Are the mortgage lenders being irresponsible?

System

I don't think it's optimistic to assume wage growth, given that's it's happened without fail for... ooohh ever.

Dave101t

the lenders and borrows are of equal irresponsibility.
im sure there is an old saying about this topic.....would of helped alot of people...

ess0two

Graham_Devon wrote: »

For crying out loud chucky.

Grow up.

He does have point,you seem to throw every possible obstacle into future calculations on a mortgage.
Not everyone splits up,comes out of work,gets run down by a bus,the list is endless.

The_White_Horse

the best thing darling could do for this country is introduce legistation whereby either the first 100k of current mortgages is subject to 0% interest for ever, or knock every mortgage taken out after 2003 down by 40%.

This way, the banks take the hit and the people have more income to spend to help the economy grow.

ixwood

wageslave wrote: »

It lies with the company that is supplying the loan too.

If I was a shareholder in the bank that has offered the OP 4.5 times their salary (and as a tax payer there is a reasonable chance that I am) and the OP takes the full amount and defaults. I'd be seriously pi ssed off and wants answers.

A financial institution is no different from any other business. It should only extend credit where there are as certain as they can be that the debt will be repaid.

If we, as a nation, have to bail the banks out again it wont only be Fred Goodwin who is run out of the country on a rail.

Nice rant, but you seem to have missed one key point. Collateral.

If the borrowers can't pay, the bank will obviously repossess and sell, and (assuming a reasonable LTV), get their money back.

carolt

But this is only a 10% deposit.

What are the chances of house prices falling 10% or more and this property ending up in negative equity?

Pretty high, I would have thought.

So repossessing and selling the property wouldn't be enough to recoup the bank's loss.

Obviously, borrowing 4.5 times your joint salary is less risky if you're putting down 50% LTV. At 10%, it's v v risky.

Which I think was the OP's point.

Thrugelmir

carolt wrote: »

But this is only a 10% deposit.

What are the chances of house prices falling 10% or more and this property ending up in negative equity?

Pretty high, I would have thought.

So repossessing and selling the property wouldn't be enough to recoup the bank's loss.

Obviously, borrowing 4.5 times your joint salary is less risky if you're putting down 50% LTV. At 10%, it's v v risky.

Which I think was the OP's point.

Meanwhile the bank charges 4.69% interest on the debt. Which isn't a bad rate for the borrower but profitable for the bank.

You are making the mistake of looking at the transaction singularly.

Banks will look at their loan books overall. If RBS advances 100 mortgages similar to this. It will expect a default (loss) on 1 or 2. Meanwhile the other 98 will generate over £400k in gross margin in the first year alone, more than sufficent to cover any loss. Now that borrowers have to have a method of repaying there debt too , the banks exposure reduces steadily every month. Interest only mortgages that require no repayment vehicle are increasingly harder to find.

ThrowingStonesAtYou

Thrugelmir wrote: »

A single person on the salary you quote takes home over £2600 per month ( a couple more) . So £1,100 for the mortgage repayments does not seem excessive. If you have all your finances in order.

As a couple, myself and my partner take home around £3500 a month. I would not be comfortable with a mortgage of £1100 a month - my current rent is £500 a month. Is it just me?

Thrugelmir

ThrowingStonesAtYou wrote: »

As a couple, myself and my partner take home around £3500 a month. I would not be comfortable with a mortgage of £1100 a month - my current rent is £500 a month. Is it just me?

Depends what you do with the remaining £3,000 of disposable income.

ThrowingStonesAtYou

Thrugelmir wrote: »

Depends what you do with the remaining £3,000 of disposable income.

Well bills make up about another £1000, spending money makes up another £400 and the rest gets saved. If we had a mortgage for £1100 and one of us lost our jobs we'd be running at a (slight) deficit each month.