Renters: Angry and Insecure

HAMISH_MCTAVISH

Generali wrote: »

Another viewpoint is that deposits have returned to historic norms.

In Australia where there really hasn't been much of a banking crisis you need 5% deposit and will have to take out an MIG if borrowing > 80%.

Requiring a 25% to 40% deposit to get decent rates is not historically normal.

Nor are bank margins of 4% to 5% above funding costs for 90% LTV borrowers.

And as the Rightmove commentary today points out, falling prices aren't going to help, because even with 25% falls, a £30K deposit is just as far out of reach for the people worst impacted by mortgage rationing as a £40K deposit.

CLAPTON

the housing stock is in general owned as follows

-by owner occupiers
-by owners who have more than one property for personal use (holiday cottage etc)
-by landlords of various descriptions

so the price of housing for owner occupation will depend upon the level of the housing stock and the competing ability of these three groups to purchase.
so if housing associations buys up more property then this will reduce that available for owner occupies or similarly the 'right to buy' will increase the level of owner occupation with associated effects on the general price level

in recent years the landlord sector has increased (BTL, housing associations etc) has increased, the populatation has increased, number of singles wanting their own space has increased but the over level of building has not kept pace and as money was readily available lead to an increase in the price of property.

the housing market is pretty in-elastic in the sense that people will often simply not move if the price doesn't suit.
However over time housing will become available and so the three housing owning groups will compete.

Mortgage rationing in the short term has huge effects on the market but over the longer term peoples expectation will adjust. So if 25% deposit and salary mupliple of x3 single salry became the norm then over time the price would adjust. this may or may not increase the level of owner occupation as it would also depend upon the ability (and willingness) of the landlord sector (and second property owners) to finance housing purchases

Wookster

HAMISH_MCTAVISH wrote: »

My definition of rationing is that banks only have a third of the funding to lend that they had previously

So you are admitting that cheap, plentiful credit contributed to the house price boom?

Anyways, no thread involving Hamish is complete without this:



What do you see Hamish?

HAMISH_MCTAVISH

Generali wrote: »

In Australia where there really hasn't been much of a banking crisis you need 5% deposit and will have to take out an MIG if borrowing > 80%.

And just to expand upon that point......

Whilst it is true that Australian banks had far less exposure to US toxic sub prime debt than British banks did, the reality is that Australia weathered the wholesale funding storm primarily because of the "rent-a-rating" scheme from the government.

To say the banks have weathered the storm well is not to say the government should not have guaranteed bank deposits and supported wholesale lending.

The fact is, after the Lehman Brothers collapse nearly a year ago, confidence in the global financial system including Australia was completely shot -- and without the guarantees the Australian banks may well have been in trouble.

That said, the market power of the big banks has allowed them to recover in double quick time.

Norris empathised that the Australian guarantee could not be lifted until other countries did the same.

In practical terms, the market will move ahead of the politicians, and at some point it will be cheaper for the big banks to borrow without paying for the guarantee.

Norris said yesterday the CBA paid the federal government $70m to rent its credit rating last year, but said a third of its wholesale funds were raised without the guarantee.

The banks and its regulator APRA clearly deserve credit for the shape they are in, but it certainly helps when you are the most protected species on the planet.

http://www.theaustralian.com.au/business/markets/never-waste-a-good-financial-crisis/story-e6frg91o-1225760802533

Had the UK government used it's AAA rating to guarantee the amounts of wholesale funding for the UK mortgage market that it needs, our markets performance would have been much closer to that of Australia.

And "mortgage rationing" would not be excluding large segments of the population from home ownership.

ILW

HAMISH_MCTAVISH wrote: »

Requiring a 25% to 40% deposit to get decent rates is not historically normal.

Nor are bank margins of 4% to 5% above funding costs for 90% LTV borrowers.

And as the Rightmove commentary today points out, falling prices aren't going to help, because even with 25% falls, a £30K deposit is just as far out of reach for the people worst impacted by mortgage rationing as a £40K deposit.

I would suggest that margins are irrelvent to affodability, rates being paid by most are still at an historical low. I believe around 7-8% is about average. ie 2 or 3% above inflation.

Graham_Devon

HAMISH_MCTAVISH wrote: »

My definition of rationing is that banks only have a third of the funding to lend that they had previously.

As with anything in short supply, they must find a way to ration it.

In this case, by increasing deposit requirements until the pool of borrowers matches the available funding.

So in other words, nothing like rationing.

What you have described is changing the requirements to be accepted for a product. Therefore, they are lending to the people that tick the boxes of their new requirements, on the back of the banking system being near to collapse.

Rationing is somewhat different. If mortgages were being rationed, people would likely have a set amount they could borrow, with a ceiling, and the banks resources equally shared amongst borrowers.

I keep seeing the words "Mortgage rationing" around, and it was just bugging me, as they are not rationing them at all. They are simply lending to clients who meet their new criteria.

Restrictive lending yes. Rationing, no.

Worth remembering, the majority of the population wanted bankers hung drawn and quartered for giving money to every tom !!!!!! and harry. Now you appear to be slating them for being responsible with their resources doing more to make sure they lend to those who can pay it back.

chucky

Graham_Devon wrote: »

I keep seeing the words "Mortgage rationing" around, and it was just bugging me, as they are not rationing them at all. They are simply lending to clients who meet their new criteria.

Restrictive lending yes. Rationing, no.

wrong, there is a reason why it's restrictive. - there isn't enough money in the system to lend to everyone if they increased their criteria.

they'd rather lend to a low risk borrower than a higher risk borrower.

it's rationing however you'd like to spin it or twist it.

FATBALLZ

It should not be the case that people rent because they can't afford to buy. Renting should be put on an equal footing with buying. If we had legislation pro-tenant rather than pro-landlord, a good supply of cheap (60% or so of current prices) rentals across the country then it would solve a lot of problems. Forcing everyone to anchor themselves in one location to be a mortgage slave to a 6 figure debt is damaging in a number of ways.

DaddyBear

HAMISH_MCTAVISH wrote: »

http://www.guardian.co.uk/society/2010/aug/15/renting-buying-home

It's unfortunate that mortgage rationing is pushing home-ownership out of reach for so many at the moment when prices are affordable in so many places.

And with the ongoing shortage of housing and increasing population, price rises in the future will lock out even more.

No wonder Rightmove noted the "buying window" is the next 12-18 months.

It's always the lack of credit that's to blame isn't it Hamish. Funny that such people managed to afford houses needing 10% deposits in the 90's, 80's, 70's etc. It's blindingly obvious that house prices are the major barrier. High prices make deposit requirements higher and also push rents up, reducing the amount of money renters can save towards said deposit.
If you reduce house prices and rents by a third, suddenly houses become much more affordable and the time taken to save a deposit significantly less.

Linton

DaddyBear wrote: »

....
If you reduce house prices and rents by a third, suddenly houses become much more affordable and the time taken to save a deposit significantly less.

And so lots more people can buy one - err from whom?

Where are these extra houses?