Proposed mortgage cap 'suicidal' say 'property experts'

piggeh

JP45 wrote: »

I'm not convinced of the need for an absolutely rigid limit of 3x income, but I would like us to move to a situation where in future:

1. Most mortgages are limited to around 3x income or 2.25x joint income, as in the past, unless the lender sees very clear evidence that they can afford to borrow more.

I don't have any problem with the lender issuing more than 3x multiplier but ONLY if it is carried out in a responsible manner. The targets and bonus culture in banking means that the person making this decision is not taking an objective viewpoint but is also considering how they're progressing against targets etc.

Any such decision making should be done by someone free of pressures from banks to increase lending volumes or to push products onto customers etc, their only factor should be ensuring all lending is made responsibly. Otherwise they will end up in the same difficulties as those making lending decisions have a short termist viewpoint in just reaching/exceeding targets.

Really2

lostinrates wrote: »

We do have quite a large number of single parent families though

Why the sad face i was not pushing them out of society I have not even mentioned them?

Most single parent familys could not get a mortgage due to working and child care costs.

So if this was brought in they would be further away from purchasing house?

My point is a couple or (single parent if you like)with 3 children could still only be able to get a mortgage for the same value as a single working person on the same wage.

That single person is going to buy a 3 bed semi not a 1 bed flat are they not.

dopester

mystic_trev wrote: »

http://www.citywire.co.uk/personal/-/comment/morning-line/content.aspx?ID=333093&Page=1

Thanks for that 4-page article. Good stuff.

Really2

Gorgeous_George wrote: »

Maybe the limit should be 0.5x at age 18 rising to 3x at age 21 and 5x at age 25.

GG

I like that idea, but perhaps instead of age deposit size?

lostinrates

Really2 wrote: »

Why the sad face i was not pushing them out of society I have not even mentioned them?

Most single parent familys could not get a mortgage due to working and child care costs.

So if this was brought it they would be further away from purchasing house?

My point is a couple or (single parent if you like)with 3 children could still only be able to get a mortgage for the same value as a single working person on the same wage.

That single person is going to buy a 3 bed semi not a 1 bed flat are they not.

Keep your hair on. I was just pointing out that the 'traditional' single v family model was challenged by changing statistics of what makes 'family' and the way we live. because I think its sad.

Really2

lostinrates wrote: »

Keep your hair on. I was just pointing out that the 'traditional' single v family model was challenged by changing statistics of what makes 'family' and the way we live. because I think its sad.

sorry you have lost me i have not even made an aggresive comment?

I think it is fairly straight forward what i have wrote and the hinderence of

3X single against 2.25X joint.

(PS I see single parent family as familys not as as a single person I think you have compleatly misread what I said.)

Really2 wrote: »

Are you not sacrificing family's for single people?

I could only afford the same house as a single counterpart in that case so what would happen to familys?

surely a single person does not need the same property as a family?

dopester

Really2 wrote: »

Reason it is suicidal is who is if it did drive prices down that much who would pick up the tab (NE and bankrupt banks?)

I don't understand. The borrowers were happy enough to take out the debt they required to buy houses, or to step up the ladder in the boom and take on more debt.

Why is it the banks problem? The borrowers just have to fulfil their repayments, for the mortgage debt they happily took on. Or find they weren't so wise using their homes as a cash-machine for easy MEW money.

Loads of people I know have had their homes 12+ years without moving or equity releasing. Their home values were pushed up in the boom, but except for the thought of what if they'd "cashed-in" at the peak - they won't flinch at 50% crash and even more.

Still just a home.

WestonDave

What about approaching this from a different angle.

The problem with the high levels of debt was that they were based on very high percentages of underlying assets, and high multiples of earnings, and in the end when those inevitable weaknesses came to light lenders didn't have the reserves to cope.

So - instead of having a rigid cap system that affects all lenders and all borrowers, why not have a tiered reserve requirement, so if a lender is lending at say 90% LTV it has to have a higher reserve level than if it is lending at 80% LTV, and likewise for earnings multiples.

That would leave flexibility in the market for lenders to lend, but because of the reserve requirements, it would be less profitable to lend in riskier ways, which would mean they charge higher interest rates and to an extent put off business anyway, but without having rigid rules which risk distorting the market. People could then make choices that if they want to spend proportionately more on housing they could get that higher loan at a price and those that are not so bothered get their loan cheaper and have the money to spend elsewhere.

I'm sure there's obvious flaws in this, not least the complicated calculations required but could something like this be a basis for reform rather than a blanket 3x rule.

Really2

dopester wrote: »

I don't understand. The borrowers were happy enough to take out the debt they required to buy houses, or to step up the ladder in the boom and take on more debt.

Why is it the banks problem?.

Reposession has an imdiate effect on the bank if they can only get 50% of the loan value back.

Also if everyones house price fell 50% overnight the bank would have to do £trillion writedowns on the value of its loan books.

Yes they can chase for the outstanding but if the bank goes bump before then it makes it fairly pointless.

dopester

overlander wrote: »

I should add although i am in favour of more regulation i do not think there is any chance of this becoming law. No party would want to be responsible for crashing the housing market.

KK.. well in the near future we'll see if you can find a bank or lender who wants to lend you more than x3 real-provable income, without hopeful bonuses in a shaky economy then.

I'm sure shareholder of RBS, HBOS, Lloyds, and more regret the risky lending to people in the boom. New private shareholders have nothing to gain from risky lending at dangerous multiples.