Bank of England may put limit on mortgage ratios

RenovationMan

shortchanged wrote: »

So while the overall average figure of the income to loan mortages might not show a massive incline, it's because it was mainly the people at the bottom of the chain that were skewing this figure and not people who were already homeowners.

Is 'income' on your FSA graph referring to joint income (if joint mortgage), pre-tax income, post-tax income? Does it include overtime, bonuses, additional income such as BTL, pensions, etc.? I'm not sure your graph actually shows you anything like salary multiples.

However, getting back to the point. If you have lending based on affordability (as you have agreed we need instead of just relying exclusively on salary multiples) then in what set of circumstances would we need a check on affordability and THEN a check on salary income to reduce mortgage lending amounts to an individual?

shortchanged_2

julieq wrote: »

150K house. 25% deposit is £37K. Takes a while to save.

20% house price drop. 130K house. 25% deposit is £32.5K. Still takes a while to save (and chances are that mortgage lending would have collapsed anyway had that happened).

Therefore the problem for first time buyers ISN'T absolute prices. It's the LTV ratios. You'd have to push prices through the floor to allow them to save up quarter of the purchase price of a house.

This is another of those "beware of what you wish for" things. High LTV doesn't do much to prices, evidently, and it doesn't protect lenders much. But it does exclude first time buyers, and in the meantime FTB properties are traded between investors for yield. If you want prices to reduce or moderate, build more houses. Forget about interest rates, forget about "props", they are not addressing the fundamental supply/demand issues.

OK, I've never said these very high deposits are a good thing, so lets look at this example. I feel it is all about high house prices.

A couple earning £45,000 a year.

£150,000 house 10% deposit £15,000 and they would need a 3 times joint income mortgage.

£130,000 house 10% deposit £13,000 and they would need 2.6 times a joint income mortgage.

Now which one looks more favourable to any FTB?

And yes I agree with you julieq that the UK needs to build more houses, but why aren't they doing it? Because they want to maintain high house prices.

Unfortunately the UK has become very greedy with regards to property prices and our precious little assets. Just as bad as gold bugs I suppose.

RenovationMan

shortchanged wrote: »

OK, I've never said these very high deposits are a good thing, so lets look at this example. I feel it is all about high house prices.

A couple earning £45,000 a year.

£150,000 house 10% deposit £15,000 and they would need a 3 times joint income mortgage.

£130,000 house 10% deposit £13,000 and they would need 2.6 times a joint income mortgage.

Now which one looks more favourable to any FTB?

Well the £130k example looks more favourable because it's £130k and not £150k, because the deposit is £2k less and because the monthly mortgage rate will be a little less (assuming that the same mortgage rate is available for both properties).

All you have proved here is that it's better to pay less for something than more. I don't think you'll get many people arguing against that!

However, the 3x joint income vs 2.6 times joint income makes absolutely no difference whatsoever to the housebuyer. The mortgage multiple is immaterial, it's all about affordability for this couple.

PaulF81

We saved 33% in 4 years. That was 100K, with a wife on a poor salary. It can be done. LTV should stay as it is, as it demonstrates the purchasers commitment to saving and financial proprietery. Salary multiples or maximum lending caps/Debt to assets ratios should be used to control a market that due to the low intelligence of the proletariat, cannot be left to market forces.

Simples.

Graham_Devon

julieq wrote: »

150K house. 25% deposit is £37K. Takes a while to save.

20% house price drop. 130K house. 25% deposit is £32.5K. Still takes a while to save (and chances are that mortgage lending would have collapsed anyway had that happened).

Problem here is, you have ignored the monthly payment aspect. Which frankly, is a HUGE aspect to be ignoring.

In your first scenario, the deposit will be £37k and £665 per month at 5%.

In your second scenario, the deposit will be £32.5K and £576 a month at 5%.

That's not only a 20k reduction on the initial house prices, but a £1068 reduction in costs per year.

To large a factor to simply be ignored, but can't say I'm surprised it has been.

System

Banks used to have people called managers. If you wanted a loan you went to see the manager and you put a proposal in front of him. You worked out how much you wanted, he told you what it would cost. You showed him facts and figures demonstrating how you would be able to afford to pay it. He looked at your general level of spending, how stable your job was, what your prospects were, how committed a saver you had been, your responsibility in borrowing and repaying previous loans, etc.
Then if you were lucky he would agree your application, conditional on putting up an agreed amount as a deposit.
If you started to fall behind in the repayments he called you in for you to explain what was happening. He didn't just wait until you owed thousands in negative equity and were about to be evicted.

It was called responsible lending and responsible borrowing. What went wrong?

shortchanged_2

RenovationMan wrote: »

However, the 3x joint income vs 2.6 times joint income makes absolutely no difference whatsoever to the housebuyer. The mortgage multiple is immaterial, it's all about affordability for this couple.

Come on RenoMan, that is a bit of a ridiculous statement. Of course it matters because if all things being the same, i.e interest rates, then it makes a hell of difference to the cost of the mortgage.

shortchanged_2

Clifford_Pope wrote: »

It was called responsible lending and responsible borrowing. What went wrong?

Internet mortgages?

grizzly1911

Clifford_Pope wrote: »

Banks used to have people called managers. If you wanted a loan you went to see the manager and you put a proposal in front of him. You worked out how much you wanted, he told you what it would cost. You showed him facts and figures demonstrating how you would be able to afford to pay it. He looked at your general level of spending, how stable your job was, what your prospects were, how committed a saver you had been, your responsibility in borrowing and repaying previous loans, etc.
Then if you were lucky he would agree your application, conditional on putting up an agreed amount as a deposit.
If you started to fall behind in the repayments he called you in for you to explain what was happening. He didn't just wait until you owed thousands in negative equity and were about to be evicted.

It was called responsible lending and responsible borrowing. What went wrong?

You are right and that was on top of the basic income multipliers. WIth good reasons and good prospects, and good connections there was latitude to "bend" the rules but only after due consideration.

I think securitisation played a part as it removed ownership of the problem should a borrower encounter difficulties. Rather than the lender having their hairy bits on the line for poor decisions and control it passed to a "computer says no" algorithm.

Once the mortgage salesperson had pocketed their commission, bundled the debt and sold it on it was a problem for someone else.

grizzly1911

julieq wrote: »

If you want prices to reduce or moderate, build more houses. Forget about interest rates, forget about "props", they are not addressing the fundamental supply/demand issues.

That is the key. Increase supply, prices come down, more social housing rents come down.

Governments can't afford for house prices to fall far though in the short/medium term. To help keep the country afloat they were quite happy for people to remortgage and or borrow heavily for "inflated" assets.

If those assets fell back we know the consequences for many and who would pick up the tab - again.