It's all about the rationing

Graham_Devon

The number of mortgage deals available has returned to the level of early 2008, before the banking crisis reached its peak.

Of the 2,557 mortgage types on offer, 64% require at least a 20% deposit and only 2% need a deposit of 5% or less.

Moneyfacts, which compiled the figures, said lending to people with small deposits was still very restricted.

"While the number of deals for borrowers with a 5% deposit or less has increased, the majority require a guarantor to qualify or are from lenders which offer restricted lending," said Michelle Slade of Moneyfacts.

"First-time buyers still really need at least a 10% deposit before they can find any real mortgage options."

http://www.bbc.co.uk/news/business-14836788

My question, is when does the 'rationing' end? This article even goes on to describe this as "severe rationing".

I assume it will be a continual thing from now on, unless we reach peak 2007 type lending, which seems to be "normal" lending?

Really2

Graham_Devon wrote: »

http://www.bbc.co.uk/news/business-14836788

My question, is when does the 'rationing' end? This article even goes on to describe this as "severe rationing".

I assume it will be a continual thing from now on, unless we reach peak 2007 type lending, which seems to be "normal" lending?

When the majority of mortgages are in the 10% deposit range? 64% requiring at least 20% is massive that would never be classed as normal.

That is not 2007 type lending is it? Who said peak lending was normal (well those that keep using 2007 house sales levels and approvals as normal perhaps)

Graham_Devon

Really2 wrote: »

When the majority of mortgages are in the 10% deposit range?

Has that always been the case over the decades then?

WestonDave

Trouble is the percentages in the article refer to the number of products available rather than the amount of funds available. A lender might be willing to lend the "same" funds either at 4% with a 25% deposit or 6% with a 10% deposit. That simply shows they are pricing the increased risk from the lower deposit into the rate offered. In reality its a bit of both - lenders will have a profile of how much they want to lend at 10% deposits or in a certain area of the country etc and once that level is reached then the doors may well be closed, but it won't equate to the numbers of products on the market. Lenders will be keener to get good quality mortgages from high deposit borrowers so competition on rates and products here will be higher so this will also impact on the quoted % figures.

IveSeenTheLight

Graham_Devon wrote: »

Has that always been the case over the decades then?

You could probably look at this quite simplistically and consider that until there is sufficient competition by lenders i.e. majority of mortgages only requiring 5% or 10% with reasonable mortgage rates, then this would indicate that there is sufficient lending and a restriction on lending

Really2

Graham_Devon wrote: »

Has that always been the case over the decades then?

I would say most products being around 10% is far nearer the average than 64% over 20%?
But AFIK most people could get a decent rate with a 10% deposit for most of the last 40 years.

Really2

http://www.thisismoney.co.uk/money/mortgageshome/article-1690849/First-time-buyers-still-need-a-50k-deposit.html

Council of Mortgage Lenders figures show that the long-term average deposit for a first-time buyer has been less than 10%. But as the financial crisis unfolded lenders pulled their 90% mortgages and hiked rates substantially for those with deposits of less than 25%.

So there you go.

CLAPTON

seems a completely mindless article

surely we all applaud the need for at least 10% deposit.... madness to allow 5% except in exceptional circumstances

and whatever does the number of products on the market have to do with anything

what we need is proper numbers about people with reasonable deposits (10% or higher) and with for reasonable earnings to mortgage ratios who are being turned down

this article is total tripe

WestonDave

My perception is that 10% mortgages have been the long term norm. I have to say I can't honestly remember if it was still basically 10% or no mortgage by the time I bought my first house in 1998, but it was certainly my working assumption. (I think at that stage they were willing to offer more than 3x salary, but I do recall my £100pm pension payments causing an affordibility issue despite me only wanting to borrow 3x!).

So why 10% deposits when we've seen 0% or even -25% deposits? Lenders want to make sure they get their money back, so ideally you allow yourself a cushion in case the asset is worth less when you come to sell it having repossessed it. In general repo's go for less than market value, plus you have various costs involved in repossessing so I'd say 10% isn't a bad estimate of what is needed. However if prices are climbing strongly, you can afford to factor that in and assume that if you've assessed the borrower properly, by the time they might get into difficulties, your 10% margin will have arisen from your original 5% or 0% deposit due to increased prices. Currently with prices at best static its going to be very hard for a lender to justify cutting that cushion - they might do for a serious price increment to cover the risk, or for someone with a pretty much guaranteed income - e.g. doctor, but they won't do it for someone in precarious employment.

If anything the less than 5% deposits were the aberation, 20% reflects greater caution in an unstable market, and 10% is a more sensible norm. Of course for those who thought 5% or 0% was the norm (see my original comments about working to my 10% perception) suddenly having to save up tens of thousands is a big shock - even more so if they've been used to not saving at all but overspending via debt!

MacMickster

So lenders now require higher deposits than has historically been the case, or a guarantor in place of a deposit - and this is seen as a problem?

Sounds to me as if lenders are generally having a few bearish tendencies in their outlook, with an eye on their future balance sheets. I would much prefer them to continue to take a prudently cautious approach to lending, than the apparent free for all that existed in the run up to 2007.

JonnyBravo

WestonDave wrote: »

I have to say I can't honestly remember if it was still basically 10% or no mortgage by the time I bought my first house in 1998, but it was certainly my working assumption. (I think at that stage they were willing to offer more than 3x salary, but I do recall my £100pm pension payments causing an affordibility issue despite me only wanting to borrow 3x!).

5% deposit mortgages were available in 98.
I know cos I first bought then too. I was umming and arring between 5% and 10% and whether I'd have the money I needed to do the house up if I put down 10%.