Have BoE Lost All Credibility Over IRs?

Percy1983

HAMISH_MCTAVISH wrote: »

So what if they live in a 1 bedroom flat, can't rent anywhere cheaper, but the cost of rent is still more than the cost of a mortgage?

By "place" I meant "area", not specific house. There are plenty of areas where the cost of buying is far cheaper than the cost of renting, in all categories of housing. People may not be able to downsize, perhaps they have a family with children, perhaps a disabled partner, etc etc etc. Yet you suggest people on moderate incomes who live in these areas should be excluded from buying houses?

In my own town for example, the cost of a full repayment mortgage would in almost all cases be less than the cost of renting the same house.

Yet again the situation you are putting these people in is there making, yet again I haven't had children yet due to not having a house, to have children now and then start renting to which I then couldn't afford to buy would be my own doing.

Thrugelmir

ILW wrote: »

What about limiting supply on a cost/risk basis. eg High risk borrower pays base +10%.

Thats already the case. Higher the LTV the higher the interest rate. Plus arrangement fees which are little more than one off indemnity charges for the higher risk.

ILW

Thrugelmir wrote: »

Thats already the case. Higher the LTV the higher the interest rate. Plus arrangement fees which are little more than one off indemnity charges for the higher risk.

Is sub prime still about?

Thrugelmir

ILW wrote: »

Is sub prime still about?

There are lenders who will lend to adverse credit risks. Always has been.

FTBFun

Percy1983 wrote: »

Will try to answer both.

The simple way to seperate the finanically savvy and not so is to look at there ability to budget and save (to get a deposit) and the state of there credit files (current debts and how they have handled debt in the past).

The financially inept are prevented from buying until the save a deposit and/or they get there credit file in order.

By all means the poorer people amogst us will be priced out eitherway to which its up to them to better themselves.

Surely somebody who has saved is a better bet than sombody who has run up 20k in debt with no way of paying it back?

Am I missing something or isn't this how it works at the moment?

I am against 100% mortgages though so I'm probably a little more conservative than some other posters on this matter. Max 95% LTV IMO.

Percy1983

Yes it is exactly how it works right now, just hamish wants the return of the lax lending free for all to ramp up his investments.

HAMISH_MCTAVISH

Percy1983 wrote: »

hamish wants the return of the lax lending free for all to ramp up his investments.

Nonsense.

I think 120% mortgages or 10 times salary mortgages or liar loans are ridiculous and should be banned.

But can you explain why you think a 95% mortgage on an 85K flat to a young professional on 25K a year is "lax lending"?

For example:

Flat price = £85,000
Rent = £550 per month
Deposit = 5% or £4250
Mortgage @ 5% = £473 per month
I/O component @ 5% = £333 per month

Why should this person be forced to waste so much extra money on rent for several years to save a 25% deposit?

Thrugelmir

HAMISH_MCTAVISH wrote: »

Nonsense.

I think 120% mortgages or 10 times salary mortgages or liar loans are ridiculous and should be banned.

But can you explain why you think a 95% mortgage on an 85K flat to a young professional on 25K a year is "lax lending"?

For example:

Flat price = £85,000
Rent = £550 per month
Deposit = 5% or £4250
Mortgage @ 5% = £473 per month
I/O component @ 5% = £333 per month

Why should this person be forced to waste so much extra money on rent for several years to save a 25% deposit?

A 5% interest rate doesn't factor in enough risk premium.

Hence why 95% mortgages are in essence no longer available.

People would prefer to save for a deposit than pay 8% to 9%.

HAMISH_MCTAVISH

Thrugelmir wrote: »

A 5% interest rate doesn't factor in enough risk premium.
.

At 5% banks are making in excess of 3.5% in margin.

Which is 250% more than they were making in 2007.

To put it another way, if one borrower in every thirty was repossessed (which is more than double the actual rate), and the bank lost 50% of the value of the loan in each case (which is also more than double the actual rate), they'd STILL be making a significant profit, indeed a higher profit than they were at the peak of the boom.

This has nothing to do with risk premiums and everything to do with shameless profiteering on a limited pool of funds and virtually no competition.

Thrugelmir

HAMISH_MCTAVISH wrote: »

At 5% banks are making in excess of 3.5% in margin.

Been a while since you looked at market lending rates?