Mortgage Rationing = Two Tier Society

HAMISH_MCTAVISH

The decade of easy money came to an abrupt halt in August 2007 but what has emerged since is a divided Britain in which young adults are paying the price of the credit crunch while their parents have landed a get-out-of-jail-free card.

Existing borrowers are enjoying the windfall of a lower Bank of England base rate, while new borrowers are either locked out of the market or face permanently higher loan costs.

The grim mathematics of new capital adequacy requirements for banks mean that cheap and plentiful loans of 90% or more for first time buyers will never return. Under the new international rules – what's known as "Basel II" – banks have to set aside a much higher amount of capital for higher-risk lending, such as a 90% loan-to-value mortgage.

"Banks now have to set aside six or seven times as much capital for a 90% loan compared to a 60% loan," says Boulger. It explains why banks can charge sub-3% interest on 60% mortgages, but want an interest rate of more than 6% on a 90% deal. "And this is not going to go away in five or even 10 years' time. If anything, Basel III is likely to be even more onerous," says Boulger.

The long-term implications are worrying.

Well-off parents will be able to access the equity in their homes and use the money to help their offspring put down a deposit on their first home.

But the children of low-income families may find themselves permanently excluded. "What's happening with deposits will tend to accelerate divides in society," adds Boulger.

The lending landscape has changed dramatically and maybe permanently. A collapse in wholesale funding was at the heart of the credit crunch – as banks such as Northern Rock, one-time source of 25% of all new mortgages in Britain, found it could no longer tap the wholesale market. There are few signs of that funding returning, with the market for asset-backed securities moribund. Meanwhile, building societies have retreated massively, and are only prepared to lend out what they bring in from their savers.

In August 2007, HSBC barely featured as a mortgage lender, and Santander was still getting to grips with its purchase of Abbey. Now they are the two biggest gross lenders in what is a much-shrivelled mortgage market.

Boulger says: "HSBC has played a very clever game. In 2007, when mortgage margins were incredibly skinny, they were lending very little. But today they can offer market-leading products at 2-3% that still give them a better margin than in 2007."

http://www.guardian.co.uk/money/2010/aug/09/high-cost-borrowing-legacy-credit-crunch

Permanently higher cost of borrowing for the young and the permanent exclusion of those without wealthy families.

Welcome to the world the bears wished for.....:cool:

the_flying_pig

HAMISH_MCTAVISH wrote: »

http://www.guardian.co.uk/money/2010/aug/09/high-cost-borrowing-legacy-credit-crunch

Permanently higher cost of borrowing for the young and the permanent exclusion of those without wealthy families.

Welcome to the world the bears wished for.....:cool:

to be fair H a goodly proportion of the 'bears' on these forums do indeed have high deposits [having declined to take the debt plunge over a number of years] and as such are well-placed to take advantage of low rates. when prices have come down a bit further. it's only idiots hoping to duplicate the early/mid noughties trick of racking up mega debt with minimal downpayment who will be excluded. and IMO it's not such a bad thing to be excluded from...

macaque_2

HAMISH_MCTAVISH wrote: »

http://www.guardian.co.uk/money/2010/aug/09/high-cost-borrowing-legacy-credit-crunch

Permanently higher cost of borrowing for the young and the permanent exclusion of those without wealthy families.

Welcome to the world the bears wished for.....:cool:

As you so often point out, house prices are driven by supply and demand. You always make the mistake however of assuming that demand is a simple measure of population stats. The correct measure of demand has to take account population size plus wealth and availability of credit. If wealth or the availability of credit changes, house prices have to change in order to correct the supply demand equation.

House buyers locked out the market? I think not for lots of reasons. This is more a case of home owners being locked out of selling until they come to their senses. The Indian Summer of wacky house prices is over.

HAMISH_MCTAVISH

the_flying_pig wrote: »

to be fair H a goodly proportion of the 'bears' on these forums do indeed have high deposits

Well, a goodly proportion of bears on forums claim to have high deposits, anyway....

I rather suspect the truth is a little different.

From Alexa's page on browsing statistics of housepricecrash.co.uk....

Browsing Location

School Relative to the general internet population, people browsing from school are over-represented at housepricecrash.co.uk.

http://www.alexa.com/siteinfo/housepricecrash.co.uk

HAMISH_MCTAVISH

And back on subject, for every 200K borrowed, these new "permanently higher" mortgage rates from the article will cost todays buyer an extra £54,313 versus the pre-crash buyers, assuming a typical margin differential of 2%.

You'd need an absolutely HUGE crash just to make up for the mortgage rate differential, let alone come out ahead.

IveSeenTheLight

macaque wrote: »

House buyers locked out the market? I think not for lots of reasons. This is more a case of home owners being locked out of selling until they come to their senses. The Indian Summer of wacky house prices is over.

Could it be possible that properties get handed down to their owners siblings?
There is no need to sell in that case.

DervProf

HAMISH_MCTAVISH wrote: »

And back on subject, for every 200K borrowed, these new "permanently higher" mortgage rates from the article will cost todays buyer an extra £54,313 versus the pre-crash buyers, assuming a typical margin differential of 2%.

You'd need an absolutely HUGE crash just to make up for the mortgage rate differential, let alone come out ahead.

Missing your cheap credit Hamish ?

Maybe the banks will be a bit easier on borrowers if they asked for less money.

HAMISH_MCTAVISH

DervProf wrote: »

Missing your cheap credit Hamish ?

Nope. I'm on a cheap mortgage deal for life, with less than 1.5 times joint income left on it(Thanks, Merv ) and no other debt at all.

Plus of course, I already have all the houses I'll ever need.

Maybe the banks will be a bit easier on borrowers if they asked for less money.

I doubt it...... Didn't you read the article?

the_flying_pig

HAMISH_MCTAVISH wrote: »

Well, a goodly proportion of bears on forums claim to have high deposits, anyway....

I rather suspect the truth is a little different.

From Alexa's page on browsing statistics of housepricecrash.co.uk....

http://www.alexa.com/siteinfo/housepricecrash.co.uk

that's a bit weird. seems wrong to me. why would kids care about house prices? how does that stat square with the age profile of site visitors [the young and old under-represented, working age over-represented]?

Strings

Mortgage rates for those who have the 25-40% are coming down and once the market stabilises, the rates for those who have say a 10% will come as well. It is just a matter of time.

Look at HSBC's deal, they are getting more competitive at the months go.

Personal loans are also coming down, Sainsbury's are offering personal loans at 7.9%, plus there are mant others offering loans under 8%

HAMISH_MCTAVISH

the_flying_pig wrote: »

that's a bit weird. seems wrong to me. why would kids care about house prices? how does that stat square with the age profile of site visitors [the young and old under-represented, working age over-represented]?

Don't know..... Lots of possibilities though.

"Schools" could include Universities.... Students in bedsits do seem to be over-represented on hpc. Could also be a lot of low paid teachers or janitor types.

But the fact is Alexa does report browsing from School is a big thing for hpc.:D