Keep 100% mortgages?

Graham_Devon

Just a thought really.

Would it be sensible to keep 100% mortgages, but only based on repayment, and fixes of interest rates for at least 5 years (I'd like to say 10).

Basically 90% mortgages are fine, but depending on the area of the country, a one size fits all approach does not work. A 10% deposit here, even at todays prices, would still be around 20k, plus solicitors fees etc. So to be reasonable, you'd need a 25k pot. Easy for some, out of reach by miles for others, especially those who are renting and trying to save, but do not have "gifts" or loans from families, or inheritance funds etc.

This would be based strictly on a 4x income for a single person, and for a couple, a 3x for the main wage and 2x for the secondary wage.

These are just MY thoughts! Feel free to change things around based on what you would think.

The fixed interest rate means that that person knows they havex amount to pay out per month for the next x amount of years, and would, in this example, be based on 6%.

Being capital repayment only, it means at the end of the fixed rate, they will have, at least, repayed some of the capital off.

We are never going to combat the chance of neg equity, as anything could happen, but at least at the end of the fix, SOME will have been paid off, instead of none at all.

Personally I feel this would be beneficial to the whole of the market. More buyers able to buy, especially in areas where the prices are higher, so a deposit is harder.

Maybe there could be a fee for such a mortgage, to stop just anyone entering into it, of say 2k? Which has to be paid up front (on acceptance etc)? Could be refundable later on, but not straight away.

Any thoughts, would this help? Or would it be reckless lending? We are in an era of change of the taxpayer owning a large chunk of banks. So could this be a mortgage which works for all? Good yield for the mortgage lender, good terms and planning ability for the client, and only those (because of the 2k fee) who genuinely are ready will pay up and enter.

mbga9pgf

I agree completely. 100% mortgages are not the problem. They can be circumvented by 'gifted deposits' or 'rich parents'. Gifted deposits should quite frankly be made illegal.

Buyers should have a clean credit history and should be required to pay off all credit before being allowed a mortgage, IE 0 CC balance, 0 car finance (or as a minimum, a maximum % of finance as opposed to salary).

Cap mortgages using salary. 3X is too low, even for a wizened bear like me. 4X single salary, 3.5X joint sounds about sensible.

They made a mistake announcing it now though. Would have been MUCH better to wait until median prices fall to say 4X median salary then whack on the 4X limit, thus locking in the coupling between salary and house prices.

All this will do is drive prices even lower than they were supposed to go. Which is great for me, but even I recognise underpricing is just as much cause for concern as overpricing, as it leads to a dynamic swing in the wrong direction. Average house prices should be around 120K. 4X single would achieve that.

Really2

What 100% = 100% risk to the bank.

This site is beginning to become sort of joke!

What about saving a deposit and the more you save and the better bet you are you can borrow on that.

Sort your selves out !!!!!! risky lending (100%+) is why we are here.

What hapens when a person on a 100% mortage get reposessed 3 months after buying a house. (big loss for the bank)

Get some smelling salts.

mitchaa

mbga9pgf wrote: »

I agree completely. 100% mortgages are not the problem. They can be circumvented by 'gifted deposits' or 'rich parents'. Gifted deposits should quite frankly be made illegal.

Buyers should have a clean credit history and should be required to pay off all credit before being allowed a mortgage, IE 0 CC balance, 0 car finance (or as a minimum, a maximum % of finance as opposed to salary).

Cap mortgages using salary. 3X is too low, even for a wizened bear like me. 4X single salary, 3.5X joint sounds about sensible.

They made a mistake announcing it now though. Would have been MUCH better to wait until median prices fall to say 4X median salary then whack on the 4X limit, thus locking in the coupling between salary and house prices.

All this will do is drive prices even lower than they were supposed to go. Which is great for me, but even I recognise underpricing is just as much cause for concern as overpricing, as it leads to a dynamic swing in the wrong direction. Average house prices should be around 120K. 4X single would achieve that.

Good god, you have woken up on the right side of the bed this morning for a change.

Agree with your post btw, shock horror:D

Wookster

I'm not sure any blanket rules should be made. Every case is different - the main thing is the need to price risk appropriately for the mortgage in question, hence a 50% mortgage would have a much lower interest rate than say a 100% mortgage which might have a penal interest rate.

Still I don't know why people would want to take out 100% mortgages - house buying is expensive and one needs to pay for transaction costs, furnishing and moving. All this requires savings, and with house prices dropping faster than a Bangkok bar girl's knickers people shouldn't need to stretch themselves as stupidly as they did in the past.

Really2

Wookster wrote: »

I'm not sure any blanket rules should be made. Every case is different - the main thing is the need to price risk appropriately for the mortgage in question, hence a 50% mortgage would have a much lower interest rate than say a 100% mortgage which might have a penal interest rate.

Still I don't know why people would want to take out 100% mortgages - house buying is expensive and one needs to pay for transaction costs, furnishing and moving. All this requires savings, and with house prices dropping faster than a Bangkok bar girl's knickers people shouldn't need to stretch themselves as stupidly as they did in the past.

I am with you on this one. (I am Han Solo)

100% mortgage = you can't afford it in my eyes.

Graham_Devon

Wookster wrote: »

I'm not sure any blanket rules should be made. Every case is different - the main thing is the need to price risk appropriately for the mortgage in question, hence a 50% mortgage would have a much lower interest rate than say a 100% mortgage which might have a penal interest rate.

Still I don't know why people would want to take out 100% mortgages - house buying is expensive and one needs to pay for transaction costs, furnishing and moving. All this requires savings, and with house prices dropping faster than a Bangkok bar girl's knickers people shouldn't need to stretch themselves as stupidly as they did in the past.

In this case, it's just a mortgage product I'm dreaming up.

So wouldn't be just for now, when house prices are falling. But would be a product for when they are static, or rising.

Seems we either have all or nothing at the moment. Gone from 125% 5-6x salary etc, to 90% deposit and high rates if your lucky.

Just trying to think ahead, find some middle ground and look for a sensible mortgage which works for the populace, but also the banks.

I know many people who are paying rent out, but cannot neccesarily save, as they have to live. BUT their rent they are paying each month, is more than in some cases a mortgage would be. So they can afford the payments, they just can't afford to pay rent, feed their kids, run their lives AND save 10-25k (depending on their area) for a deposit for a mortgage too.

So it's a case of being able to afford the payments, just not being able to save the deposit.

Even if house prices plummeted 80%, these people still may not be able to afford it, as they simply cannot save with the cost of living, to produce that deposit, allowing them onto a mortgage.

I'm sure there are thousands of families in this situation, which hopefully this sort of product would help?

Maybe we should only give mortgages to people with a deposit, who knows, I'm just looking for that mortgage which holds a middle ground between sensible, and accesible.

lostinrates

mbga9pgf wrote: »

I agree completely. 100% mortgages are not the problem. They can be circumvented by 'gifted deposits' or 'rich parents'. Gifted deposits should quite frankly be made illegal.

Buyers should have a clean credit history and should be required to pay off all credit before being allowed a mortgage, IE 0 CC balance, 0 car finance (or as a minimum, a maximum % of finance as opposed to salary).
.

I don't disagree with you, but for the point on deposits. I think a deposit is important, not least because it can show some forethought an planning has gone into it. Of course its harder to raise a 20% deposit on a London property than aproperty in ...I don't know, lets say East Anglia for no particular reason, but its still possible to raise something.

re gifted deposits, would bother me if they were banned, but it wuld be possible to circumnavigate it fairly easily (joint purchases, 'earning'the money etc etc)and I'm dealing with the fact life is unfair.

Wookster

Graham_Devon wrote: »

So wouldn't be just for now, when house prices are falling. But would be a product for when they are static, or rising.

The main problem is that you can't guarantee that property prices will rise over a 10 year period (or even 5 year period).

The consequences for individuals if the value of a property falls below the delinquent mortgage requiring repossession are dire (they are still liable for the shortfall).

I think middle ground is sensibly priced properties with sensible deposits (ideally 10-20%) and sensibly priced risk premiums.

Graham_Devon

Wookster wrote: »

The main problem is that you can't guarantee that property prices will rise over a 10 year period (or even 5 year period).

The consequences for individuals if the value of a property falls below the delinquent mortgage requiring repossession are dire (they are still liable for the shortfall).

I think middle ground is sensibly priced properties with sensible deposits (ideally 10-20%) and sensibly priced risk premiums.

I know, thats what I said in my first post. Hence this being repayment only, so that capital is paid off each month, and also, fixed rate for a longer period than usual.

No one can ever guarentee neg equity is never going to happen. There will always be risk. But thats why in this product, I would be thinking about the various things I have said, strict income multiples, repayment only, 2k "fee" returnable later (just shows willingness from the buyer I guess, and isn't too far out of remit for most, but too much for most to just not care about....or those that would require this sort of product anyway).

One of my friends had a 30% deposit laid down for him by his parents. They bought a house they could just about afford. Shes now self employed and expecting their first baby. They will be loosing their home unless their parents bail out.

Having a deposit isnt the be all and end all, it meant nothing in this case. Their parents probably will bail them out, but this just shows that even with a deposit, there is still risk...life changes. Deposits can come from anywhere.

My other friend has been renting for 4 years, never missed a payment, but doesnt have rich parents to help with a deposit. He wouldn't be loosing his mortgaged home now. But he can't have one, couldnt have one because house prices were too high, and now cant have one as he cant afoord to save 20k and also pay the rent.

He would certainly be far more capable of paying though.

saveallmymoney

I think the problem is more the LTV than the Salary mutliple, frankly do we or the banks care if people can't pay their mortgage when they've put a decent deposit down? Its their deposit money they are gambling with.

Of course with falling house values deposits would have to be bigger, but with static or rising values 5% could be perfectly sufficient.