MSE Blog: The Government’s first-time buyer mortgage plan is flawed

HAMISH_MCTAVISH

buglawton wrote: »

The Times this morning

So you just skipped right over the earlier post in this thread establishing that the percentage of disposable income used to service a mortgage for neew buyers is at near historic lows, and went right back to the same old-same old mantra about house prices.

Nice.

buglawton

Seen it, thanks.

And, yeah, I know that #31 is an uncomfortable thought for house price rampers.

HAMISH_MCTAVISH

Not half as uncomfortable as post #28 is for crashaholics.

buglawton

#28 seeks to prove that there is more disposable income than for a long time, compared to the cost of buying a home. Fair enough.

So when you read:
"only 23% of people who intend to purchase a property in the next 12 months are first-time buyers, when 40% is considered normal"
http://www.guardian.co.uk/money/2011/aug/26/property-buyers-mortgage-rental

...the reason for this must be somewhere else.

I think it;s because potential buyers
a) Cannot get the deposit
b) Don't trust current prices and believe they ought to fall

and (a) is due to the banks believing (b)

HAMISH_MCTAVISH

buglawton wrote: »

...the reason for this must be somewhere else.

True.

I think it;s because potential buyers
a) Cannot get the deposit

True.

b) Don't trust current prices and believe they ought to fall

and (a) is due to the banks believing (b)

False.

The banks don't have the money to lend so they must ration mortgages by imposing absurd deposit and credit score requirements until the pool of borrowers shrinks to match the pool of available funding.

In other words, if 500,000 FTB-s with immaculate credit ratings and 25% deposits all showed up tomorrow, they banks would STILL have to find a way to reject 90% of the applications.

And the most recent opinion poll on the subject showed the majority of people believe prices will rise in the next year, so (b) is wrong as well.;)

HAMISH_MCTAVISH

buglawton wrote: »

#28 seeks to prove that there is more disposable income than for a long time, compared to the cost of buying a home. Fair enough.

Actually, what #28 does prove is that the cost of purchasing a home is at near record lows as a percentage of income. (and really, any other way of looking at it is absurd)

Because no matter what the sticker price says, or how that relates to my salary, if buying a house in 1990 cost me 60% of my income, and buying today costs me 30%, then buying today is cheaper.

buglawton

Big banks do actually hold the deeds of properties they lend on and can use these deeds as part of their securitisation to justify their own fund raising efforts - without resorting to exotic instruments.

UK property at it's current prices does not seen to fit the bill for such securitisation, unless a large deposit reduces the risk.

"apartments in Berlin can be bought for a tenth of the price of similar properties in London"
http://www.moneyweek.com/investments/property/why-you-should-invest-in-german-property-now

...maybe our banks are busy lending to others rather than into the risky UK property sector?

HAMISH_MCTAVISH

buglawton wrote: »

Big banks do actually hold the deeds of properties they lend on and can use these deeds as part of their securitisation to justify their own fund raising efforts -

Irrelevant to the fact that the new capitalisation rules require 6 times more capital to be withheld for a 90% mortgage as for a 70% mortgage, making high LTV lending too expensive to consider.

Also the wholesale money markets are pretty much dead, the banks simply can't get access to enough funds to fulfill demand, hence why they must ration mortgages.

Mortgage rationing is a real and widespread problem......

A survey of chartered surveyors said that potential buyers were still being put off by economic worries and continued mortgage rationing.
http://www.bbc.co.uk/news/business-13760176

Mortgage rationing, which has depressed UK property sales, will stay in force until at least the end of 2012, the CML says.
http://www.bbc.co.uk/news/business-13620099

the rationing of mortgage funds by lenders are attributed to the general stagnation of the market.
http://www.mortgageintroducer.com/mortgages/240338/5/Industry_in_depth/House_prices_still_sliding.htm

One factor weighing on the market has been the continued rationing of mortgage funds by lenders
http://www.vanguardngr.com%2F2011%2F05%2Fuk-housing-market-still-lacklustre%2F

And finally, from the CML themselves, who readily accept that the UK mortgage market is "dysfunctional".....

In our view, the key point about UK mortgage and housing markets is that they remain dysfunctional, and are not effectively meeting the needs of consumers.

What is really needed is a sufficient flow of mortgage lending to allow those who can fulfil their financial commitments to move home in response to their changing circumstances if they want to, and for first-time buyers to realise their reasonable aspirations to become home-owners.

buglawton

OK, so one hand of UK Govt intro'd the new capitalisation rules while the other hand scrambles to invent first time buyer gewgaws.

It's just that I cannot help thinking that if UK property prices floated back down to earth somewhat, the banks, or building societies, would 'suddenly' be able to find more new mortgages.

HAMISH_MCTAVISH

buglawton wrote: »

It's just that I cannot help thinking that if UK property prices floated back down to earth somewhat, the banks, or building societies, would 'suddenly' be able to find more new mortgages.

Is that like you couldn't help thinking that the Halifax measure of income percentage required to service a mortgage also included all those people that bought years ago.....