Can anyone explain....

Shupufski

Cleaver wrote: »

If you read my posts again you'll see that I said that I didn't think that there was a 'new paradigm' in lending and that repayment wasn't removed as the primary focus.

Just to say again, it's my opinion (and I'm sure someone more detailed than me can back it up with the stats) that the majority of mortgages over the past decade were given out the same as they've always been: an individual or a couple are employed in jobs, the lender looks at their income, agrees in principle to lend them somewhere up to around 3.5x their income, arranges them to repay capital, does credit checks and gives them a mortgage. The vast majority of people, even over the last decade, have borrowed money on these terms. There were some IO mortgages, but they were very much a minority.

As we all know, a lot of lenders became a bit too lax with a minority of mortgage products. But I don't think we saw a 'new paradigm'.



I can't agree with this really, as I don't agree with your initial comment. Most people over the last decade borrowed money for houses in much the same people have always borrowed money for houses.

So, if most people borrowed in the same way then how/why did mortgage lending get so out of control?

abaxas

Shupufski wrote: »

So, if most people borrowed in the same way then how/why did mortgage lending get so out of control?

1) increased loan size due to more expensive property
2) increased lending foe equity wd
3) lending to people who tranditionally wouldnt get a mortgage.

We also built millions of 2 bed flats :P

Cleaver

abaxas wrote: »

It all depends on definitions.

The FSA stated that in 2007 almost half of all mortgages were defined as 'subprime'. Ie outside what people beleived to be normal lending practices.

Do you have a link to this?

After googling all I can find a report from 2007 that stated that the FSA found that the subprime market made up 8% of the UK mortgage market (link) and that half of the mortgages is obviously a different kettle of fish to subprime (link).

Cleaver

Shupufski wrote: »

So, if most people borrowed in the same way then how/why did mortgage lending get so out of control?

Sorry to be patronising, but again I think you're missing the main thrust of my posts, which is that I don't think mortgage lending got out of control. I'm of the opinion that the majority of mortgages in the UK over the past decade were given out on pretty standard lending terms to people who could afford to pay.

Was there an increase in dodgy products to people who shouldn't have really been lent money? Yes. Do I approve of these? No. Should something have been done about it? Yes.

But none of this takes away from the fact that the dodgy lending was the minority of the market and the sensible lending was the majority of the market.

Does that make sense?

abaxas

Cleaver wrote: »

Do you have a link to this?

After googling all I can find a report from 2007 that stated that the FSA found that the subprime market made up 8% of the UK mortgage market (link) and that half of the mortgages is obviously a different kettle of fish to subprime (link).

I'll dig it out.

Basically there are two definitions of subprime. The american and the UK one.

The uk one is based on impaired previous loans, the yank one us based on multiples,amount borrowed and previous impaired loans.

As I said it depends on viewpoint. As a interest only loan is defined as subprime but not by the uk definition.

The cml use the UK definition, ie impaired previoud credit. When most others used the yank definition, ie jumbo loans, high multiuples, impaired credit, IR etc etc.

The question should be why does the CML think a IO 8x income loan at 10% is not subprime?

Cleaver

abaxas wrote: »

The uk one is based on impaired previous loans, the yank one us based on multiples,amount borrowed and previous impaired loans.

As I said it depends on viewpoint. As a interest only loan is defined as subprime but not by the uk definition.

It's an interesting point. I guess I very simply think of subprime as 'lending money to people who probably shouldn't be lent money, or at the very least have a much higher probability than average that they won't pay it back". So lending at high percentages to people on low income who have a poor credit history.

But that's just my definition!

abaxas wrote: »

The question should be why does the CML think a IO 8x income loan at 10% is not subprime?

I don't know what it is, but whatever classification you label it, lending someone interest only, 8x income at 10% is just dumb. I don't think it matters if you think of this as subprime or not, it's just a dodgy, ill-thought out way of lending and shouldn't be allowed.

Shupufski

S

Cleaver wrote: »

Sorry to be patronising, but again I think you're missing the main thrust of my posts, which is that I don't think mortgage lending got out of control. I'm of the opinion that the majority of mortgages in the UK over the past decade were given out on pretty standard lending terms to people who could afford to pay.

Was there an increase in dodgy products to people who shouldn't have really been lent money? Yes. Do I approve of these? No. Should something have been done about it? Yes.

But none of this takes away from the fact that the dodgy lending was the minority of the market and the sensible lending was the majority of the market.

Does that make sense?

So according to your view there is not and has not been an issue with excessive lending in the UK mortgage market? In other words, apart from a few dodgy loans everything has been on the same path as before?

wymondham

Shupufski wrote: »

..why banks used the restrict lending to multiples of income?

What was it 3.5x single and 2.5x joint?

Why did they used to do that?

to stop people borrowing too much and also stopped house prices rising.....

Cleaver

Shupufski wrote: »

S
So according to your view there is not and has not been an issue with excessive lending in the UK mortgage market? In other words, apart from a few dodgy loans everything has been on the same path as before?

ARRRGGGHHHHH!!!!!! Please, please, please can you read my posts.

There seems to have been a very significant problem around the world (not just the UK) with dodgy lending over the past decade. So yes, there has been an issue with excessive lending in the UK mortgage market. And no, we're not on the 'same path' as before.

Let me try and break it down for you, as you really seem to be struggling.

Imagine a slide scale from 1 to 100. At one end, 1, there is very, very safe lending where every single borrower has to be in safe employment, all have at least 10% deposit, all only borrow up to 3.5x income and has a full, standard repayment mortgage. At the other end, 100, we have completely lax lending to every single person, so not one person being lent money is checked for their income, they're all on IO, they all borrow massive mutiples and there is no regulation whatsoever.

Okay, so we now have a scale. Clearly, the UK mortgage market has never been at 1 on the scale, nor has it been 100 on the scale.

I'm going to make up random numbers now, but let's give a number to the last few decades:

1950s - 20
1960s - 22
1970s - 19
1980s - 24
1990s - 27
2000s - 32
2010s - 21

You see what I'm saying? It's a sliding scale, not one extreme situation or another extreme situation. Just to say, one more time: there has been some dodgy lending in the UK and that's been a major issue. However, the majority lending has, and remains, to be done in a sensible way, to sensible people who repay their capital with no issues.

Does this finally make sense? You understand that someone, such as myself, can have an opinion that most of the mortgage market is sensible but still hold another opinion that dodgy lending is still a major issue? I know on this forum you need to be one extreme opinion or another (i.e. "Everything is f*cked!!" or "Everything is absoutely tickety boo!!") but the real world isn't like that.

mbga9pgf

Banks should be allowed to lend what they want. The problem comes when they dont have the liquidity to cover the inevitable writedowns.

Its simple. Retail and investment need seperating. Glass-Stegal was revoked in 1999. It took under a decade to create a crisis unlike one seen since the great depression, after which the act came into effect.

Banks should never be in a situation they are too big to fail, it leads to too much moral hazard. If a bank wishes to lend at 6X salary, to an individual with a golden credit history and means of payment, then of course, they should be allowed to do that. But they cant do this then expect the taxpayer to back their assets once it all turns sour.

Nor can those buying into a currently overboiling commodities market. It isnt going to take much more disruption for demand to fall globally and the !!!! to royally fall out of many hard commodities.