Some lenders still offering 5x income multiples

ukcarper

pdel61 wrote: »

It should be down to affordability not arbitrary multipliers. If multipliers are used then surely it must change with interest rates. So say I earned 30000 and all I could borrow is 90000 with say a SVR of 3.5% I'd be paying back £455 a month.

Therefore if the SVR goes up to 6% I can obviously only still pay back £455 a month and therefore the multiplier would need to go down to 2.3x.

You can't just have a single multiplier for all situations and people, affordability is the only way it can be judged.

your obviously right but thats the way its always been do you think it will change

penguine

Kev09 wrote: »

You are completely missing the point, NR went bust because credit markets froze it had an awful business model which required constant funding from the money markets in order to make margin. Nothing to do with bad UK debtors!

They had a very high proportion of 125% mortgages -- more than 20% of their mortgages were "Together" mortgages. Is that the "awful business model" you're talking about?

themanbearpig

I don't know why everyone is jumping on the high multiple = bad, bandwagon.

If the people borrowing have a flawless history, and have a solid high income I don't see anything wrong with high multiples. If they want to take debt on to use on an overvalued asset, its their choice as high earning adults.
The problems only come when banks start lending high multiples to people on low-medium incomes, with less than perfect history, that shouldn't really be home owners in the first place.

Kev09

penguine wrote: »

They had a very high proportion of 125% mortgages -- more than 20% of their mortgages were "Together" mortgages. Is that the "awful business model" you're talking about?

No it is not, Northern Rocks problems had nothing to do with giving away 125% mortgages in the UK, you can lend £1m pounds to 100 people at 2.5x multiples making them stick down 85% deposit or you could lend £1million to 1 person at 5x earnings on 125% as long as the one person and the 100 keep up their repayments there is no problem! there were no mass defaults in the UK. Falling house prices are only a problem for banks if they have to reposses the properties.

You could make the case that 125% mortgages were a sign that the bank was lending too much money out but at the end of the day the crisis was caused by the freezing of wholesale money markets and dodgy loans sold to all the banks, the motivation being that the bankers could look cool down the country club and public schoolboys could get three yachts like daddy has!!!!

All this multiples and doom and gloom and negative equity stuff in the UK is nonsense. Banks do not make any money out of rising and falling house prices! they make money from loans!!!!!

ukcarper

themanbearpig wrote: »

I don't know why everyone is jumping on the high multiple = bad, bandwagon.

If the people borrowing have a flawless history, and have a solid high income I don't see anything wrong with high multiples. If they want to take debt on to use on an overvalued asset, its their choice as high earning adults.
The problems only come when banks start lending high multiples to people on low-medium incomes, with less than perfect history, that shouldn't really be home owners in the first place.

The problem with high mulitples is that house prices are dictated by what you put down + mortgage so with 3x house prices are less than 5x.

Kev09

ukcarper wrote: »

The problem with high mulitples is that house prices are dictated by what you put down + mortgage so with 3x house prices are less than 5x.

You do not get his point either!

If they can afford it, then its fine, no problem for the bank if house prices go up the bank does not clamber to repo your house. They are involved in finance, negative equity is your problem, only the banks if you miss payments.

The UK historically does not have a bad problem with mortgage defaults!!!!

space_rider

I borrowed 5 times my income just over 2 years ago. I thought I worked for a solid company at the time, but who knows what that means now. I didn`t and still don`t have any other debt. I have budgeted to pay 7% and now pay 1.54% the difference goes into savings with an interest rate of over 5%. That way once the rates go up then I will save less per month and I will still be used to not having that money to spend each month.

I would have preferred to have stuck to the 3x multiple that I had before but we had outgrown the house and the area. At the time house prices were still going up so it was a case of now or never. When my mortgage was very low I tended to go on several holidays a year. Now with the uncertainty I am being cautious with my spending.

There is nothing wrong with 5x multiples as long as people are being sensible.

ukcarper

Kev09 wrote: »

You do not get his point either!

If they can afford it, then its fine, no problem for the bank if house prices go up the bank does not clamber to repo your house. They are involved in finance, negative equity is your problem, only the banks if you miss payments.

The UK historically does not have a bad problem with mortgage defaults!!!!

I do get that its not a problem if you can afford it and the banks should use a better way of working out what you can afford. But the bottom line is when people could only borrow 3x what they earned house prices had to reflect that.

penguine

Kev09 wrote: »

All this multiples and doom and gloom and negative equity stuff in the UK is nonsense. Banks do not make any money out of rising and falling house prices! they make money from loans!!!!!

Multiple exclamation points do not make your argument more convincing.

space_rider

ukcarper wrote: »

I do get that its not a problem if you can afford it and the banks should use a better way of working out what you can afford. But the bottom line is when people could only borrow 3x what they earned house prices had to reflect that.

I kind of agree with you there, but one has to pay what the market value is and I don`t think it was just being able to borrow 5x that made houses go up so high. I think it was more people seeing houses as an investment rather than a home.