FSA to tighten mortgages? (85-90% LTV max)

casper_uk

http://news.hotproperty.co.uk/FSA_to_Tighten_Mortgage_Lending_Rules_2009022709391349.html

Buyers should have always needed a deposit imo. Wonder if they will actually follow this through? Sounds like 90% LTV could become the maximum mortgage.

What do you think a good or bad move?

HangTime

I'm not sure.

On the one hand, it kind of goes against my views on the free market - if two parties want to setup a particular type of loan, then they should be able to. On the other hand, 100% mortgages are much more likely to become bad debts which as we've seen over the past year can have a wider impact than I initially thought.

Obviously with LTV and affordability being (almost) unconnected, no doubt some people won't be happy at the prospect of needing to build up a deposit. For example, there's people in London earning decent wages, who could easily afford to repay a mortgage on a £300k property. But if they're paying a high rent at the moment it may take them a while to save up a £30k deposit, especially if they're the type of person who has traditionally spent their disposable income. That said, the rates/fees on LTV>90% mortgages have got pretty bad lately anyway, so I suspect it won't have a great impact on the market.

opinions4u

I don't like state interference in the market, but clearly recent events require some sort of regulatory influence over common sense and the taxpayer needs protecting in future.

Here are a couple of observations:

1) The market has effectively adjusted itself already - the proposals have been put in place by lenders.
2) The government is screaming at lenders to lend on one hand and telling them not to on another.
3) Freezing first time buyers out of the market by insisting on a 15% deposit will add another 5 years on to any recovery in the housing market and the wider economy.

I remember reading 3 or 4 years ago that Gordon Brown wanted us all to have fixed rate mortgages for the term of the loan. If he'd got his way, he'd have lost the blunt tool of interest rates as a means of influencing our spending. And anybody on a variable rate loan now would be worse off. So Gordy and his pals don't always know best.

I think the key is actually about how to encourage free market innovation in the future without the government taking on the risk of having to bail out the banking system again (note, mortgage lending doesn't seem to be the root cause of the problems in the UK banking industry, although as employment levels drop this year we may see some strain).

Some options to consider:

1) Mortgages typically run for 20-25 years. Rates vary in that time. Why should income multiples offered in the good times be higher than in the bad times? That is asking for trouble when the bad times eventually hit. Tweak underwriting systems by all means. But increasing from, say, 3.25 x salary to 4.25 x salary on an affordability model has served only to over inflate house prices as interest rates remained low.

2) Higher loan to value fees (mortgage indemnity insurance, mortgage guaranteed insurance among other names) could make a return on all lending above 75% of property value. I always hated these things and thought of them as evil rip offs. But lordy I see their value today. The key problem is which insurer would underwrite them? I believe AIG used to be keen over the pond! Perhaps UKFI could set up their own insurance company to retain the premiums in anticipation of a future slump, or alternatively the FSA could insist that lenders use the premiums to retain on a separate part of their balanace sheets - forever. Either way the state would have to assess risk and price, which goes against the grain for me. Also, borrowers would pick up the bill - but it's better than picking up a 15% deposit.

Other options that could be considered to relieve pressure on the state in future, nibbling around the edges a little:

- remove insurance premium tax from ASU policies sold with (or alongside) a residential mortgage.
- allow tax relief up to 20% on such policies when sold with (or alongside) a residential mortgage.
- carry out a full review of the buy-to-let market. Responsible private landlords are a good thing. Encouraging people to invest every penny they have in a small portfolio of properties is foolish, yet the system does this.
- limiting lending to sub-prime and near-prime customers to a percentage of a lender's overall mortgage portfolio (e.g. in my very early Halifax days, 100% loans were limited to 5% of a branch's overall lending in a year - this could easily be applied to poorer quality applicants).

It's not an easy one to crack. But HM Government and her regulators need to act with caution before they do something that looks good on paper but does untold damage to the impact of the property market on any recovery from the current recession.

Fliss_M

The whole private buy-to-let explosion really hasnt helpped the cause of the FTB. With those private landlords wanting to have rent to cover mortgage and make a profit, which is fine if your mortgage is low, but when its not, it means posible FTB are having to spend in rent what they would have saved for a deposit. Add to that council selling off homes and having a waiting list for anything livable, its a catch 22. Which to me, means many FTB will struggle to become just that if we slap a 85% LTV max on all martgages.

What strikes me if there are 2 types of defaulters in the '85% and above when they bought' crowd. Those that lost their jobs, in which case a compulsory MPPI for these high LTV's could solve. The other are those that cant pay the higher rates. It which case, while they should have looked at that posibility, it seems the mortgage lender should look at their accounts and bank statements closer, hypothecise what they can afford and whats LIKELY in the market. (i.e. could they afford it if SVR went to 8%? Not 14% which would means loads of people couldnt get one for a posible (we have yet to see it this time) once in a blue moon action.

I managed to get a mortgage of 95% for 40 years in feb 2006 with £1000 overdraft and £3000 in credit card debt. Yet I still got it. Now I am thankfull for this as I love my house, but its a newbuild so guess what am in! Under what am proposing I wouldnt have been able to get a mortgage, and they would have been right to say no. When getting such a high LTV you shouldnt have such high debts. We struggled at first but jobs improve etc. Had we been on the same wage now I hate to think where we would be.

What am saying is theres nothing wrong with 100% just make sure you check them better for no debts and if they can afford a 8%SVR. Theres no problem with taking on a high/large debt provided to can pay for it.

System

I think it's a good idea but it seems unfair to force this upon those of use who are struggling to remortgage because of their previous cockups.

New mortgages, fine. Remortgages, leave it alone.