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

mbga9pgf

No because the bank own the house. In which case, goes to auction at 20% off, sells for 480K, previous owner gets back 280K, bank takes back 200K borrowed (minus any payments)

chucky

Kenny4315 wrote: »

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.

it's just nonsense - it's only an article in a newspaper, yet many have now decided it's the future and it's how things will work.

it's delusional - makes me chuckle though because these are the sorts of people that are most popular on the forum.

chucky

mbga9pgf wrote: »

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?

that's very funny that you've critical of someone about their outgoings especially knowing nothing about their background or their requirements

your thread here was very amusing - why do they call you the money Nazi
Thread for the Uber Frugals..... Complete an SOA and lets see how we compare...
http://forums.moneysavingexpert.com/showthread.html?t=1477277

mbga9pgf wrote: »

My wife does call me a money Nazi though...

piggeh

mbga9pgf wrote: »

No because the bank own the house. In which case, goes to auction at 20% off, sells for 480K, previous owner gets back 280K, bank takes back 200K borrowed (minus any payments)

Thanks. I will revise my figures to fall under £200k (done )

Point taken.

Austin_Allegro

b0rker wrote: »

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?

But this analysis completely ignores the concept of risk to the lender. The reason lending is, or was, restricted was not because the banks were mean and horrid but because they had to price in the possibility of defaulting on the loan, either through individual failure to pay (redundancy etc) or a general drop in the value of the asset.

It was ignorance of this basic rule (which had been the norm for decades) which caused such a spectacular bust in the markets; coupled with CDOs (the slicing up and selling on of debt so that no one institution was responsible) we got to the crash we have now. This is why banks dont' really give a toss about 'affordability'...

b0rker

mbga9pgf wrote: »

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

6% is the average interest rate historically.

mbga9pgf wrote: »

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

I said that was my standard living expenses were £355. I highlighted how much I would have left over to spend on anything and everything I wanted. That was kind of the whole point of my post. Which you (standard bear-like behaviour) managed to entirely ignore to keep to your own agenda.

mbga9pgf wrote: »

What happens when children come along?

Why do you assume kids have to come along. Fewer and fewer people are having kids. I am 32 and my partner is 30 and we are not sure we will have kids. In fact not many people I know of my age group are having kids. Even if I decided to have kids then I would expect to do so in the environment of a relationship where 2 incomes would exist for a prolonged period of time which will only make a house more affordable with a joint income. Or do your figures for the income multiplier depend entirely on everyone having children that were a mistake and therefore forcing a family to be supported on one salary?

mbga9pgf wrote: »

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...

Most? Can you refer me to figures that suggest that? When I lived in London the last thing I would have wanted was a car. The car I do have now is pretty much paid for by my company. I do 500 miles a week for them so they bloody well best pay for it...

mbga9pgf wrote: »

Insurance (home)?

I have included this in my figures.

mbga9pgf wrote: »

Local management fees?

Eh what? I pay council tax. That is it on that front up here.

mbga9pgf wrote: »

Dare I say HOLIDAY?

At £715 a month left over to do with what I like I am sure I can take at least one forgien holiday a month. Which was once again pretty much the point of my post which you decided to ignore.

Kenny4315

piggeh wrote: »

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 10% over the next 6 months, then the mortgage owner defaults, there could potentially be a loss of £60,000 at least. To my rather naive thinking it seems that there is a risk of loss in this case?

Not to the bank, they'd repossess, sell at say £500k, recoup the mortgage outstanding (say £200k) and costs, and old CHUCKY would lose the loot. Sorry CHUCKY old boy.

lostinrates

piggeh wrote: »

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?

I don't know how it is now in spring, but I know that towards the end of last year hen the news was bleak we were talking large multiples with the bank and they were happy. I was relieved because I was doubtful they would.

piggeh

Kenny4315 wrote: »

Not to the bank, they'd repossess, sell at say £500k, recoup the mortgage outstanding (say £200k) and costs, and old CHUCKY would lose the loot. Sorry CHUCKY old boy.

I edited my post, keep up
Sorry I had a blonde moment - there is realistically no risk of course. :beer:

b0rker

Graham_Devon wrote: »

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.

No. I never said that at all. I said that with the 3x multiplier you are suggesting then I would have £715 a month left over and only be allowed to spend one fifth of my income after tax on a mortgage. Despite tha fact that I may wish to spend more.

With £715 a month after tax left over do to with what I wish I am sure I could find money to cover any of the above taht you mention incredibly easily. In fact after living in the home we are in now we have had very few unexpected bills. I think you guys make a lot more out of this unexpected bills deal than you really should. You would think that some of you never owned a house before...