collapsed - with the value of such assets issued going from $700bn a quarter in the middle of 2007 to just $100bn in the first quarter of 2008.
The Bank of England argues that to rebuild financial confidence, it will continue to allow UK banks to swap illiquid assets with safe UK government securities.
And they say that banks will need to bolster their capital and make further disclosures of their financial position, and explain better how they are valuing complex financial instruments.
In the long term, the Bank of England wants to change the rules under which banks operate, so that they recognise risks, and possibly put aside some extra money in good times to secure against risk in bad times.
And it says that more effective systems are needed so that central banks can respond more quickly in a crisis, such as the run on Northern Rock.
SOURCE: http://news.bbc.co.uk/1/hi/business/7375881.stm 01/05/08
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Energy Performance Certificates
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20/04/2008 |
Due to new legislation, all resale homes still on the market after 30th June 2008 must have Energy Performance Certification. This is obtained by the property vendor instructing a qualified surveyor to inspect the property and produce the assessment documentation. Over the coming weeks we will be advising all of our existing and new clients of this requirement. For further information please contact Watson Property Sales on 028 9045 0045.
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Should I sell my buy-to-let property?
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27/03/2008 |
Probably not. The latest survey by the Association of Residential Letting Agents (Arla) indicates that buy-to-let landlords are enjoying higher yields and increasing rents.
In the three months to the end of February, average rents in the private rented sector rose by an average of 4 per cent for houses and 2 per cent for flats not exactly inflation-busting, but the outlook for further rises looks good.
Because many first-time buyers are being forced to wait it out, demand for rental properties is solid. Arla also says that immigration in some areas is fuelling demand and keeping yields high. Landlords who do decide to sell now should bear in mind that on 6 April the old rules for capital-gains tax are being shelved. For many higher-rate taxpaying landlords, this means that the lowest rate of CGT they pay will drop from 24 per cent to 18 per cent. But those who have owned their investment properties since before 1998 might have more tax to pay if they sell, due to the scrapping of indexation and taper reliefs on 6 April allowances that reduce the investor's tax liability. SOURCE: This is an extract from an article published in the Belfast Telegraph on 26th March 2008.
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Should first-time buyers hold fire and carry on renting for a year?
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27/03/2008 |
Tough lending conditions mean that average punters who don't have a perfect credit history or a chunky deposit are now struggling to get mortgages. Many first-time buyers are being forced to wait it out in the rental sector; other buyers are choosing to hang fire until prices fall.
While nobody knows for sure what will happen in the market, buyers hoping for big drops could be waiting in vain. The Council of Mortgage Lenders (CML) says that if most first-time buyers aren't biting because they can't get mortgages (as opposed to just not wanting to buy), then all that is happening at the moment is that demand is being pent up. Should lending conditions soften and lenders start offering mortgages to less-than-perfect borrowers, prices ought to rebound once more on the strength of this unleashed demand.
All this means that those who can secure a big enough mortgage would be well advised to go for it now, especially as the slow market means that they should be able to haggle for a 5 and 10 per cent discount off asking prices.
SOURCE: This is an extract from an article published in the Belfast Telegraph on 26th March 2008.
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DEVELOPMENT SITES WITH FULL P.P. Belfast, Birmingham, Glasgow, Edinburgh, Leith, Nottingham, Leeds and more
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18/03/2008 |
* Development sites for sale nationwide
* With full P.P.
* Prices from 250,000 to 10million+
* Belfast, Birmingham, Glasgow, Edinburgh, Leith, Nottingham, Leeds and more
* For details on development sites in Northern Ireland, Scotland and England contact Norman Watson on 028 9045 0045 .
TELEPHONE/POSTAL MAILING LIST AVAILABLE apply to Watson Property Sales
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£345,000
449 Upper Newtownards Road
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£229,950
26 Loopland Drive, Castlereagh/Cregagh
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£0
Low cost investment opportunities in Berlin, Germany
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£185,000
21a Donegall Road, off Shaftesbury Square
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