Deposit vrs. Salary

kriss_boy

5x Salary mortgages may be a thing of the past and rightly so but when are lenders going to ease up on the deposit buyers require. Will it ever happen in the near future?

Surely drop in house prices and the removal of such high salary/borrowing ratio's mean we have moved away from the madness of recent years. There must be tens of thousands of young prospective buyers out there will stable enough jobs.

I know a few people renting that are struggling to get a decent amount of money together, however they are paying more in rent than they would on a mortgage for a smalll property.

I just wondered why lenders dont ease up a bit and offer more 5% deposit mortgages again to also try and stimulate the housing market.

Rob_Marx

10% deposit after prices dropped is less than 10% deposit before prices dropped. If you can't save up 10% (say £15k ish) you probably don't earn enough or aren't financially responsible enough to buy

also if deposit requirements drop prices will just go back up again as any clown can get a mortgage. there needs to be an equilibrium between lower house prices and high enough deposit requirements to make saving for a deposit a serious task

HAMISH_MCTAVISH

Rob_Marx wrote: »

10% deposit after prices dropped is less than 10% deposit before prices dropped. If you can't save up 10% (say £15k ish) you probably don't earn enough or aren't financially responsible enough to buy

I would generally agree that people should have to show they can save up 10% before they are given a mortgage. And for most people, in most areas, this should not be all that difficult. Although I can understand the frustration of not wanting to waste a few years of rent paying someone elses mortgage whilst doing so, this has traditionally been just one of those things that has to be done.

But this is much more difficult for those who are living in areas where rent is higher than a mortgage would be.....

Those people are already proving they can pay a mortgage payment, in fact, more than a mortgage payment, and there may be a case to say they should be able to get a mortgage with a smaller deposit.

Likewise for those who live in very expensive areas like London but who have relatively secure jobs, such as essential services workers, policemen, firemen, teachers, nurses, etc..... They may have to save up 25K or 30K for deposit and fees, which could take many years extra, all the while they are wasting money on rent.

So I don't think a one size fits all approach is right, there should be exceptions, but in general saving 10% is a good idea.

HAMISH_MCTAVISH

kriss_boy wrote: »

I just wondered why lenders dont ease up a bit and offer more 5% deposit mortgages again to also try and stimulate the housing market.

Because they still don't have enough funding available to meet demand if they did. Lending for new purchase has risen almost every month this year, but the banks still don't have access to anywhere near the total funds to lend that were available in 2007.

High deposit requirements and high credit score requirements are the tools being used to ration the available pool of funding.

Graham_Devon

HAMISH_MCTAVISH wrote: »

I would generally agree that people should have to show they can save up 10% before they are given a mortgage. And for most people, in most areas, this should not be all that difficult. Although I can understand the frustration of not wanting to waste a few years of rent paying someone elses mortgage whilst doing so, this has traditionally been just one of those things that has to be done.

I disagree.

Only going on my own life experience, and the experience of those around me. I'm not going to pretend to know about other people I know nothing about.

BUT. Saving up 10%, which would be at least 16k around where I am just for the deposit, would not be an easy task. Not if you renting and living at the same time.

The average wage in my area is £19,600.

After tax, you are left with round 16k. The figure you said should not be too much of a problem to save.

Now these people are not going to be left with much at all after living for a year. For instance, I myself do around 20,000 miles a year. That = 33 tanks of fuel. A tank of fuel is £60, so thats £1980 on fuel a year. That fuel is mainly to go out and earn money.

I know you are going to come back with "well we are talking 2 people". But with 2 people earning, their fuel bill or transport bill will probably be higher as they both go off to seperate places to earn money, so it's all relative.

What I'm trying to say is, living costs a lot. 16k is a lot of money to save up, JUST for the deposit. The fuel example was just one single cost per year, but one we often forget about. I don't believe that, as you say, for most people it shouldn't be too difficult. I would think for most people, at least people I know, that would take them quite a few years.

Totally difference ballgame if they are living with parents etc.

When on a lot of money a year (as you have stated a lot of times that you earn over 6 figures a year) it's often very easy to see your own situation as normal. I'm on pretty much double the average down here, so I see things easier than my mate who works damn hard for 15k a year.

I think saving is a good idea, and would definately say that 10% is about right. What I will say however, is that house prices are way too high, making that 10% too much for many many people.

Cleaver

Graham_Devon wrote: »

Now these people are not going to be left with much at all after living for a year. For instance, I myself do around 20,000 miles a year. That = 33 tanks of fuel. A tank of fuel is £60, so thats £1980 on fuel a year. That fuel is mainly to go out and earn money.

Not disagreeing with your other points, but most people will not be doing 400 miles a week for work like you do. And the ones that do will probably be getting a form of payment for any of those miles done during the day. But point taken, it costs a lot to live and I agree with the overall tone of your post.

Having said this, I'm going to sound like my Dad and say that people seem to often have enough money for cars, holidays, TVs, trainers, clothes, gym memberships etc. etc. Couple this with the fact that financial education and knowledge in this country is pretty poor for most people and you do start to think that saving £16k, for most people, would be very difficult. I think there is a real argument to say that people don't want want to put in the hard work to save money (and I'm talking about people on this site, because clearly most people on this site are pretty good with money, whether they earn a lot or not).

Very simply, if you decide you want a house then putting away £400 a month for three years would pretty much get you there deposit-wise, and that's for 10% of the average house. I reckon with a bit of hard work and discipline this would be possible for most couples. And after buying that house it tends to get cheaper and cheaper (relatively speaking) from that point forward.

mitchaa

For once i agree with you GD.

Saving £16k is near on impossible for most. Average wage typed families will be doing good to save £1-200pm never mind £500pm for close to 3yrs.

Bring back 100% lending. I'm not a fan of scrimping and saving for years on end, life is too short. I had a 3% deposit when i bought mine, and thought that was more than enough

Harry_Powell

Graham_Devon wrote: »

I'm on pretty much double the average down here, so I see things easier than my mate who works damn hard for 15k a year.

For someone who lives his life on MSE, you seem to have an awful lot of 'mates/friends/aquaintances' that you regularly quote. Two questions come to mind...

Are these all internet 'friends'?
Do you actually know anyone who is doing ok? All your 'mates' seem to be on their uppers and either struggling along on minimum wage or getting by with benefit scams.

Cleaver

mitchaa wrote: »

Saving £16k is near on impossible for most. Average wage typed families will be doing good to save £1-200pm never mind £1-2k

Just to play devil's advocate for a second and turn that comment around, do you think that the average family will spend £200 per month on items / services / entertainment that they could actually live without?

mitchaa

Cleaver wrote: »

Just to play devil's advocate for a second and turn that comment around, do you think that the average family will spend £200 per month on items / services / entertainment that they could actually live without?

Of course but then quality of life comes into question.

tommy75

Cleaver wrote: »

Very simply, if you decide you want a house then putting away £400 a month for three years would pretty much get you there deposit-wise, and that's for 10% of the average house. I reckon with a bit of hard work and discipline this would be possible for most couples. And after buying that house it tends to get cheaper and cheaper (relatively speaking) from that point forward.

'Used' to get cheaper and cheaper. If you buy at the top now with the lowest interest rates in history with overtime and job cuts it's not going to get cheaper and cheaper is it? Maybe after 10-15 years things would get easier if you didn't lose your job over this time. It's hardly looking like the same senario as the past 30 years is it?

Young people are being ripped off and are having to take massive risks just to get on the ladder even if they have been gifted a deposit or saved up one over the last few years. House prises have risen yoy since the turn of the century more than people have earned.
House prices in some sort of relation to wages is not a bad thing and may stop the collapse of the banking system again over the next few years. Banks have sat on billions of sterling since the bail outs and I think once they can take another loss they will bring the market down so everything works properly again and risky high ltv's are all but gone. Then we will see a true recovery..