FSA advisers urge delay to mortgage reform and more 'flexible' lending

Turnbull2000

http://www.ft.com/cms/s/0/8a4f6b5c-8c7c-11e0-883f-00144feab49a.html

Perhaps the most significant suggestions are these...

It is also calling for a more flexible approach to affordability tests, suggesting banks should take account of consumers’ willingness to change their spending patterns and ability to pay over longer periods than the standard 25-year term. It does not advocate outright caps on loan-to-value levels or bans on interest-only mortgages.

The FSA already has form for backing down in the face of industry pressure, so expect 30-40 year mortgages and looser criteria to play a significant role in allowing young buyers to afford current prices and beyond. You're having a laugh if you believe 'lessons have been learnt' and mortgages will be capped at 95% LTV, dual income multiples and interest only restricted. The voice of the industry is always louder.

Graham_Devon

Turnbull2000 wrote: »

http://www.ft.com/cms/s/0/8a4f6b5c-8c7c-11e0-883f-00144feab49a.html

Perhaps the most significant suggestions are these...
The FSA already has form for backing down in the face of industry pressure, so expect 30-40 year mortgages and looser criteria to play a significant role in allowing young buyers to afford current prices and beyond. You're having a laugh if you believe 'lessons have been learnt' and mortgages will be capped at 95% LTV, dual income multiples and interest only restricted. The voice of the industry is always louder.

30 or 40 year mortgages might fix a short term problem. But the problem will catch up, give it five years.

You'll then be in a sutuation of likely negative equity, with higher prices, and people paying back miniscule amounts each month of the capital, but large amounts of interest.

What then?

55 year mortgages to fix the issue?

Worth bearing in mind that 30/40 year mortgages will push many of those taking them into their pension years.

Turnbull2000

Graham_Devon wrote: »

30 or 40 year mortgages might fix a short term problem. But the problem will catch up, give it five years.

You'll then be in a sutuation of likely negative equity, with higher prices, and people paying back miniscule amounts each month of the capital, but large amounts of interest.

What then?

55 year mortgages to fix the issue?

30-40 year mortgages would likely remain until the next bust in 15 years or so IMO, and even then currency devaluation will be way out once again rather than meaningful cash falls in prices.

With regards to pensions, the retirement age for those under 30 will probably reach 70, so the scope for longer mortgage terms is right there.

Really2

Graham_Devon wrote: »

Worth bearing in mind that 30/40 year mortgages will push many of those taking them into their pension years.

Would 30/40 year mortgages not mean more could buy younger.

£160K over 25 years @ 5% = £946
£160K over 40 Years @ 5% = £777

All things being equal if you need a income of £40K to buy the £160 house on 25 years
An income of around £33K would be sufficient for the 40 year term.

chucky

Really2 wrote: »

Would 30/40 year mortgages not mean more could buy younger.

£160K over 25 years @ 5% = £946
£160K over 40 Years @ 5% = £777

All things being equal if you need a income of £40K to buy the £160 house on 25 years
An income of around £33K would be sufficient for the 40 year term.

that's actually a very good point.

it makes buying a house even cheaper than renting and will encourage more home ownership.

Graham_Devon

Really2 wrote: »

Would 30/40 year mortgages not mean more could buy younger.

£160K over 25 years @ 5% = £946
£160K over 40 Years @ 5% = £777

All things being equal if you need a income of £40K to buy the £160 house on 25 years
An income of around £33K would be sufficient for the 40 year term.

Yes.

But the avaliability to more people will force house prices up. Within 5 years, we will hit the same situation as we are at now.

You can keep on extending the affordability by extending the loan. That's worked the same way for ages. But the more you extend the loan, and therefore the affordability through repayments, the higher prices will rise.

This therefore makes no difference to the affordability, apart from for the initial few years, and you end up in an even worse situation than you started out in. Added to the problem this time you have even more unable to move due to having less and less equity in their homes as it's taking them longer to actually chip in to the capital.

There maybe difference in opinion on debt, but surely the above cannot be reasonably argued as misinformed.

abaxas

Graham_Devon wrote: »

Yes.

But the avaliability to more people will force house prices up. Within 5 years, we will hit the same situation as we are at now.

You can keep on extending the affordability by extending the loan. That's worked the same way for ages. But the more you extend the loan, and therefore the affordability through repayments, the higher prices will rise.

This therefore makes no difference to the affordability, apart from for the initial few years, and you end up in an even worse situation than you started out in. Added to the problem this time you have even more unable to move due to having less and less equity in their homes as it's taking them longer to actually chip in to the capital.

There maybe difference in opinion on debt, but surely the above cannot be reasonably argued as misinformed.

Why not resolve the supply side, instead of the buying one?

It's a bit like saying, we want the price of tomatoes to go up as everyone now has credit cards.

Graham_Devon

abaxas wrote: »

Why not resolve the supply side, instead of the buying one?

It's a bit like saying, we want the price of tomatoes to go up as everyone now has credit cards.

The problem with the supply side is the reality that those with control are going to do absolutely nothing about it unless a real crisis hits, and they could in turn make money out of the building & planning due to the crisis.

You only have to look at lowly MP's to see they were all in there, speculating, using taxpayers money to buy in to property and let it out, or in some cases, just leave it empty while it increases in value, and call it a much needed second home.

You haven't even got to the land owning, estate owning Lords.

Really2

Graham_Devon wrote: »

Yes.

But the avaliability to more people will force house prices up. Within 5 years, we will hit the same situation as we are at now.

So there is a pent up demand large enough to push prices up?
I know what you are saying, but if we can't keep up with demand by building something has to give.

One of the major problems of an ever growing population, the ever growing problem is the problem in reality but there is not much we can do on that.

It is always id going to be a sticking plaster solution until something radical changes.

dtsazza

abaxas wrote: »

Why not resolve the supply side, instead of the buying one?

Or alternatively, different aspects of the buy side.

Right now it seems to be the case that "potential demand" for houses is extremely high, and thus limited by what mortgage companies deem affordable.

If housing prices fall, they immediately become affordable to many more and thus rise again due to increased (realised) demand. Likewise, mortgage reforms to loosen lending restrictions will (ceteris paribus) realise more demand and push up prices.

It seems that if we really do want house prices to fall, the only way in the current situation is to ensure that a good chunk of potential buyers remain unable to buy.


A more equitable solution is definitely addressing the supply side problem (high demand + much lower supply is fundamentally what's lead to the market equilibrium prices being higher than historic levels).

However, it would be possible to address the demand side by, more or less, reducing demand. This could be in the form of European-style renting regulations, meaning that less people feel that owning is the only long-term solution. Or even some way of decoupling the capital gains potential from the place-you-live aspect; I'm sure a lot of demand for properties is partly or entirely based on the investment side.

There's no reason why both can't be done in parallel, but I think it bears consideration when there is considerably more demand for houses than affordability (under current criteria), i.e. people who "can't afford" houses would be willing to buy them if they could somehow get the mortgage. Especially as this demand seems to be broadly price-inelastic (if prices went up there'd be a lot of grumbling amongst buyers, but I doubt many would just decide to rent all of their lives).

Graham_Devon

Really2 wrote: »

So there is a pent up demand large enough to push prices up?

Of course there is.

Not that that answers or discusses any of my other points.