A window opens for new mortgage deals: Stricter lending on hold

Graham_Devon

Cleaver wrote: »

Dunno really.



I guess I'm just being a bit simplistic and basing it on the 20 or 30 people I know with mortgages. They have all kept their jobs (two people were made redundant but found other stuff), were paying their mortgage a few years ago with no probs and I guess would be okay paying it back if rates went back to what they were a few years ago. Wouldn't they? And aren't most people in the same boat?

I'm not trying to argue for the sake of it, I know a a minority of people have lost their jobs, had to take lower paid options or are finding things difficult. And if rates went back to 5% quite suddenly (unlikely, but let's say they did) I know that house prices would probably fall. I don't see why people wouldn't pay their mortgage though, especially if they had one in 2007 or before.

I dunno, I think there is far more to it.

CML certainly seem to suggest that reposessions are low due to low interest rates (amongst what I said earlier):

The number of owners who saw homes repossessed by their lenders fell by 27% to 8,900 in the third quarter, said the Council of Mortgage Lenders.

Record low interest rates, more understanding lenders and help from the Government and debt advice groups led to the decline over the past year, it claimed.

The homeowners advice centre agrees...

Chris Jenkins, spokesperson for The Homeowners Advice Centre, described it as a "reflection of the way in which interest rates have stabilised out."

"A lot of people in the last two years may have come off fixed-rate, or maybe even discount rate mortgages," he commented.

However, Mr Jenkins went on to say that if interest rates go up, the number of repossessions is also likely to rise once again.

David Prosser, Independant agrees:

That there has been another fall in the number of people having their homes repossessed is welcome. One of the few good things to be said about the economic misery of the past couple of years is that repossessions have been far lower than expected. The reasons are relatively well-documented. The banks, the new bogeymen of our society, have come under pressure to avoid repossessions, except as a last resort. More significantly, interest rates have been at historically low levels. Mortgage repayments have never been more affordable.

However, he has now been sacked due to his last sentence.

Danny Gabby, a "top" Uk Economist states:

Mr Gabay was concerned that there is a growing number of households that rely on the low base rate to make ends meet. He pointed out that even a slight increase in the base rate will push thousands of families into debt sparking potential home repossessions.

So I'm just a little concerned as to how all these bodies, deeply involved in housing, have it so wrong?

HAMISH_MCTAVISH

Graham_Devon wrote: »

If so, why does nearly every economist suggest interest rates are the only think holding the market back from falling?

I'd hardly class it as dumb, I'm just trying to explore the reasons as to why the same people who claim interest rates won't rise for ages so it's all ok, claim that rates at 5% would be all ok.

People could pay their mortgage fine when rates were at 5.75% in 2007.

Somewhere above 95% of people that could do so then, can still do so today.

The reason rates won't rise significantly until the recovery is firmly embedded is because if they did, consumer spending would drop, and the country would then fall back into recession. Causing more unemployment, which would then cause house price falls, which could then destabilise the banking system.

GDP is still around 6% below 2007 levels. Unemployment still a million above 2007 levels. A lot of spare capacity is still out there, and that's why they won't be raising rates very far or very fast in the near future.... There is simply no need to destroy demand to prevent demand-pull inflation.

The core issue around determining the path of inflation is really spare capacity in the economy..... or unemployment in other words.

Raise rates now and spending reduces, so unemployment increases.

Which then increases the number of struggling families, and ultimately destabilises the banks and tips the country back into recession.

System

ukcarper wrote: »

You can only claim SMI once you have lost your job so it does nothing for people who have over stretched and are still employed. If you lose your job most people will not be able to pay their mortgage irrespective if they have over stretched or not.

Don't ruin it

treliac

Rinoa wrote: »

People have always stretched themselves when buying, especially for the first time. This isn't necessarily a bad thing. It makes people budget and cut out frivolous spending on flash cars and £2000 tellys.

I have had the impression that in recent years too many people have expected the whole lot... and pronto. Budgeting has been out of fashion for the 'because you're worth it' generation, which is a big part of the trouble we are in now.

Cleaver

Graham_Devon wrote: »

I dunno, I think there is far more to it.

CML certainly seem to suggest that reposessions are low due to low interest rates (amongst what I said earlier):

Just forgetting all of these people and economists for two seconds and taking it back to a simple level.

2007
You and your partner earn £50,000 a year. Your mortgage is 5.75% and is £800 a month. You can afford it and pay it each month.

2008 - 2010
You and your partner still earn £50,000 a year. Your mortgage is 2.5% and is £400 a month. You can afford it and pay it each month. The extra pays of capital or enables you to spend more on stuff.

2013
You and your partner still earn £50,000 a year. Your mortgage is back up to 5.75% and is £800 a month. You could afford to pay this in 2007 and can afford it still in 2013.

Is there anything illogical with these assumptions? It's a really simple conclusion to make: if you keep your job and earn the same when rates go up, then you should be able to pay your mortgage just like you could before hand. Yes?

I understand that things are more difficult now than in 2007, so some people will struggle. But not that many people, as most people have kept their jobs.

Sibley

I'm asking you a question. Not making statements.

You seem to be suggesting that a rate rise back to 5% would have little impact on people and they would cope.

Do you truly believe this?

Nobody I knew struggled with the rates around 6%.
In my case my mortgage has gone down a lot. First year I just left payments the same and knocked a lump off. I've decided to have more money in my pocket for a while now. Very enjoyable time.

If we could get another 2 years of low rates it would be fantastic. It will really set people up financially.

LilacPixie

Cleaver wrote: »

Just forgetting all of these people and economists for two seconds and taking it back to a simple level.

2007
You and your partner earn £50,000 a year. Your mortgage is 5.75% and is £800 a month. You can afford it and pay it each month.

2008 - 2010
You and your partner still earn £50,000 a year. Your mortgage is 2.5% and is £400 a month. You can afford it and pay it each month. The extra pays of capital or enables you to spend more on stuff.

2013
You and your partner still earn £50,000 a year. Your mortgage is back up to 5.75% and is £800 a month. You could afford to pay this in 2007 and can afford it still in 2013.

Is there anything illogical with these assumptions? It's a really simple conclusion to make: if you keep your job and earn the same when rates go up, then you should be able to pay your mortgage just like you could before hand. Yes?

I understand that things are more difficult now than in 2007, so some people will struggle. But not that many people, as most people have kept their jobs.

I think it depends what has happened in the mean time. 2007 your mortgage payment was £800 on say a 3k take home. A litre of unleaded fuel was 95p and your monthly food bill was £200 80 on untilities and 130 on council tax. Your comfortable. Fast forward to 2013 and mortgage still 800 quid, tax home still 3k but a litre ofunleaded is now £1.40, monthly food bill closer the £400 mark, 120 on utilities and your council tax is not £166. Add to that your new little addition you had is 2009 and nursery fees and you can still cope with the mortgage but your not as comfortable as you were.

I would guess for some who were close to the bone in 2007 even keeping jobs if rates rise to 2007 levels again added to increased cost of living some will be in trouble.

I think the key will be how much breathing space you had in 2007.