Bond Outlook [by bridport & cie, October 10th 2007]
| Recently in our Weekly we alluded to the UK showing many of the same basic defects as the USA in terms of inflated house prices and sub-prime mortgages. There has been relatively little mention of UK sub-prime from mainstream commentators (exceptions: “Money Week” and “Market Oracle”), but this week the hard-hitting BBC TV programme “Panorama” brought the issue to the broader attention of both the public and politicians. |
| Panorama showed how high-pressure salesmen have sold mortgages at high interest rates (9+ %) to people that even a layman could see were totally unable to afford them. The programme also uncovered massive fraud in the Docklands area in London. There are some 1 million sub-prime mortgages in the UK, repossessions in 2006 were 22,500 and they were 14,000 for the first half of 2007. These figures are likely to increase if mortgage rates rise further. The likely result would then be a loss of confidence in all mortgage-backed securities, much as in the USA.. |
| Obviously the scale of the problem is much smaller than in the USA and the BoE is unlikely to raise rates, so the “general collapse” scenario should be avoided. |