Best Financial Markets Analysis Article The Nationwide as if the financial crisis never happened, as if the housing market had not crashed, as if the tax payers had not been forced to bail out bankrupt bank after bankrupt bank have seized the moment to grab the headlines by announcing a 125% LTV mortgage reminiscence of the pre-crash housing bubble mania days.

As we have seen the giants of the high street, the too big to fail banks such as the likes of HBOS and RBS, both of which are or rather were larger than Nationwide effectively go bust requiring the tax payers to pick up the tab in the form of liabilities north of £1.2 trillion.

Not only does Nationwide's mortgage fly in the face of good practice in terms of mortgage risk, but also slaps the government and regulators in the face who are desperately trying to re-create a functioning banking system that is not prone to excessive risk taking which a mortgage of 125% most definitely falls into the camp of.

Looking deeper under the hood of the 125% mortgage reveals it to be a complex product that basically aims to lock borrowers with better credit ratings into fixed rate mortgages of at least 6.73% and as high as 7.98%. Which when one considers that the base rate is at 0.5% gives one a clear idea that the product is being targeted at desperate people in negative equity who will be burdened by extra debt amidst a continuing housing bear market that despite the recent bounce has many more years to run, as the crash turns into a housing market depression.

If the regulator, the FSA wants to preserve any remaining credibility it has after overseeing the collapse of the banking system whilst twiddling its thumbs, then it needs to send a clear message to the Nationwide that no matter how small the market the 125% mortgage is targeted towards, it is totally unacceptable and the product needs to be withdrawn with immediate effect. Off course I doubt this is going to happen given the FSA's track record of doing nothing whilst Rome burned.

UK House Prices

The unfolding bounce in UK house prices prices is inline with my May analysis that concluded that UK house prices will experience a bounce during the summer months from extremely oversold levels as a consequence of liquid buyers returning to the market and the debt fuelled economic recovery which 'should' be reflected in rising house prices during the summer months that undoubtedly will increasingly be taken by the mainstream press to conclude that the house prices have bottomed.

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By Nadeem Walayat
http://www.marketoracle.co.uk

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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Comments

Dominic
10 Jul 09, 09:30

UK house prices

Do you still see another 15% drop in UK house prices from current levels?

Nadeem_Walayat
11 Jul 09, 08:48

UK housing market

The government has in its power to stop house prices falling in nominal terms, by means of inflation i.e. devaluing your money. However the housing market depression will continue for many years regardless of games played by the government to mask the true state of the housing market.

Back in December 08 and even August 07, I stated that money printing inflation was a key risk to the nominal house price forecast, to date that inflation is yet to matierialse, however the risks are now significantly higher.

david thomas
30 Jul 09, 19:19

Uk housing market

Nadeem - time has proven you to be the Vince Cable of the housing market as you've got it more right than any other source I've found. Big respect and big thanks for helping me make decisions with eyes wide open.

Many thanks, David

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