Bank of England may put limit on mortgage ratios

CLAPTON

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?

basically the same as now except you see a mortgage advisor (well with building societies you always did.)

RenovationMan

shortchanged wrote: »

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.

It doesn't make any difference at all in the real world. Do you really believe that people sit at home thinking "Oh, since my last overpayment my mortgage is now 3x salary rather than 3.22x salary! How marvelous!"

Nah, they think "Excellent, my mortgage is now £300 per month instead of £320 since that last overpayment! How marvelous, that means I have £20 per month more to overpay onto the mortgage!"

Anyway, you keep dodging my question, I know why but I'll keep asking it until you reply. "What scenario can you give me where a mortgage amount calculated on affordability THEN needs to be reduced by a salary multiple for the borrowers financial well being?"

I put it in red bold so you can't pretend to miss it (again).

Thrugelmir

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.

From a lenders perspective affordability is only an underwriting factor considered for each mortgage application.

Lenders work on figures across the whole mortgage book to manage risk.
So mainstream lenders will maintain their mortgage book at around 3 to 3.5 times their mortgage applicants actual incomes. This determines the pricing of current mortgage products. Whether lenders are actively seeking to increase lending or not.

julieq

Graham_Devon wrote: »

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.

And if you're paying £750 a month in rent - normal for a flat in the SE - where does that leave the sums Graham?

Incidentally, easily achievable rates aren't anywhere near 5%, and you can get a 10 year fix for 3.99%, 25% less. So why take 5% as an example? Every year someone is saving a deposit and paying increasing rent is another year they can't be taking advantage of low rates. It's a hideous double whammy.

You're arguing the inarguable. The reason first time buyers have difficulty is because the deposit requirements have been larger recently than in previous years. It really isn't anything at all to do with absolute prices. There are plenty of couples clearing £60K in total who are perfectly able to pay a mortgage on a house but can't borrow enough. And all to lock a stable door that horses never actually bolted through, that's the killing joke.

StevieJ

PaulF81 wrote: »

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.

Is that you Scholesy

Graham_Devon

julieq wrote: »

And if you're paying £750 a month in rent - normal for a flat in the SE - where does that leave the sums Graham?

Incidentally, easily achievable rates aren't anywhere near 5%, and you can get a 10 year fix for 3.99%, 25% less. So why take 5% as an example? Every year someone is saving a deposit and paying increasing rent is another year they can't be taking advantage of low rates. It's a hideous double whammy.

You're arguing the inarguable. The reason first time buyers have difficulty is because the deposit requirements have been larger recently than in previous years. It really isn't anything at all to do with absolute prices. There are plenty of couples clearing £60K in total who are perfectly able to pay a mortgage on a house but can't borrow enough. And all to lock a stable door that horses never actually bolted through, that's the killing joke.

The rent thing the get out clause again?

How many times....not everyone is sitting on deposits ready to buy. Infact, very few are.

I was merely looking at what you stated, which had absolutely nothing to do with rents, and I could see a massive great, very valid hole which seemed to be ignored.

If someone is sitting on a deposit awaiting lower prices, who could buy now, then your argument is somewhat valid, but we can't possibly do any sums on it because we don't know the future. Your post was very much a here and now post aimed at all FTBs, not just a minute select group which you are now wanting to look at.

As for the 3.99% fix.....valid point. But the sums still work out the same, in terms of it being cheaper for every year you own the house. I took 5% as it's a decent average IMHO. It's not the lowest common denominator (as the 3.99% is), neither is it the highest.

It's not inarguable at all, as I'm arguing it, and you are coming back to me with a counter argument which involves (now) only looking at a select few individuals....renters ready to buy.

julieq

Graham, if your rates are 25% less, how do the sums come out the same? 3.99% is readily available in situations such as YOU describe. YOU brought up the situation where someone is ready to buy in YOUR example. Nothing to do with me.

The whole of my point is that first time buyers aren't generally sitting on deposits and have to save them. Saving £30K is essentially just as difficult as saving £38K, therefore first time buyers are excluded even if prices were to fall. Particularly when they're paying far higher amounts in rent which will be the case for most people in the real world. In the hypothetical scenario where there was a 20% fall in prices the chances are that lending would be further constrained in any case so it becomes a moot point anyway.

shortchanged_2

RenovationMan wrote: »

Anyway, you keep dodging my question, I know why but I'll keep asking it until you reply. "What scenario can you give me where a mortgage amount calculated on affordability THEN needs to be reduced by a salary multiple for the borrowers financial well being?"

Well obviously it will shaft you up RenoMan because you borrowed a high salary multiple. So when it comes to remortgage for you if the banks suddenly are strict with their lending multiples then you are in a sticky position and may be forced to stay on your current lenders SVR and may well be unable to remortgage with another lender.

So yes I do take your point that it will affect people who took mortgages out on a high salary multiple.

Graham_Devon

julieq wrote: »

Graham, if your rates are 25% less, how do the sums come out the same? 3.99% is readily available in situations such as YOU describe. YOU brought up the situation where someone is ready to buy in YOUR example. Nothing to do with me.

Oh purlease. Just read the whole sentence instead of cutting it off at a point you have found an argument or trip me up....it states quite specifically....

But the sums still work out the same, in terms of it being cheaper for every year you own the house.

The whole of my point is that first time buyers aren't generally sitting on deposits and have to save them. Saving £30K is essentially just as difficult as saving £38K

Essentially, it's not. 30k and 38k are two, very obviously different amounts. And in terms of the numbers, 8k is quite a lot more than 30k. I'm not sure where you are coming from, or what the amount 8k is to you, but to most, it's quite a sum of money.

therefore first time buyers are excluded even if prices were to fall. Particularly when they're paying far higher amounts in rent which will be the case for most people in the real world. In the hypothetical scenario where there was a 20% fall in prices the chances are that lending would be further constrained in any case so it becomes a moot point anyway.

Julie.

You are trying to tell me here that saving 30k and saving 38k is no different. Saving over the lifetime of the house on mortgage costs is neither here nor there, and trying, somewha confusingly, to justify to me that the more expensive the house, the better it is for the person saving towards it.

I can categorically inform you. The lower the savings target, the easier, or should I say, less time it will take to achieve.

This, I'm afraid, is very basic common sense.

Throwing renters with a big enough deposit to buy today into the mix backs up your argument, and I wouldn't neccesarily argue against that....all I would say on that is that you cannot calculate potential savings on unknown outlays, or unknown potential savings a year down the line. Again, thats common sense. None of us know where house prices will be in a years / 2 years time, and therefore none of us can do any calculations on potential cost savings.

It's very much a case of doing what's right for the person at the time. This is something you appear to be missing.

shortchanged_2

Graham_Devon wrote: »

Essentially, it's not. 30k and 38k are two, very obviously different amounts. And in terms of the numbers, 8k is quite a lot more than 30k. I'm not sure where you are coming from, or what the amount 8k is to you, but to most, it's quite a sum of money.

Well if my maths serve me right it is about 21-22% more, which I would say is a considerable amount.