Home buyers save the banks.

macaque_2

Banks have a problem. If they lend at todays house prices, they will compound their bad debt problems. If they don't lend however, they will accelerate the crash. Right now they need time to offload their risks.

A borrower with a 100% mortgage is a risk the lender. A borrower with a 60% mortgage is a risk to him/her self. Lenders need to shift the risk to the borrowers. To this end, surveyors are marking valuations down harshly. On top of this, lenders are demanding 40% deposits. Given that prices have already fallen by 15%, these combined reductions amount to loan offers which are 70% lower than those of 2007.

First time buyers think they are getting mortgages for 3%. Actually, they are paying high arrangement fees for very short lived fixed rate deals. When inflation picks up in a year or twos time, interest rates could triple or quadruple. The hapless borrowers will be in the spider's web as their fixed rate deals expire.

Home buyers of today are sacrificing their deposits to get the banks and the government out of a hole. It is another scandal in the making. The banks know it and the government knows it.

For the benefit of pedants, the link below has nothing to do with the context of the post other than to illustrate of the types of mortgage deals on offer today.

http://www.guardian.co.uk/money/2009/feb/08/mortgage-headline-rates

pandamonia

macaque wrote: »

Banks have a problem. If they lend at todays house prices, they will compound their bad debt problems. If they don't lend however, they will accelerate the crash. Right now they need time to offload their risks.

A borrower with a 100% mortgage is a risk the lender. A borrower with a 60% mortgage is a risk to him/her self. Lenders need to shift the risk to the borrowers. To this end, surveyors are marking valuations down harshly. On top of this, lenders are demanding 40% deposits. Given that prices have already fallen by 15%, these combined reductions amount to loan offers which are 70% lower than those of 2007.

First time buyers think they are getting mortgages for 3%. Actually, they are paying high arrangement fees for very short lived fixed rate deals. When inflation picks up in a year or twos time, interest rates could triple or quadruple. The hapless borrowers will be in the spider's web as their fixed rate deals expire.

Home buyers of today are sacrificing their deposits to get the banks and the government out of a hole. It is another scandal in the making. The banks know it and the government knows it.

http://www.guardian.co.uk/money/2009/feb/08/mortgage-headline-rates

i have brought this up in my thread, titled "are things getting worse"

Robert_Sterling_3

So its not all beer and skittles then?

CrimeWave

Wouldn't agree with the thread title or deposits getting banks/government out of a hole ( they don't see any of the money?) but the rest makes sense. I think the whole mortgage ideal needs an overhaul as it is based in general on a balanced and stable economy which we probably will not see for 15 years. Mortgages are massive financial commitments with so many variables present and future which many people do not understand and the banks are trying to prey, and have preyed on. What are needed are life/near life portable fixed deals at decent interest rates to counteract the unpredictable variables that could lead so many into trouble. My brother is currently buying a house in the USA and fixed portable deals of 20-30 years 5% are common (20% Deposit) and it is scandalous these are not offered in this country. Everyones situation is different but what is the point of an 1-2 year fix? This has got to be the worst possible time to be buying a house. Banks in this country need to change their reasoning or leave them to rot, we are not the cash cows of yesteryear and will never be again.

macaque_2

CrimeWave wrote: »

Wouldn't agree with the thread title or deposits getting banks/government out of a hole ( they don't see any of the money?) but the rest makes sense.

A large number people are selling (or being forced to sell) at the moment because they cannot afford their mortgage repayments. If there were no buyers at all, prices would plunge by over 50% immediately. If a seller with a mortgage of £200k sells for £100k, the lender loses £100k. If the property sells for £200k the lender gets his money back.

Lenders desperately need buyers to go on paying high prices so that they can recover their money from distressed sellers. Their problem is that they are not prepared to lend at current prices for obvious reasons. Their only solution is to find people who will put up huge deposits and thereby underwrite the risk.

Without buyers with big deposits, banks will make even more massive losses on their mortgage portfolios and the government will have to bail them out again. This is why I believe that today's buyers are saving the banks and the government.

CrimeWave

Ah k gotcha, so it is another short term fix to delay what could be worse to come as these buyers with big deposits can't last forever or they aren't stupid enough to buy. I would say the key word for a long term solution is sustainability and all the government/bank's ideas have none of that (interest rates, buyers, buyers with big deposits, high house prices).

So I guess you are saying inevitably we are looking at more bail-outs and a deeper recession? If you are not I will say it as it looks more and more likely.

Thrugelmir

macaque wrote: »

A large number people are selling (or being forced to sell) at the moment because they cannot afford their mortgage repayments. If there were no buyers at all, prices would plunge by over 50% immediately. If a seller with a mortgage of £200k sells for £100k, the lender loses £100k. If the property sells for £200k the lender gets his money back.

Lenders desperately need buyers to go on paying high prices so that they can recover their money from distressed sellers. Their problem is that they are not prepared to lend at current prices for obvious reasons. Their only solution is to find people who will put up huge deposits and thereby underwrite the risk.

Without buyers with big deposits, banks will make even more massive losses on their mortgage portfolios and the government will have to bail them out again. This is why I believe that today's buyers are saving the banks and the government.

Mortgage lending is the most secure debt on a banks books. There have always been defaults and repossessions on residential property.

The remaining banks don't have the funds to lend, this is what is causing the tightening in mortgage availability. NR at its lending peak before its demise had 25% of the UK mortgage market. Overseas lenders another 30%. Factor in the demise of Abbey Nat and B&B. Not a lot left. That's why Lloyds\HBOS has over 30% market share currently.

Its back to the old days of savings for a deposit to buy a house. Even in those days of over 80% LTV mortgages their was an indemnity premium to pay. So the banks have their losses covered.

carolt

LesQuirk wrote: »

Interesting, you worded that as though you were quoting the article when in fact it was all made up by you? I don't think you should manipulate the article/members in such a fashion.

I think that's a fair point - it was a little misleading.

That said - although they're your words, rather than the Guardian's as your post might have led the less observant to believe - I think your points are entirely valid, and sufficiently well-phrased I fell into the trap of thnking they did indeed come from the Guardian.

Career change?