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Bleak prognosis for housing and mortgage sectors

Nothing I can write can adequately describe the events which have rocked the financial services sector in the last few days.

The demise of Lehman Brothers and the shotgun weddings of Merrill Lynch to Bank of America and HBOS to Lloyds TSB are epic in their scale.

And Bradford & Bingley could yet add another lurch to its roller coaster ride through the credit crunch.

The question for the mortgage industry is where does all this leave us? One thing is certain – specialist mortgage lenders will not be back in the market for a long time.

All those who predicted a recovery of specialist lending late in 2009 or early 2010 are now looking pretty optimistic.

The basic machinery of the capital markets, which specialist lenders rely on for funding, is broken.

In the US the government is stepping in to clear up the mess by buying stranded assets and securities in a bid to repair liquidity.

In the UK chancellor Alistair Darling has promised to take action to promote long-term economic stability but no specifics have been forthcoming.

We know the Treasury is worried about the state of public finances and that any intervention along US lines is likely to result in massively increased public debt or tax rises for many in the UK.

The fundamental problem with the housing market is still the absence of liquidity, born out of a lack of leverage. Would-be buyers cannot obtain the finance they need to buy at current levels, so prices must decrease.

Nothing in the current economic situation suggests things will change any time soon.

Concern over the state of financial institutions remains and banks are unwilling to lend to each other due to the perceived counter-party risks.

And the likelihood of banks taking a more expansive approach to credit is slim. The performance of existing borrowers is also likely to deteriorate. The cull of bankers across London will boost unemployment, curtail consumer spending and probably decimate some affluent lifestyles in the process.

The next round of results from retailers is likely to make depressing reading, leading confidence in the economy to fall further as these changes feed through to public consciousness.

House buyers will drive prices lower in the expectation of further falls and the ongoing scarcity of finance.

The full effects of the spectacular scale of proposed US intervention are unclear.

All aspects of the global economy will flex as the value of the dollar shifts, US debt soars and financial institutions continue to wobble.

Events of such significance will take months to work through the global financial system as nations, shareholders and consumers begin to understand the implications.

Unfortunately for the UK housing and mortgage markets, the prognosis looks bleak. The continuing squeeze on mortgage finance and consequent downward pressure on house prices and transaction volumes is likely to lead to further problems in the short to medium term.


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By Robin Geffen, fund manager and CEO 

This year threatens to be a challenging one for UK dividend hunters. Last year saw an all-time record amount paid out in UK dividends — some £97.4bn, according to research from Capita Dividend Monitor. Yet as Capita also pointed out, out the biggest single factor driving the growth in the fourth quarter of last year was easy to identify: the rising US dollar. 

In our view, this trend is much more than simply a one-quarter phenomenon. It is actually the most profound issue to get right as a UK equity income investor in 2015. We believe that the US dollar will continue to strengthen significantly from its current level. This is due more to the US economy’s demonstrable de-coupling from the rest of the world than to a view on the UK. The US has a strong chance of tightening monetary conditions this year without jeopardising growth or de-stabilising its housing market. The same can unfortunately not be said about the UK.


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