lenders warn low-deposit mortgages are over

shortchanged_2

illgetthere wrote: »

Would it really be an issue if 100% mortgages were reintroduced? Were these products the main catalyst for problems in the housing market?

One of the main ones, yes.

illgetthere

shortchanged wrote: »

One of the main ones, yes.

Why exactly?

I understand the usa sub prime mess, but why did this product being given to uk households cause the problem?

Cleaver

shortchanged wrote: »

It doesn't take a rocket scientist to realise that it is easier to save say a 10% deposit for a £100K house than it is for a £150k or £200K etc, etc.

And yet according to the bulls on here it's the mortgage rationing that's the problem.

Forgetting bulls, bears, memes, paradigms, fallacious arguments and all those other words and phrases that we only see on this forum for two seconds, what is it that sensible first time buyers want?

Take a couple on £30k or £40k between them looking to buy one of the houses you talk about above. Saving a ten percent deposit for the £100k house isn't that much different to saving it for the £150k house. In that if you can save £10,000 you can presumably save £15,000 with not much bother. Yes, it's a few months more saving, but not that much more. If that couple are asked to always find a 25% deposit then they'd have to save either £25,000 or £37,500. That is quite a difference.

If I were a FTBer which situation would I prefer? A house at £100,000 where I need to find a £25,000 deposit or the same house at £150,000 where I need to find a £15,000 deposit?

On 5% my mortgage for the £100,000 house with a 25% deposit would be £443 and on the £150,000 house with a 10% deposit it would be nearly £800. Another big difference.

It's a tricky one really and all comes down to whether FTBers can afford a 25% deposit for their first house, even if house prices fell another 33% as per the example I used. I think if I were a FTBer then lower house prices but increased deposits would be preferable, as long as I was financially disciplined enough to save that type of deposit.

illgetthere

Cleaver wrote: »

It's a tricky one really and all comes down to whether FTBers can afford a 25% deposit for their first house, even if house prices fell another 33% as per the example I used. I think if I were a FTBer then lower house prices but increased deposits would be preferable, as long as I was financially disciplined enough to save that type of deposit.

This is what i'm trying to get at. A 4 bed detached house could drop to 50k, but if you can't service the mortgage then its irrelevant. Whereas the reverse is the same, the 4 bed detached could be worth 300k as long you can afford the mortgage and know what you are taking on for the next 20+years, then surely the blame for the crisis can't be put solely on the 100% mortgages..

I don't see where the problem lies with a 100% product, unless the banks know that a house price crash is coming and they need to protect their risk..

Graham_Devon

Cleaver wrote: »

Forgetting bulls, bears, memes, paradigms, fallacious arguments and all those other words and phrases that we only see on this forum for two seconds, what is it that sensible first time buyers want?

Cheaper prices at a guess.

There are not many other scenarios whereby people looking to buy something, suggest to themselves higher prices would be better for them.

A car for instance. You wouldn't see a Ford Fiesta up for 8k, and think "oh, if if was 10k, I might be able to buy it".

We don't go past 5 petrol stations on the way to work each day, all BP, and think "Oh, I'll go to the one thats 3p more per litre" (unless other factors apply, such as better shop, better facilities etc).

For a FTB, in most cases, unless they can only see the access to the mortgage, lower prices are advantageous, and there are some people like this.

There are however very many schemes which do get people to buy at a higher price due to the cost of finance. Cars being a prime example. Yes Cars (I think it was) was one of them. You went and bought the higher priced car, simply because they were more likely to give you the loan. The Yes Car type of selling scheme is what many (usually they already own and wouldn't use the facility) want others to be offered to buy a house. Easier access, but more expensive product.

It's a strange scenario, as the same people wanting easier lending (to buy now) are the same people in general that have a go at the younger generation for wanting it now. You see it all over this forum...."Don't moan about prices, save up, get another job, move, you just want it all". Yet on the next thread it's disgusting that "mortgag rationing" is happening, we should get back to easier lending to allow people to buy etc etc.

HAMISH_MCTAVISH

illgetthere wrote: »

why did this product being given to uk households cause the problem?

Of course it didn't cause the problem.

There is clearly an excellent argument to be made for never lending more than the house price, so 125% mortgages and the like should obviously never return.

But 100% mortgages have a place in a variety of circumstances, and 95% mortgages at non-punitive rates are historically normal, prudent and sensible lending.

Jimmy_31

Sibley wrote: »

I'm glad people like Geneer are getting totally frozen ot of the housing market.
If they had kept their mouths shut they would own a house now.

A liar loan would have given them the chance to own and make enough money to retire. Now they have managed to bring that facility crashing down. All they have left if the chance to pay off somebody elses mortgage.

Serves them right.

Or buy outright as a mortgage is no longer needed due to saving up a large deposit and house prices falling.

Emy1501

illgetthere wrote: »

It would be interesting to find a statistic that showed how many people who bought a high ltv product (95%-100&+) have actually defaulted.

My first mortgage was a NR together product at 103% LTV. I haven't defaulted and don't think that i even considered the LTV. All i made sure of was the ability for me to pay, and the fact that i didn't want to rent and throw money to someone else.

It was a great product and a great opportunity to 'start to' own my home. I was 18 at the time and it seemed to be the sensible option when i wanted to move out.

Would it really be an issue if 100% mortgages were reintroduced? Were these products the main catalyst for problems in the housing market?

FSA research as far as I'm aware from around 2008-2009 found that the those with 100% and above mortgages were not the problem. Defaults as far as I'm aware for these people did not differ much from the norm. The real problem was self cert, jumbo loans ie 5x and above plus those who borrowed with history of previous debt problems. These people borrowed normally on teaser rates with idea they could keep rolling over debt every few years with other low rates. When good deals dried up for these people some begun the struggle.

Problem now is balance sheets and its simply not really in any banks intrest to lend much more than 75% of a mortgage.

Cleaver

Graham_Devon wrote: »

Cheaper prices at a guess.

There are not many other scenarios whereby people looking to buy something, suggest to themselves higher prices would be better for them.

A car for instance. You wouldn't see a Ford Fiesta up for 8k, and think "oh, if if was 10k, I might be able to buy it".

We don't go past 5 petrol stations on the way to work each day, all BP, and think "Oh, I'll go to the one thats 3p more per litre" (unless other factors apply, such as better shop, better facilities etc).

I agree about cheaper prices. But a house isn't as simple as the example you provide, because 99% of first time buyers will be taking a very long term loan to buy the house and to get that loan they will have to save up a deposit. So the three things to consider when buying a house is:

1. The price of the house
2. The size of deposit required
3. The cost of the loan, especially relative to income

If two out of those three factors look very favourable then you cuold be forgiven for not being as bothered about the third, just as an example. I can't think of any other product where the same can be said really, especially as a house is pretty much the only thing you buy which you assume you won't really be selling for any less than you paid for it. It means a house purchase is completely different to anything else you buy.

Just as a very extreme example, If I were a first time buyer I'd much prefer to buy a house for £100,000 with a 10% deposit on a 4% five year fixed term mortgage than I would buy a £80,000 house where I needed a 30% deposit and only a 6% five year fixed term mortgage was available. As I say, extreme example, but as a FTBer I'd prefer to pay more for the house as I could get in it quicker (smaller deposit to save) and the monthly cost would be roughly the same as the cheaper house on a higher rate anyway by the time you were able to buy it.

Pimperne1

Jimmy_31 wrote: »

Or buy outright as a mortgage is no longer needed due to saving up a large deposit, house prices falling, and living in an area where very few want to live.

Corrected that for you Jimmy.