MSE News: Lloyds TSB lends mortgage hand to first time buyers

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"Those struggling to get on the property ladder can get funding from local authorities under a scheme from the bank ..."

Read the full story:
Lloyds TSB lends mortgage hand to first time buyers

coley54321

Take a look at the comments on these sites. This stupid idea is not going down well. It seems they'll stop at nothing to keep this ponzi scheme going instead of letting prices fall to affordable levels. The difference now is even the NIMBY & homeowners don't like that their council tax is being used int his way.

The simple question is... Why is the risk of high LTV being transfered from the banks to the tax payer?


http://www.guardian.co.uk/money/2011/mar/16/local-councils-first-time-buyer-mortgage-support

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8383167/First-time-buyers-offered-70000-deposits-by-local-councils.html

http://news.sky.com/skynews/Home/UK-News/First-Time-Buyers-To-Be-Helped-Onto-Property-Ladder-By-Local-Authority-Deposit-Scheme/Article/201103315952954?lpos=UK_News_First_Home_Article_Teaser_Region_2&lid=ARTICLE_15952954_First_Time_Buyers_To_Be_Helped_Onto_Property_Ladder_By_Local_Authority_Deposit_Scheme#none

http://www.bbc.co.uk/news/business-12754818

cw18

Whilst I think it's nice to see people being given a chance to get on the property ladder, I can't help but worry about which services provided by the councils will suffer due to their capital being tied up in this scheme. IMO education, health care and other public services for all should come before the chance to buy property for a few.

And, before anyone asks, no it won't benefit me as I'm already a home owner. But I have 3 children who I can't see ever being able to make that first step while houses are so expensive.

Thrugelmir

coley54321 wrote: »

The simple question is... Why is the risk of high LTV being transfered from the banks to the tax payer?

Why is high LTV automatically equated with high risk?

There are ways of reducing risk exposure by enforcing stringent underwriting criteria on the borrowers.

If mortgages are advanced on a repayment basis than the risk diminishes every month as the capital balance owed on each mortgage reduces. As the total exposure on the capital balances reduce. Then a further mortgage advance can be made. Further diluting the risk.

The initiative provides Councils with a reasonable return on their cash deposits. Also enables them to assist moving people out of affordable rented housing schemes onto the property ladder for example.

LloydsHBOS will benefit as it will receive cash deposits enabling it to repay monies lent by the Treasury under the SLS and SGS schemes.

Lastly there will be a benefit to the local communities as people are given the opportunity to purchase their own homes.

We need initiatives like this to underpin the whole housing market. For the benefit of us all.

Thrugelmir

cw18 wrote: »

Whilst I think it's nice to see people being given a chance to get on the property ladder, I can't help but worry about which services provided by the councils will suffer due to their capital being tied up in this scheme.

Councils have capital cash reserves which are permanently held on deposit.

Local councils lost millions of pounds when the Icelandic ponzi banking scheme collapsed. At least this initiative means the money is actually benefiting the country than merely being deposited with the bank offering the highest return.

coley54321

I fail to see how 'underpinning' a ponzi scheme 'benefits us all'? Surely it only benefits those already in it at the expense of those yet to join!?

Of course a higher LTV equates to higher risk in a free market. It's simply putting down less margin. Regulated exchanges require initial margin deposits to cater for potentially losses, why should the housing market be any different? The MMR by the FSA should have gone ahead, but low and behold people with vested interests have leaned on them to keep the market unregulated (more or less).

There should be stringent rules on LTV ratios. People complain they can't get on the housing ladder because the banks aren't lending, yet they fail to see the sensible approach and protection of a high deposit. If everyone had low LTV ratios then a house price correction wouldn't have such a negative effect on the over leveraged would it?

Thrugelmir

coley54321 wrote: »

Of course a higher LTV equates to higher risk in a free market. It's simply putting down less margin.

There's more to risk management than deposit alone.

A lower income multiple on the mortgage advance materially reduces potential risk of default.

A couple trapped in renting affordable housing may well be able to afford a mortgage. Just unable to save enough to raise a sufficient deposit.

coley54321

Thrugelmir wrote: »

A couple trapped in renting affordable housing may well be able to afford a mortgage. Just unable to save enough to raise a sufficient deposit.

A percentage is a relative amount, so they wouldn't have such trouble raising a sufficient deposit if the overall purchase price of the house was lower, would they?

Thrugelmir

coley54321 wrote: »

A percentage is a relative amount, so they wouldn't have such trouble raising a sufficient deposit if the overall purchase price of the house was lower, would they?

That's a different issue. We are where are today. Property is illiquid so may take a decade for prices to adjust significantly from the peak and correct themselves.

This initiative at least keeps the market moving.

coley54321

Thrugelmir wrote: »

That's a different issue. We are where are today. Property is illiquid so may take a decade for prices to adjust significantly from the peak and correct themselves.

This initiative at least keeps the market moving.

Sure. Does that mean that you agree that house prices need / will fall in the future, even if only in inflationary terms?

If so, is it fair to saddle people with debt? Is it sensible to lend people money on a depreciating asset, whereby they could potentially be in negative equity in a few years just to 'get the market moving'? How does that help mobility of people - they won't be able to move in a period of house price consolidation, which wouldn't be the case if they had a good deposit. It just adds to the massive massive problem we have now, where the government steal money through low rates and inflation just to keep a relative few over-indebted people's heads above water.

Here's a few suggestions that would get the market moving...

• Increase CGT on property to the same level as everything else.
• Build more houses.