Proposed mortgage cap 'suicidal' say 'property experts'

chewmylegoff

Kenny4315 wrote: »

This is utter tosh ... lets say customer comes to end of fixed term, and wishes to remortgage on a similar deal, previously he was able to get a decent rate based on a good equity portion, suddenly house prices have fallen significantly, he can't remortage as he now has negative equity, and so goes onto the SVR, rather than a similar product to previous ... result .. can't afford ... repossessed ... thus house price falls are effecting the affordability.

true, but that would also be happening anyway, so it would only cause more repossessions to the extent that the mortgagee would have been able to remortgage without the additional price fall, and to the extent that they could not afford the SVR should they not be able to remortgage.

one assumes that the govt would be obliged to keep SVRs low at the banks it controls, should these events transpire to the extent that repos were materially increased. indeed it wouldn't be in the banks' interests to force everyone into repossession, and for that reason people coming off the end of a deal they could afford would be likely to be able to carry on paying the same rate, or near. you wouldn't get the "northern rock effect" of intentionally using a high SVR to get people to go elsewhere, if the result was they don't transfer elsewhere, default and cause you a massive loss.

obviously if you bought on a discount mortgage and can't get another one, you would be screwed. but that is a silly practice anyway.

whathavewedone

If you have equity you can get a fixed rate mortgage that you can afford. It you do not have equity you cannot get a fixed rate mortgage - if interest rates go sky high you are f*cked.

If everyone worried about whether they could afford their mortgage at rates of 15-40% hardly anyone would buy a house. What people do is put down as big a deposit as possible to avoid being in negative equity so that they can always mortgage at an affordable rate.

So house prices ARE important if you have a mortgage and it ISN'T just a case of wanting to have imaginary money. We put down REAL money which we earned and saved as a deposit to avoid being in a negative equity situation.

And to Dopester: it wasn't choice that made me live in shared houses in my 20s - it was necessity. At the start of the 1990s I was earning 15k at the end of the 1990s I was earning 24k. I lived in London. I lived where I could afford to live taking into account fares and other living expenses.

You were the one talking about the dreadful suffering you have endured by having to rent - I was merely making the point that despite the fact that I spent over 10 years as a renter myself in less than salubrious surroundings I do not consider this to be "suffering" but merely a rite of passage.

I think you know exactly what I meant though.

dopester

whathavewedone wrote: »

You were the one talking about the dreadful suffering you have endured by having to rent - I was merely making the point that despite the fact that I spent over 10 years as a renter myself in less than salubrious surroundings I do not consider this to be "suffering" but merely a rite of passage.

I think you know exactly what I meant though.

ok WHWD rights of passage to a house which was probably around 3 times cheaper 10 years previously. You've lost me totally with your outlook on interest rates, in the above post and your previous one.

I'm not expecting you to be hit with mammoth interest rates in the foreseeable future. If anything you should have it fairly easy at the moment. All you have to do is repay the debt of your mortgage, but don't count on inflation making debt loads any lighter.

moggylover

Oh Lord! Not this one again:rolleyes:

Firstly, despite being one of the despised baby boomers (vintage 1958:D ) I am very much in favour of there being a house price correction.

However, as someone who has never had a mortgage at a multiplication rate of less than 4 x income, and who has never missed a payment on any mortgage (even when the rate was an horrendous 15% for a while) I do not think one can just say that there is one rate for all.

3 x minimum wage salary? Quite possibly as the disposable income is going to be quite low (actually it is carp even before rent or mortgage comes out so let's call it what it is:D ) and thus it would be a higher risk (but I actually do not think it should incur any higher interest rate - just a more stable multiplier). Higher salaries? Well, I think that should be taken more on the disposable income that would be left even if the rates were to increase and I really do not see 4 and 5 x income posing a great risk to lenders in many of these situations, but I would want to see such buyers presenting with a minimum of 10% deposit and proof of saving not just a windfall;) .

Even without a particularly high income, I borrowed more than other people (even as far back as 1979 when one had to have a good deposit and it was very hard to get higher multiples for mortgage) because I prefer to spend my income on as nice a home as I can afford and am not even vaguely interested in spending on holidays, cars, designer clothes, cosmetics, drinking, etc. - and I think that should remain a matter of choice - although yes, I agree, that the alternative way to do this is to buy a cheaper place and then save like mad and move - but that incurrs lots of expensive legal work and removals and so forth which is really money wasted if you have to keep doing it. You will have to forgive me if I would not consider renting - since the cost of renting is often equal to or more than the cost of a mortgage I really would not be buying someone else a house with my money:D . I wouldn't be averse to an HA home, or a Council House, the BTL brigade can take a running jump:D . Personally, in order to "correct" house prices I would just make it impossible for people to have more than one mortgage at a time, and that would slow down the BTL price inflation problem;) .

I have a query though. My own objection to high prices is based partly on the fact that this then makes renting extremely expensive and leaves many a minimum wage family paying more to rent a home from a BTLer than others are paying for their mortgage. I have seen one person on MSE on a claimed "tidy" above average salary of £50K demanding that he wants to be able to afford an above average house as a FTB - do those wanting such luxuries for themselves feel that prices should crash enough that anyone working full-time should be able to buy, or are they demanding just enough of a crash to allow them to buy exactly what they want?;)

Personally, I don't much care:D I have two houses, both bought and paid for (one inherited) and both purchased around 1987 - 1990. If I loose any value on my houses, then so do the people above me in the chain with houses that I might want to buy with the proceeds from my two, so it is absolutely no skin off my nose whatever happens, indeed a crash to the 1987 prices would be good for me - but I am pretty sure it would not be good for the economy so am not particularly keen to see it. I personally do not want my good fortune to be at unbearable cost to anyone else, nor to the Country as a whole.

Really2

chewmylegoff wrote: »

why would the banks have to write down by trillions over night? they have to assess recoverability, not the market value of the security. the principle valuation criterion is default rate, not property price.

unless a mortgage cap suddenly caused everyone in the country to have their salary cut so that they couldn't afford their mortgage, then nothing material would happen to the recoverability of the bank's loan book. the loss on each repo might be more, but that's still not going to equate to meltdown.
.

So if they wanted to sell the mortgage debt what would it be worth? more the same or drastically less?

That is why they would have to write-down trillions the market value of any mortgage in NE would be virtually valueless.

lostinrates

moggylover wrote: »

I have a query though. My own objection to high prices is based partly on the fact that this then makes renting extremely expensive and leaves many a minimum wage family paying more to rent a home from a BTLer than others are paying for their mortgage. I have seen one person on MSE on a claimed "tidy" above average salary of £50K demanding that he wants to be able to afford an above average house as a FTB - do those wanting such luxuries for themselves feel that prices should crash enough that anyone working full-time should be able to buy, or are they demanding just enough of a crash to allow them to buy exactly what they want?;)
.

I'll be honest, and thats that my view changes. I have an ideal from within a current system and an idealistic view, which will never occur.

I'd really like a very different attitude to debt. Rather than proposing everyone working should be able to buy, I'd like it if everyone who bought was really able to afford to. I think that goes back to stable incomes, reasonable affordabilty and, if it must be raised, then perhaps the mulitple thingy being considered, and other debts and attiudes to spending considered. I'd also, really, like payment protection insurance to be mandatory.

I remain so far, of the opinion, that the housing market as a whole, would benefit from readdressing the way we look at rental.I'm aware the likelihood is this response will reconfirm the greedy tag, but I don't think renting has to be second best, with different approach.

Like you, I'd rather not be spending money on frequent moves, and while I don't see it as a right to buck the system as it now is, and I recognise the world ain't fair, I feel that in in making the decisions we have we would like, not we should be entitled to but we would like, our affordability and lifestyle to be considered.

The morality of this is so hard, and inevitably draws from political belief and personal situation. E.g. much like your area in Wales, the part of SW I'm in saw rapid, rapid HPI and many locals were driven out of the market, and private rental market, by 'incomers', who moved west for much the same reasons they moved to Wales I guess....but with less commitment and shorter commuting hours. I think we should have the right to move around the country though, and make legally earned money work for our best legal advantage. Its hard to see a clear, uncomprimised way through whats best for everyone.

Really2

Kenny4315 wrote: »

Uuurm isn't .... prudence was the over-riding principle or standard .... if in doubt ?

In this instance, you can see average house prices will come down by 65% ish, and as a result can conclude the need for a massive bad debt provision, being prudent we'd assume the worst of course......

Don't bother kenny if he could not see why banks have to do this you are never going to make him.

I presume he thinks all the write-downs so far have been done for a laugh or have all been caused by repos.:rolleyes:

chewmylegoff

Really2 wrote: »

So if they wanted to sell the mortgage debt what would it be worth? more the same or drastically less?

That is why they would have to write-down trillions the market value of any mortgage in NE would be virtually valueless.

it would be worth less for the same reasons; the bad debt rate would be higher.

however, the loan book would not be automatically reduced in value pro-rata with the fall in the property market. the bank, quite simply, would not sell the loan book at a massive discount to the NPV of the future loan repayments, unless it believed that it could not collect the loan book.

you seem to be stuck on the notion of trillions. again, do the maths.

dopester

Really2 wrote: »

So if they wanted to sell the mortgage debt what would it be worth? more the same or drastically less?

That is why they would have to write-down trillions the market value of any mortgage in NE would be virtually valueless.

Not if the buyer is still able to afford their payment obligations on the mortgage.

Yes, they would most likely see the value of their homes/"investment" crash.

And aren't something like 45% of homes in this country owned outright? Yes the values would fall, but it would allow fresh opportunity for people waiting to buy and younger generations to come in and buy at lower levels, without crazy debt burdens.

Then better positioned to start things moving again... I mean the economy, new business startups and new innovation that we need in this country - not the slavery of HPI and servicing big mortgage debt.

Really2

chewmylegoff wrote: »

it would be worth less for the same reasons; the bad debt rate would be higher.

however, the loan book would not be automatically reduced in value pro-rata with the fall in the property market. the bank, quite simply, would not sell the loan book at a massive discount to the NPV of the future loan repayments, unless it believed that it could not collect the loan book.

you seem to be stuck on the notion of trillions. again, do the maths.

So what took freedy mac and fannie may down.

Reposessions or writedowns requierd by law?
http://www.answers.com/topic/write-down
Banking Dictionary: Write Down Top
Home > Library > Business & Finance > Banking Dictionary

Revaluation of securities, loans, or other assets when the market value is lower than the book value at which the asset is carried. Marketable securities carried as Trading Account Assets for a bank's trading account or held for other institutions must be adjusted to market value (Mark to the Market) daily, by either writing down or writing up. Loans and leases are carried to maturity at the original book value, unless a bank is required to write down their value by a banking regulatory agency.