Mortgage Rationing

julieq

Nice parade of misconceptions here.

The increased requirements for deposits come from more stringent rules about the amount and type of capital banks are required to hold as security for those saving with them. This has absolutely nothing to do with the UK mortgage market, in which defaults have always been low and risks well managed: essentially default risks are balanced via interest rates paying a sort of insurance policy for poorer risks. Any increase has been fractional at most.

It has a lot to do with banks having held so-called securitised mortgage debt based on lending in the US to people who were never going to pay back the loans on the back of an uncontrolled property bubble in a country where there is no supply shortfall. And obviously with high risk debt on their books from these and other sources there are limits to how much banks are going to lend until other debts are repaid.

The other factor is that the banks are buying up masses government debt, which is essentially very very low risk, so why bother with lending to individuals?

shortchanged_2

It's pretty obvious really that with more stringent lending criteria as is now, that people are struggling to buy because they can no longer AFFORD to pay the price for houses that people are hoping for.

There are two possibilities to solve this situation.

1) Throw more money at lenders so they can afford the current prices (however when interest rates rise the S**t will start to hit the fan)

OR

2) The more favoured option, let house prices continue to drop, this together with stringent lending practices will allow buyers into the market again and help prevent further price booms.


Basically, a lot of it boils down to sensible, sustainable lending.

StevieJ

shortchanged wrote: »

2) The more favoured option, let house prices continue to drop, this together with stringent lending practices will allow buyers into the market again and help prevent further price booms.


Basically, a lot of it boils down to sensible, sustainable lending.

How many more times does Hamish have to explain this one

julieq

That's HPC fantasy land economics.

The idea that when long term - 10 year - mortgage rates are less than 4%, which is LOWER than they were at the peak, there's going to be some sort of massive affordability crisis is utter bananas.

There is NO EVIDENCE in terms of repossession rates that any significant number of borrowers are struggling to repay.

A couple on average incomes can buy an average house. As Graham's builder chum said the other day, affordability is not the issue. In most parts of the country, mortgage repayments are cheaper than rent, and rent is rising. Get a mortgage and you're laughing, sit outside and you're likely to languish there for a long time.

I explained why banks are rationing mortgages. It really has very little to do with any desire make house prices go up or down, or the idea of settling on "sensible sustainable lending", which by and large we had in the UK before the crisis anyway. The problems came from other parts of the world and the massive reliance on securitised debt from the US which was essentially leprechaun gold on the balance sheet.

The killing joke here is that at the point at which deposits get saved and capital starts becoming available, there will be a race to buy houses and that is likely to cause a UK price boom because the supply/demand issues haven't been addressed. More lending now would create a more controlled situation, and allow a sustained period where houses could be built which will ease pressure on the available stock.

It really is as simple as that.

shortchanged_2

Yes whatever julieq. If the banks won't lend the money then people will not be able to afford the houses. Therefore something has to give.

It was loose lending that got us into this mess, now a sustained period of tightening is needed to redress the balance and help prevent further booms.

We can't continue to have an economy that is so dependent on HPI.

StevieJ

shortchanged wrote: »

Yes whatever julieq. If the banks won't lend the money then people will not be able to afford the houses. Therefore something has to give.

It was loose lending that got us into this mess, now a sustained period of tightening is needed to redress the balance and help prevent further booms.

We can't continue to have an economy that is so dependent on HPI.

Not in this country it wasn't.

julieq

There is no "loose lending" now, and house prices have settled about 10% below peak. So that defines the effect of "loose lending" very precisely indeed.

And I'm sorry, but you don't need masses of owner occupiers and mortgage lending to drive prices up, all you need is a healthy rented sector with rising rents, and a shortfall in homes being built relative to homes needed. .

Which oddly enough is exactly what we have. If you want cheaper houses, build more (or remove people). Nothing else will work. You don't stop investors buying houses to rent because you prevent first time buyers from borrowing money to buy them, all you do is take money out of the pockets of the prospective FTBs and put it into the pockets of the investors.

You do also have a lot of people saving like crazy to get their deposits together though, and that is a considerable factor looking forwards a few months.

Anyway you'll figure it out eventually, I'm sure.

geneer

Hiya gang. So whats new?

the_flying_pig

julieq wrote: »

That's HPC fantasy land economics.

The idea that when long term - 10 year - mortgage rates are less than 4%, which is LOWER than they were at the peak, there's going to be some sort of massive affordability crisis is utter bananas.

There is NO EVIDENCE in terms of repossession rates that any significant number of borrowers are struggling to repay.

A couple on average incomes can buy an average house. As Graham's builder chum said the other day, affordability is not the issue. In most parts of the country, mortgage repayments are cheaper than rent, and rent is rising. Get a mortgage and you're laughing, sit outside and you're likely to languish there for a long time.

I explained why banks are rationing mortgages. It really has very little to do with any desire make house prices go up or down, or the idea of settling on "sensible sustainable lending", which by and large we had in the UK before the crisis anyway. The problems came from other parts of the world and the massive reliance on securitised debt from the US which was essentially leprechaun gold on the balance sheet.

The killing joke here is that at the point at which deposits get saved and capital starts becoming available, there will be a race to buy houses and that is likely to cause a UK price boom because the supply/demand issues haven't been addressed. More lending now would create a more controlled situation, and allow a sustained period where houses could be built which will ease pressure on the available stock.

It really is as simple as that.

My opinion [broadly speaking a majority one] - UK mortgage lending wasn’t the worst in the world but it was over the top. It’s an obvious fact that the current number of repossessions is an extremely poor indicator of past soundness. Even with ZIRP [interest rate fluctuations being far and away the key driver of repossession risk] and over a hundred thousand people on SMI & whatnot repossessions are ticking along at a fair old rate.
But issues of opinion aside I don’t really understand your post.
(1) Retail banks are imposing more stringent lending criteria then they used to.
(2) Explanations for this, in no particular order, include (i) a need to comply with regulation & generally become a bit more robust to shocks [i.e. holding more cash reserves & so on]; (ii) a need to pay back previous emergency lending; and (iii) a suggestion that certain UK mortgage lending practices of the past [hello Northern Rock] were unsound.
I think that most of us would agree that (iii) is the least important of the three reasons. So by squealing for more lending I assume you’re arguing that either (i) or (ii) doesn’t matter? So that UK banks [even those who, like all banks anywhere, are dependent on global financial markets etc] should be reducing the size of their cash reserves? Or that UK banks shouldn’t have to pay back emergency lending [for the time being, at any rate]? I presume [to the dubious extent that there’s anything coherent behind your post] you’re mostly arguing the latter? That the greater good would be served by the taxpayer taking a short-term hit in the name of more mortgage lending? I personally don’t buy this at all. Why would more mortgage debt be in the public interest?.
Your final ‘point’ about the current situation somehow storing up a boom is, I’m afraid, the worst kind of Hamish-ism. Frankly a nonsense.

julieq

No-one here is squealing for more lending. What I am pointing out is that mortgage rationing is mostly hurting people who want to buy houses on a mortgage, and I've explained why it's happening, which is in effect (i) in your list. More lending would allow more houses to be built which would ease the supply and demand issues.

And why is the idea that there is a latent boom a nonsense? All you've actually said is that it's a "Hamishism", which isn't really an argument, it's just a personal attack on another board member who isn't even in this part of the discussion. I've explained why I think it will happen - lots of people wanting to buy and saving like mad for a deposit while very few houses are being built - so why not make a cogent counter argument about why it won't?

Just as a point of history, any emergency loans to British banks have already been paid back, and this wasn't a big factor in events around the crisis anyway. I think you may be confusing loans and bail outs which in effect were guarantees. But that is to open a whole new can of worms around what many people - perhaps the majority - believe to have happened (as opposed to what actually happened) which will probably just derail the discussion.