Permanent ban on 100% mortgages (merged)

epz_2

IMHO they are targeting the wrong thing, whats important is the ratio of house prices to average earnings.

If the average wage is 25K and the average house costs 75k then 100% mortgages arnt a problem, if the average house price is 150k then 100% mortgages are a problem.

It should be the banks job to manage this risk but as they have so clearly failed i would look to have some sort of independent committee which levies a tax on lending over a certain amount when the wages/prices ratio is above a certain level.

That would provide a brake against HPI and raise revenue to cope with any slowdown caused by them getting out of hand.


I know what matters to the mortgage payers the interest rates but IMHO the wages/prices ratio is a better indicator of things getting out of hand.

MrDT

dezmond76 wrote: »

There would be no need for 100% mortgages if the average FAMILY home was reasonably priced. By reasonably priced I mean 3.5x the median salary which would see an average house price at around £65k to £85k.

This would mean that a FTB looking for a family home would only need to save a deposit of around £6k to £9k for a 90% LTV mortgage. Not that difficult to achieve.

BTW, that's exactly the path we are headed

Average family homes at 3.5x a 20k single income? So crappier places for maybe 40k, well above average for 100k? And that's a nationwide average throughout the UK?

Can't see it.

dezmond76

MrDT wrote: »

Average family homes at 3.5x a 20k single income? So crappier places for maybe 40k, well above average for 100k? And that's a nationwide average throughout the UK?

Can't see it.

If you analyse the historic data on house price indices, you will see that the long term average is around the 3.5x average/median wage.

Yes there will be places that are sold for £40k and even less, and there will be places that sell for considerably more than £100k and of course there will be regions/towns etc that will always have higher prices.

What you fail to see is that all previous/historical data on house price indices show that ultimalty house price inflation is linked closely to average income. What we have seen in the last decade has been a bubble which has been fuelled by the flow of easy credit lines and the lack of effective regulation. This has my friend has come to an end.

piggeh

dezmond76 wrote: »

If you analyse the historic data on house price indices, you will see that the long term average is around the 3.5x average/median wage.

Yes there will be places that are sold for £40k and even less, and there will be places that sell for considerably more than £100k and of course there will be regions/towns etc that will always have higher prices.

What you fail to see is that all previous/historical data on house price indices show that ultimalty house price inflation is linked closely to average income. What we have seen in the last decade has been a bubble which has been fuelled by the flow of easy credit lines and the lack of effective regulation. This has my friend has come to an end.

Hope you're right

I was going to argue that surely all those with massive mortgages currently would simply declare insolvency so they could get back on the housing ladder in 5/6 years time at a massively reduced mortgage, although I guess with rental amounts and the rise of house prices in the interim it wouldnt be worthwhile.

MrDT

dezmond76 wrote: »

If you analyse the historic data on house price indices, you will see that the long term average is around the 3.5x average/median wage.

Yes there will be places that are sold for £40k and even less, and there will be places that sell for considerably more than £100k and of course there will be regions/towns etc that will always have higher prices.

What you fail to see is that all previous/historical data on house price indices show that ultimalty house price inflation is linked closely to average income. What we have seen in the last decade has been a bubble which has been fuelled by the flow of easy credit lines and the lack of effective regulation. This has my friend has come to an end.

Time for me to drag out the old bull adage of "I'll buy two then".

I'm not a bull. I am a bear. Dropping prices will benefit me greatly, and I very much expect them to drop. I still can't see the nationwide average dropping that far though. No amount of wishful thinking can swing it.

A 70k house, a 7k deposit, a couple earning modest wages say £35k gross (20k+15k) between them. Looking to borrow 63k, less than 2x joint income. You expect the nationwide average to go that low? Less than 2x joint salary? That's not reversion to trend, that's a huge undershoot.

Women tend to work nowadays. They won't have been when looking at your long term averages. We won't be heading back to stay at home wifeys being the norm anytime soon. Consider average household income when analysing historical data, not average main wage earners salary.

Although increased unemployment is doing it's bit to reduce average household income, even 10-20% unemployment wouldn't have as much of an effect as 50% of all couples opting to stay at home and play house.

I think your 3.5x single low income expectation for average family homes to be real wishful thinking.

I would buy two.

baby_boomer

Poor old Gordon.

That video of him & Hazel Blears pushing home-ownership onto those with modest means back in October 2008 means that he is looking increasingly like a man who doesn't understand the housing market or the economy at all.

ad9898_3

MrDT wrote: »

Time for me to drag out the old bull adage of "I'll buy two then".

I'm not a bull. I am a bear. Dropping prices will benefit me greatly, and I very much expect them to drop. I still can't see the nationwide average dropping that far though. No amount of wishful thinking can swing it.

A 70k house, a 7k deposit, a couple earning modest wages say £35k gross (20k+15k) between them. Looking to borrow 63k, less than 2x joint income. You expect the nationwide average to go that low? Less than 2x joint salary? That's not reversion to trend, that's a huge undershoot.

Women tend to work nowadays. They won't have been when looking at your long term averages. We won't be heading back to stay at home wifeys being the norm anytime soon. Consider average household income when analysing historical data, not average main wage earners salary.

Although increased unemployment is doing it's bit to reduce average household income, even 10-20% unemployment wouldn't have as much of an effect as 50% of all couples opting to stay at home and play house.

I think your 3.5x single low income expectation for average family homes to be real wishful thinking.

I would buy two.

It does seem ridiculous Mr DT, I admit, but a long overshoot always happens, we are also in for a period of deflation which will have an impact on wages, we have huge personal debt here as well to think of. Fear plays a big part in peoples attitude to debt, most people will keep their jobs but I bet most people are fearing unemployment too.

With credit getting much harder to get these days, and will continue from now on, I see the average house eventually ending up around 100-110k in the trough.

Dan:_4

dezmond76 wrote: »

If you analyse the historic data on house price indices, you will see that the long term average is around the 3.5x average/median wage.

Yes there will be places that are sold for £40k and even less, and there will be places that sell for considerably more than £100k and of course there will be regions/towns etc that will always have higher prices.

What you fail to see is that all previous/historical data on house price indices show that ultimalty house price inflation is linked closely to average income. What we have seen in the last decade has been a bubble which has been fuelled by the flow of easy credit lines and the lack of effective regulation. This has my friend has come to an end.

MrDT is right.

I could purchase on my credit card(s) if they go as low as your suggesting.

Generali

Cheap houses are good. Why would you want to pay a lot more for anything you buy?

leveller2911

Here we go again, hands up all those who knew the housing bubble was going to burst at least 4-5 yrs ago and also knew then what the government "should" have done back then, !!!!!! its not rocket science , typical government of "re-action" .............Its too bloody late now .The only good thing will be house prices will drop further which I think is a good thing,unless you brought a house in the last 2yrs and need to sell within the next 2-3 yrs.

They're too busy with their "snouts in the trough" to see and do what is right........:rolleyes: