Some lenders still offering 5x income multiples

ninky_2

penguine wrote: »

But only to those who meet strict criteria, apparently.

(Northern Rock, Abbey, and Alliance & Leicester if anyone wants to dash out and apply.)

and the strict criteria, apart from a "high credit score" (what does this really mean?) you must be earning over £32,500 (!?). what is "strict" about that?

i'd say someone earning higher income and therefore getting a higher mortgage is more likely to run into difficulties than someone on a lower income. higher income can be harder to replace if you are made redundant. plus the amounts of income needed to make up the higher payments are also harder for find.

it's really worrying that no real lessons seem to be being learnt from the "credit crunch" and it looks like the banks will just take up where they left off.

Kev09

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.

House prices are determined by supply and demand, they do not necessarily have to reflect people incomes at all. Its the availabilty of credit which is reducing demand.

I do not feel you can say that house prices should reflect 3 x incomes, I mean there are so many other factors, if the price of bricks and cement quadrouple can you say that then, its not that simple. Why should an average house be worth 3 x an average income?

Dan:_4

Why is the universal number 3 x income? Why not 2 x Income or 4 x Income?

ad9898_3

Dan: wrote: »

Why is the universal number 3 x income? Why not 2 x Income or 4 x Income?

I think Dan it is the historical level at which mortgages were given before the boom, I have experience from myself and my sisters from '77 to '96 that it was 3.5 x single income plus 1 x second income, or 2.5 x joint.

Now, I understand that more partners work these days compared to historical standards, however it could be argued that 'partners' needed or had to work to in more recent times to service the increase in mortgage burden.

Dan:_4

ad9898 wrote: »

I think Dan it is the historical level at which mortgages were given before the boom, I have experience from myself and my sisters from '77 to '96 that it was 3.5 x single income plus 1 x second income, or 2.5 x joint.

Now, I understand that more partners work these days compared to historical standards, however it could be argued that 'partners' needed or had to work to in more recent times to service the increase in mortgage burden.

Im not convinced. During the 1980s you could get very high multiples. 3.5 x income is the average, not the max - and this is still case today.

Kev09

ad9898 wrote: »

I think Dan it is the historical level at which mortgages were given before the boom, I have experience from myself and my sisters from '77 to '96 that it was 3.5 x single income plus 1 x second income, or 2.5 x joint.

Now, I understand that more partners work these days compared to historical standards, however it could be argued that 'partners' needed or had to work to in more recent times to service the increase in mortgage burden.

Times change, expectations change, everyone wants a home, supply does not keep up. Past performance is no guide to the future, just ask the Banks.

If I were to give you 3.5x an average single persons income and tell you to buy the land, the raw materials hire the workers, pay the legals and so on and build an average house?

I just think trying to predict what will happen to house prices using incomes as the barrometer is impossible.

ad9898_3

Dan: wrote: »

Im not convinced. During the 1980s you could get very high multiples. 3.5 x income is the average, not the max - and this is still case today.

Well fair enough, all I know is when I walked into various banks in December '96, the max I was given was 3.4x my income, with all the others coming in between 3x and 3.3x.

I had no loans, no credit card debt, no dependents, tip top credit rating and a 10% deposit.

ad9898_3

Kev09 wrote: »

Times change, expectations change, everyone wants a home, supply does not keep up. Past performance is no guide to the future, just ask the Banks.

If I were to give you 3.5x an average single persons income and tell you to buy the land, the raw materials hire the workers, pay the legals and so on and build an average house?

I just think trying to predict what will happen to house prices using incomes as the barrometer is impossible.

I understand times change, but what do you suggest then ?, the affordability measure that has been used since 2000 has failed spectacularly. Regardless of how much the land, materials etc.. cost, if it's too expensive and too much has to be borrowed the whole system fails, which is exactly what has happened.

ukcarper

space_rider wrote: »

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.

I agree with you it's a lot more complicated than salary multiplies and the big increase in BTLs also must have had an impact. Also there have been times in the past where property prices have rocketed without high multiplies or BTLs.

Kev09

ad9898 wrote: »

I understand times change, but what do you suggest then ?, the affordability measure that has been used since 2000 has failed spectacularly. Regardless of how much the land, materials etc.. cost, if it's too expensive and too much has to be borrowed the whole system fails, which is exactly what has happened.

If you read my earlier threads I have had to make this point over and over again. When the banks initially ran into trouble it had very little to do with lending in the UK mortgage market.

Defaults are rising in the UK now because of the recession we are in, but it is not this which caused any problems in the banking sector. Therefore I do not think you can say this "system" has failed so it isn't what happened.

The banks problem stem from mismanagement and complacency at the very top.

I bet they all wish they had all stuck to just lending to the UK mortgage market, then for instance RBS wouldn't have to write off £24bn from its balance sheet.

There is no point jumping on the bandwagon claiming how prudent they must be now. Affordability needs to be judged on each individual case, as has been mentioned before 3.5 x earnings means nothing if people have thousands on store cards etc, also if someone has been paying £900 rent for 5 years then it most likely they will be able to afford a £650 mortgage so they shouldn't be knocked back.