Mortgage rationing?

armour

Whilst chatting with my 85 yr old mother the other day, she mentioned the mortgage application process she and my dad went through when buying their first (and only) house in 1960.
According to her the rules were:
A two-year savings record with the building society(Abbey National)
A 25% deposit
To earn in a week the amount required for a months mortgage - I guess this equates to roughly 4x salary.
So apart from the two year savings record, things now are similar to the early 60's.
I reckon they probably had it right back then. If they'd kept to the "rules" perhaps we wouldn't have had the boom & bust housing market cycles and the messy housing situation we have now.

maninthestreet

Indeed. There were no credit cards available in the UK back then either.

CLAPTON

armour wrote: »

Whilst chatting with my 85 yr old mother the other day, she mentioned the mortgage application process she and my dad went through when buying their first (and only) house in 1960.
According to her the rules were:
A two-year savings record with the building society(Abbey National)
A 25% deposit
To earn in a week the amount required for a months mortgage - I guess this equates to roughly 4x salary.
So apart from the two year savings record, things now are similar to the early 60's.
I reckon they probably had it right back then. If they'd kept to the "rules" perhaps we wouldn't have had the boom & bust housing market cycles and the messy housing situation we have now.

that would have been nearer 3 x salary and it would probably be based only on the man's salary

many lenders would only lend 2.5 times man's salary

DVardysShadow

CLAPTON wrote: »

that would have been nearer 3 x salary and it would probably be based only on the man's salary

many lenders would only lend 2.5 times man's salary

And of course, with mortgages restricted in this way, house prices matched the ability of buyers to pay.

dunstonh

Old criteria that was in place for many many years was 3+1 or 2.5x joint.

Back then as well as short term credit being either non-existent or very hard to get, you also had a social stigma if you failed to repay your debts. Whereas nowadays you actually get consumers looking to fund ways out of paying their debts.

armour

What struck me was how sensible it sounds. Particularly the stipulation of a 2 yr savings record before being considered for a mortgage.
BTW mum tells me that they paid the mortgage off in 8 yrs.

the_flying_pig

I'm thinking about buying [upsizing] soonish.

We'd have a fairly big deposit [maybe around half].

Within minutes we were told we'd be able to borrow 4 times joint income. This is despite the fact that my wife, who actually earns more than I do, is currently on maternity leave so has no recent track record of earning - so we'd be talking about more than 8 times my income if she went back & couldn't hack it.

I'm struggling to imagine how lending could sensibly be much looser than this on the income multiple side [less sure about LTV].

As an aside they tried to persuade us to not sell the old place, but rather keep it as a buy-to-let [interest only].

All of the above seemed to me to be a lot closer to the mid noughties credit bubble than to 20th century standards.

kingstreet

I don't know about the 60s but a lot of what armour describes was still pretty relevant in the mid 80s when I entered the industry.

At that time, if you could bring your local building society manager a source of investment funds he'd help you with your mortgage needs. You paid an extra 0.5% for an endowment mortgage. There was standard variable rate - take it or leave it. There were no 100% mortgages, so insurance companies launched top-up schemes and loaned the 5% deposit on top of the lender's mortgage.

Mortgage indemnity insurance was invented to allow lenders to offer more without increasing their risks.

Then we had the appearance of fixed rates, deferred interest, discounts, capped rates, BTL, 100%, Together and so on...

Life was so much more uncomplicated back then. Sigh.

Thrugelmir

DVardysShadow wrote: »

And of course, with mortgages restricted in this way, house prices matched the ability of buyers to pay.

Prices will always match peoples ability to borrow.

The reason for the lower lending multiples. Was building societies were community based. By saving for 2 years, you were in fact funding another persons mortgage.

Funding will always be limited. When banks (along with demutualised building societies) became retailers rather than banks. Invented securitisation of mortgage books the lending boom was unleashed. Now it seems this wasn't a sustainable business model. So the return to the days of traditional banking is upon us.