3M homeowners wouldn't get mortgages today

Generali

HAMISH_MCTAVISH wrote: »

Agreed.



Agreed. But I think they should be readily available with a MIG.



I think a clearer definition of sub prime is needed.

CCJ's and bankruptcy? Sub prime for sure.

30 days late on a credit card payment a year ago because you changed bank accounts and forgot to transfer the DD? Or forgot to pay a parking ticket? Or any other of the very minor blemishes millions of people have?

Shouldn't be considered sub-prime at all.

Wouldn't have been in the past. Would stop most people getting an affordable mortgage, or for many any mortgage at all, today.




Agreed.



Agreed. But very rare in the UK anyway.



Fast-tracking a high earner with an impeccable credit score and a load of equity should not be a problem.

Self cert for the self employed should be achievable with some degree of evidence, such as bank statements showing actual income.



The thing is though, even including all the above categories, genuinely sub prime mortgages were a vanishingly small percentage of the UK market.

In my opinion, if you removed all the abuses of lending, and restored normal lending to the rest of the population, you'd double or triple the amount of mortgage lending from todays levels overnight.

Which of course the banks cannot fund, hence the current abnormally tight standards to ration mortgages.

If we went back to "traditional" (the last 30 years, not the last 5 years) lending standards, we'd have the following:

• 90% LTV mortgages widely available at competitive margins (2% or less) above base.
• 95% and 100% mortgages widely available with an affordable MIG.
• Affordable mortgage lending for people with very minor credit blemishes, say a percent or so above best rates.
• BTL lending at 85% LTV with rates of base plus 3%.
• Some element of sub prime, for the better cases. As UK sub prime was not nearly as bad as US sub prime, and has performed better.

But if we had anything close to the above, the number of mortgages being issued would be 3 times todays levels. And prices would be soaring as demand would completely outstrip supply.

100% mortgages are a very poor idea in general IMO as if the property is repossessed then the mortgage is pretty much bound to be underwater. At an interest rate of 6%, 6 months of missed payments will be 3% of the principal outstanding. Add to that the cost of repossessing and the tendency of the repossessed to smash up the house a little (engine oil on the carpet is often a favourite I understand) and the bank will lose money. Also, if you don't have any money to lose, why would you care if you get repossessed? Losing a deposit concentrates the mind a little.

I think an MIG (mortgage indemnity guarantee - an insurance policy that covers the bank in case of repossessing a property in negative equity) should be required up to 80% mortgages and I agree they should be affordable. The best way to do that would be to allow a free market for MIGs rather than making you take the one the bank offers.

I understand that in practical terms, the BTL lending market has all but dried up. That is a very bad thing for the British economy IMO. Labour needs to be able to move to where the jobs are. It can't if there is nowhere to live. Oh and of course you should still be able to buy a house if you've missed a credit card payment or mobile phone bill.

Ultimately it is much better for the UK to have a functional debt market than not. TBH I can't see any good way to do that.

DervProf

Graham_Devon wrote: »

Are banks going to absorb any base rate rises then? What about parasites, where does it leave them with savings rates?

They won`t have to worry about savings rates, they`ll be too busy watching one of the 8 LED TV`s they`ve bought.

DervProf

HAMISH_MCTAVISH wrote: »

So again, I ask you, is your "solution" to high prices to exclude millions of people from the market through mortgage rationing?

Because that seems to be what you are suggesting.

Prevent millions from being priced out, by preventing them from ever getting a mortgage.

The solution to high prices is to build more homes.

If more homes aren`t built, then some people will not be able to buy a home. In this case, the next best thing is to control lending, in order to prevent people taking on risky levels of debt to outbid others for the property that`s in short supply. Not perfect, but better than lending "just a little more".

michaels

There is a lot of discussion about the evils of over-lending and specifically to sub-prime borrowers but is there any data about how many of these mortgages have gone bad and how much lenders have lost as a result?

My own feeling is surprisingly few, given the scale of gdp reduction in the recession and that current mortgage margins being earned by the banks more than cover any likely losses from default unless there really is a depression which I guess should be an insurable event for the lenders.

HAMISH_MCTAVISH

DervProf wrote: »

The solution to high prices is to build more homes.

True.

If more homes aren`t built, then some people will not be able to buy a home.

True.

In this case, the next best thing is to control lending, in order to prevent people taking on risky levels of debt to outbid others for the property that`s in short supply. Not perfect, but better than lending "just a little more".

False.

Define a "risky" level of debt?

When buying at todays prices, (even if base rates rise significantly), is cheaper by far then renting for a lifetime, how can that be a bad thing?

And how do you propose we avert the takeover of housing stock by landlords (whilst FTB's are frozen out by mortgage rationing), be they BTL or institutional investors? At some point the rental yields will overcome the risk aversion.

If less people can buy a home, more will have to rent.

As insufficient houses are being built, more people will have to share the existing ones.

The average household income of rented houses will increase, as more earners are living in each rented house, on average.

The shortage of supply will drive up competition, and thus rent prices, for the rented stock. The increase in average rented household income (through more earners living in each house) will support the higher rents.

Higher yields will draw in investors to compete for the assets. Raising prices further.

Potential FTB's will be hit by a double whammy, of rising rents meaning they can't save the higher deposits, AND rising asset prices meaning the houses get further out of reach whilst they are being forced to rent.

You can't stop HPI with lending restrictions. You can merely delay it, but add to the lifetime housing costs of those frozen out of the market by doing so.

DervProf

HAMISH_MCTAVISH wrote: »

If less people can buy a home, more will have to rent.

They don`t have to.

HAMISH_MCTAVISH

DervProf wrote: »

They don`t have to.

True. But not everybody wants to be a 40 year old virgin.;)

quantic

Its not as simple as looking at the current numbers, and then making assumptions that people could not afford the payments on their mortgages, a lot of people I suspect will have taken on additional financial commitments since rates lowered (more disposable income, albeit short term). My parents and my partners parents both did some questionable mortgage applications at the start of their mortgage life and neither have missed a single payment in 30 years, both are now mortgage free.

Hypothetical example, if I was currently on a fixed 3 year deal at 5%, I might have taken out a 3 year finance on a car for this period also, knowing that I would be able to service both during the period that it is fixed. However, the way they are working out these numbers, a "2% increase" would see me in the not affordable bracket, even though when the 2% increase kicks in I will be out of my car finance.

quantic

Just one final point:

Lets just assume we live in a fairy tale for a second. House prices fall 60% over the next year, making the average house price around £110k. This would mean that given a 4 times multiplier (sensible enough) the average wage of 25k could buy this property with a 10% deposit. Happy days yeah? Everyone buys a house for 110k and lives happily ever after. They are all able to service their mortgage and everyones happy.

The only trouble is, people do not work like this, if houses cost 50/60/70% less, people would be whining that they could now not afford a 6 bedroom detached house, instead of a 4 bedroom detached house. People would start to think "hmm, I can afford this house easily, I want more." Which seems to be the way of the world, the system needs to protect people from themselves.

If house prices dropped to 50% of their current value, I bet there are quite a few people who would consider buying another one, or buying one that cost them as much as they previously struggled to pay.

Graham_Devon

quantic wrote: »

Just one final point:

Lets just assume we live in a fairy tale for a second. House prices fall 60% over the next year, making the average house price around £110k. This would mean that given a 4 times multiplier (sensible enough) the average wage of 25k could buy this property with a 10% deposit. Happy days yeah? Everyone buys a house for 110k and lives happily ever after. They are all able to service their mortgage and everyones happy.

The only trouble is, people do not work like this, if houses cost 50/60/70% less, people would be whining that they could now not afford a 6 bedroom detached house, instead of a 4 bedroom detached house. People would start to think "hmm, I can afford this house easily, I want more." Which seems to be the way of the world, the system needs to protect people from themselves.

If house prices dropped to 50% of their current value, I bet there are quite a few people who would consider buying another one, or buying one that cost them as much as they previously struggled to pay.

If house prices dropped that much, apparently there would be anarchy on the streets, millions of jobless, and massive riots and crime.

Extremes work both ways.

The "everyone would be out buying cheap houses" line has been used quite a bit in house price fall discussions. Thing is though, in reality, who all rushes in to the stock market when it's tanking for over a year putting pretty much their life savings into it?

Not very many people.

Why would housing be very different?

We have to seperate those with vested interests, making money (or trying) on housing, and the majority of the population, who buy houses to live in. You won't see the majority of the population able to just buy up houses just because they are cheaper. 1. Because they don't have that kind of money. 2. Because they won't find lending easy. 3. Because we don't like risk.

You also wouldn't see investors falling over themselves to buy up houses when they are falling 5% a month (to hit your yearly figure). They need lending too.