Telegraph: Bring Back 100% Mortgages--Best Way to Wealth

HAMISH_MCTAVISH

DaddyBear wrote: »

Nobody seems to ask why we need 100% mortgages, we didn't need them before 2003.
.

And yet the article talks of getting one a couple of decades ago......

DaddyBear

HAMISH_MCTAVISH wrote: »

And yet the article talks of getting one a couple of decades ago......

You seem to like numbers Hamish. Care to enlighten me on the the percentage of 100% mortgages handed out in 1990.

kriss_boy

chucky wrote: »

to add to that - 100% mortgages are 'good' for people who are starting off in their careers and will be progressively earning more money in the future.

so for example in year 1 the mortgage may be 50% of income but by year 5 it could be 25%.

they would probably suit a graduate for example

I kinda agree but If you are a first time buyer living with your parents and you cant afford to save a deposit then clearly you arent ready to move out yet.

princeofpounds

Charterhouse is making some very good points here but unfortunately I think they will be lost on most people.

Just a point though

lol - you're assuming 100% IO mortgages are the norm.but no-one is uppity here, just don't see that 100% interest only mortgages are the norm in the UK.

They don't need to be the norm. It can only take a small minority of bad assets to annihilate a bank completely.

This is because banks are levered. As an investor in a bank, I can put in £1 of equity and accept £9 of deposits. All of these can go into £10 of loans.

If only 10% of loans go bad, I don't lose 10% of my equity as the depositors get paid first. I lose ALL £1 of my equity.

Now that's a relatively conservative bank by developed-market standards! Let's look at RBS...

Assets are 1680bn. Equity is 59bn. That means that only one in every 28.5 pounds of assets needs to go bad and the bank is totally wiped out. 3.5% of loans.

Now, to be fair we might suggest that some of these assets are not risky, like government bonds or government-insured assets. The risk-weighted asset base is much smaller at 590bn (although the weightings are pretty arbitrary and quite arguable). That leads to RWA:equity of 10%.

However, we should also recognise that the equity in the bank is not entirely real either - a lot of it is not real shareholder's equity but produced via various accounting tricks and odd financial instruments. So in terms of increasing effective strictness we can look at something like that Tier 1 capital (8%), or the core tier 1 capital (5.5%), or the tangible equity leverage (3%); we are right back to being on unsafe ground again.

adr0ck

100% mortgages have been around since the 1970's

how is that recent?

Graham_Devon

adr0ck wrote: »

100% mortgages have been around since the 1970's

how is that recent?

Just chucking the words "availablility" into the mix.

vaporate

ruggedtoast wrote: »

The Telegraph would like 100% mortgages to return because the vast majority of their readership are home owning baby boomers who have got quite used to the idea that they are going to sell their houses for about 30 times what they paid for them; and they are going to use this to fund a nice retirement.

Most of them are well aware that this isn't going to happen unless there are first time buyers coming in at the bottom taking on large debts (much larger than they had to take on) to do so.

This doesnt change the fact that this isnt going to happen. The UK no longer has the wealth, the asset base, or the global financial support to return to this financial model.

The boomers will drop their prices to the level the market can sustain, or they will not sell until they are dead and their children auction their home off.

Dont expect that editorial line to be widely represented in the Telegraph.

In other words, the older generation are extremely selfish and greedy, leaving the new generation on the road to nowhere as far as getting on the housing ladder is concerned.

vaporate

kriss_boy wrote: »

I kinda agree but If you are a first time buyer living with your parents and you cant afford to save a deposit then clearly you arent ready to move out yet.

Then they will never move out. Houses are crazily overpriced.

Better off buying property in Thailand and being a teacher of English. lol

Degree, tefl cert, sorted.

lightSwitch_3

Charterhouse wrote: »

The risk INCREASES. Because as you extend time the volatility of house price and interest rate paths increases by the square of time. That is why you need to have lower than 100% LTV. Anything higher than about 80% on LTV as IO is absolute madness. In fact, IO is total madness by itself, but that's another issue. There is virtually no interest rate (that would actually attract any borrowers) that would encourage me to do a 100% LTV IO mortgage right now, versus the alternative of lending on a conventional 75% repayment mortgage.

If you look at my post #27 you will see that 100% repayment mortgages are very affordable to high earners, and IO i guess would be even more affordable. The issue is for the bank not to repossess you if your property price drops below the mortgage value. I don't know if banks start the repossession process as soon as mortgage value slips below property value.
If they allow a 20% buffer (ie on a 100% mortgage, the bank allows your property's value to drop 20% below mortgage value) before repossession begins then I would not bother putting down a 20% deposit of my hard earned money.

Although the drop below mortgage value means, that if repossessed, you have to make up the shortfall from your own pocket, at least you have not lost your cash deposit as you never put one down in the first place. So, whether you lose your hard earned 20% deposit if you put one down to secure the mortgage or, your property loses 20% on a 100% mortgage the pain is the same.

Charterhouse

lightSwitch wrote: »

If you look at my post #27 you will see that 100% repayment mortgages are very affordable to high earners, and IO i guess would be even more affordable. The issue is for the bank not to repossess you if your property price drops below the mortgage value. I don't know if banks start the repossession process as soon as mortgage value slips below property value.
If they allow a 20% buffer (ie on a 100% mortgage, the bank allows your property's value to drop 20% below mortgage value) before repossession begins then I would not bother putting down a 20% deposit of my hard earned money.

Although the drop below mortgage value means, that if repossessed, you have to make up the shortfall from your own pocket, at least you have not lost your cash deposit as you never put one down in the first place. So, whether you lose your hard earned 20% deposit if you put one down to secure the mortgage or, your property loses 20% on a 100% mortgage the pain is the same.

That's irrelevant the risk profile is what matters. With these types of mortgage people have a much higher incentive to default all the time. The risk of default increases over time rather than decreasing. That makes them a highly exotic product and one that most lenders should not touch. You are confusing negative equity and default. NE is not a problem as long as default never occurs. But the two are wholeheartedly correlated.