House prices down to at least 115K... Thans FSA! 3X here we come!

b0rker

I posted some of this previously on another thread about affordability. I have since redone the figures as some of them had been based on a 2 bedroom house with 2 people using the facilities (my actual current circumstances).

I think that affordability comes down to how much of a disposable income you think people should have on the average wage for the local housing market. The average wage where I live is £20K. I am on about that and have about £1,350 a month after tax. At the top of the market in 2007 a 1 bedroom flat was £100,000 here in Inverness. A 1 bedroom flat is traditionally a single persons FTB property.

Assuming the FTB would have a 10% deposit then we are looking at a £90K mortgage. So a £90K repayment mortgage at 6% interest rate over 30 years would be a monthly repayment of £544 a month. That would leave me on my local average wage with £806 a month. My bills and standard living expenses (no luxuries) are £355:

Council Tax 100
Internet & Phone 25
Eletricity 90
House Insurance 25
Food 100
Mobile 15

Total: £355

So that would leave me with £451(!) a month to either save or overpay my mortgage or spend on luxuries.

So going by that then I would say that house prices at the top of the market in 2007 were affordable in Inverness as I consider £451 a month to be plenty of money left over after living expenses/mortgage.

I think I could pick up the same 1 bedroom flat for about £85K (15% down from the top of the market in 2007) today with a lot of haggling.

So £85K with a 10% deposit then we are looking at a £76,500 mortgage. So a £76,500 repayment mortgage at 6% interest rate over 30 years would be a monthly repayment of £382 a month. That would leave me on my local average wage with £968 a month. My bills and standard living expenses (no luxuries) would still be £355 so I would have £613 (!!) a month to do with what I like.

And that is at a 4x multiplier!

So assuming that the house prices come down to 3x multiplier a FTB 1 bedroom flat would be £60K. Again the sums:

So £60K with a 10% deposit then we are looking at a £54K mortgage. So a £54K repayment mortgage at 6% interest rate over 30 years would be a monthly repayment of £280 a month. That would leave me on my local average wage with £1070 a month. My bills and standard living expenses (no luxuries) would still be £355 so I would have £715 (!!!) a month to do with what I like.

So going by what you guys are suggesting (a fixed ceiling of 3x income multiplier plus a 10% deposit) I should only be allowed to borrow £60K on my £20K salary. Which would mean that I was only allowed to spend roughly one fifth (1350/280) of my income (after tax) a month on my mortgage. Despite the fact that I may desire to spend more on a bigger property as I can clearly afford to.

Is it just me or does that seem a little bit entirely insane?

mbga9pgf

moggylover wrote: »

Not quite as exciting as all that really! 3 x salary on a first time buyer type house (with a hefty deposit rquired as well I hope) and not on a 4 bed with half an acre of garden;) .

We have to balance the perceived greed of the current owners - against the often very obvious greed of those not yet on the ladder;)

No, 3X average salary for the average home.

3X ftb salary for FTB home, which needs to be factored for the fact the FTB wage index consists of approximately 20% of returning Sell-to-renters who national statistics class as First time buyers.

By this time next year, I will have a 40% deposit and will quite easily be able to afford that 4 bed home with 1/2 acre thanks love!

mbga9pgf

Kenny4315 wrote: »

Can't see Mr Clown rubber stamping in law anything that allows the market to worsen why would he it's not in his interests to have negative equity and repossessions soar, due to mortgage lending criteria. I'd also reckon that the non-government owned institution will go and tell whoever to go and swivel, and then take them to the court. It is up to them how much they loan until they come cap in hand to the government.

Do you mean by the same laws that govern non-state owned banks so they cant issue a credit card to under-18s?

Or the same laws that ensure Financial advisers have qualifications?

Or how about those pesky Basel II regulations hey, that all those non-state owned banks just get to ignore....!!! :rotfl:

Oh, you are forgetting the second biggest UK bank IS now effectively state owned, and the first biggest is NOT state owned because they always had very sensible lending criteria anyway!!!

Kenny4315

chucky wrote: »

so if i have £400k in cash and a salary of only £40k i can only buy a property 3 times my salary. that £400k is certainly more than a 5% deposit. what kind of logic is that??

some people really do live in a fantasy world

Alot of these guys really have no idea how a market works, in this case the housing market.

If I were a bank and you had a £400k deposit, as a business I'd be happy to lend you alot more than 3 times £40k, and there is no risk of loss. In actual fact the person taking the mortgage would have the risk not the bank. I reckon that the bank would be happy to give at least 5 times salary with no worries, proably more, if you default then they are covered, so no problem.

It is obvious that further on in life the deposit amount will increase, as you build your wealth, this thread also ignores the fact many can buy houses outright. So 5% is total nonsense, I have bought 2 houses in the last 2 years, one with a 30% deposit plus I spent alot of cash on rennovation, and the other 20% approx plus rennovations, I have around a 65% equity stake at present in the 2. The last house I sold I had paid off, at £324k up £200k in 7 years.

Kenny4315

mbga9pgf wrote: »

Do you mean by the same laws that govern non-state owned banks so they cant issue a credit card to under-18s?

Aren't you a minor at under 18 ??

Having a qualification to be a FA and undermining the banking process are two different things

mbga9pgf

b0rker wrote: »

Is it just me or does that seem a little bit entirely insane?

So borker, want to tell us what those figures are like with higher IRs?

I may suggest as well that your standard of living must be crap with outgoings of only 355 quid.

What happens when children come along?
Most young professionals need a car. One of the biggest costs in fact. Transport costs anyone? Car insurance, road tax, petrol, finance costs blah blah blah...
Insurance (home)?
Local management fees?


Dare I say HOLIDAY?

Graham_Devon

b0rker wrote: »

Council Tax 100
Internet & Phone 25
Eletricity 90
House Insurance 25
Food 100
Mobile 15

Total: £355

So you don't use water, or a car, or any transport at all? You don't wear clothes? And survive on £25 per week food (including all toiletries and cleaning stuff?).

£400 a month left, and you think you should be able to take more on your mortgage?

What happens, if one month, your boiler breaks down, or you need a new freezer. Or you need some clothes? Thats a massive chunk of money gone from your £400 cash. And one month you aint paying your mortgage very easily.

Thats one month into arrears. And thats you on the slippery slope.

mbga9pgf

Kenny4315 wrote: »

Aren't you a minor at under 18 ??

Having a qualification to be a FA and undermining the banking process are two different things

Thats your opinion. I think you are about to see exactly what power the FSA has.

In terms of what the fsa can do with the mortgage market, this is key:

the reduction of financial crime: reducing the extent to which it is possible for a business to be used for a purpose connected with financial crime.

In reference to liar loans, which much of HPI was backed off.

and I suggest you look at what the FSA ave the power to do, off their website.

The FSA is the designated competent authority under the European single market directives for banking, insurance, investment business, and other financial services including insurance intermediation. The FSA is also the competent authority under a host of other EU directives, including the Market Abuse and Prospectus Directives. European legislation affecting the FSA is implemented domestically through FSMA and / or HMT regulations.
Other main areas of FSA regulation include pension schemes and activities relating to mortgage contracts.

All available here.

http://www.fsa.gov.uk/pages/About/Who/Accountability/legal/index.shtml

If you are a mortgage supplier, you cant even fart without the fsa's permission.

Kenny4315

The whole point of a bank is to lend, the bailout and QE, are measures to aid lending, not to halt lending. If you believe that house prices will fall to 3 X average salary, plus a 5% deposit, then you are simply not in the real world.

Is this the same FSA that allowed this KCUF up to happen in the first place ???

I can just see it now ..... repossessions rocket, house prices crumble, tax revenues collaspe, bad debts spiral in government owned banks, sterling collaspes as a result, state benefit rocket, unemployment shoots to the skies, etc, etc. And Mr Clown just lets them carry on, stupid as he is even he would overturn it, as the obvious result would be a total collaspe of the economy, and HPC supporters would see no benefit, as unemployment would rocket to epic proportions. I'd be okay though as I have a pile of cash waiting at present for the right time.

piggeh

Kenny4315 wrote: »

If I were a bank and you had a £400k deposit, as a business I'd be happy to lend you alot more than 3 times £40k, and there is no risk of loss.

Even in the current market? Please explain. It seems to me (correct me if I'm wrong) that if they purchase a house at say £600k, and it loses 75% over the next 18 months, then the mortgage owner defaults, there could potentially be a loss of £50,000 at least. To my rather naive thinking it seems that there is a risk of loss in this case?