MSE News: Interest-only mortgages could be 'thing of the past'

RenovationMan

JimmyTheWig wrote: »

Though are you saying that this should be a law? And the reason for this law would be to bring house prices down?
Interesting.

That's the real reason behind using salary multiples. You just have to scratch the surface to find the truth.

shortchanged_2

gingeralan wrote: »

An imposed restriction on lending based on disposible income will not prevent small lenders entering the market with their own affordability criteria to lend more money to people who can't afford it. An income multiple is an absolute, no questions asked limit. No way to fudge it no quibble. If you cannot borrow what you need to buy the house you want, take some time save up a larger deposit so you don't need to borrow asmuch in the first place.

Affordability on the basis you seem obsessed by is open to plenty of abuse through creative accounting. What us considered an expense what is considered a luxury?

A thought would be if an individual has an aeroplane, that is a real luxury, but had many expenses that are unavoidable, hangarage maintenance needs to be paid. Would these be included? What ifs first time buyer who had no contracts for sky, mobile or anything else, what if that first time buyer was going to get a fully loaded sky subscription etc. borrow money for home improvements. You cannot predict what someone will spend later, income multiples are the way to go.

This is exactly my train of thought gingeralan.

Funnily enough I just happened to catch the beginning of one of the repeats of an escape to the country earlier on.

The couple on it had bought a 4 bed detached house for £150,000 and then it was valued by EA's 6 years later at £399,999!!!!

That is just ridiculous and just highlighted how out of control the housing market had/has become. All this thanks to the loose lending practices that were in place. If strict lending such as gingeralan and myself are stating had been in place then this situation would never had occurred. The problem is now, how does it get corrected to more reasonable levels again?

shortchanged_2

RenovationMan wrote: »

That's the real reason behind using salary multiples. You just have to scratch the surface to find the truth.

No need to state the obvious RenoMan. Of course having lower salary multiples is about lowering house prices and hopefully keeping them low and stable.

I don't think people arguing for this are trying to be cryptic in any way.

RenovationMan

So much for a free market economy.

JimmyTheWig

shortchanged wrote: »

I don't think people arguing for this are trying to be cryptic in any way.

It took me a few pages of these discussions to work out that's what you were wanting to achieve.
I thought we were talking about what someone could afford.

shortchanged_2

RenovationMan wrote: »

So much for a free market economy.

Exactly. Look where it's got us. A country and economies crippled with debt.

RenovationMan

We should have the state running everything with checks and balances on every aspect of our lives. After all, it worked well for the Soviet Union.

RenovationMan

JimmyTheWig wrote: »

It took me a few pages of these discussions to work out that's what you were wanting to achieve.
I thought we were talking about what someone could afford.

No, it's about getting a house on the cheap for people who can't afford them at the moment.

gingeralan

JimmyTheWig wrote: »

It took me a few pages of these discussions to work out that's what you were wanting to achieve.
I thought we were talking about what someone could afford.

I think we can sere that the last 10 years have proved that we cannot afford the prices as they are.otherwise banks would not have had to be bailed out.

I think that if the market cannot police itself a we Have seen in last 10 years then there need to be firm regulation enforceable by law. The free market gave us self certification, while it may be a useful tool for about 3% of the population, the fact is lenders saw it as a way to earn more Money out of people by offering excessive loans. I bought a place that is around half the max I could have taken, yet I have colleagues doing the same as myself who borrowed to the hilt 3 years ago and are now seriously regretting the free market"advice"they were given, now in negative equity and unable to make overpayments to clear the excess. Whole they can still service the debt if circumstances changed they would be foooked

jamesd

gingeralan wrote: »

I think you and many other posters on this thread severely underestimate the scale of this issue.

To get an idea of the scale it's good to look at page 34 of the FSA's 2010 Mortgage Market Review proposals. That has a graph that shows the large bulge in interest only mortgages becoming due for repayment between 2028 and 2032 that were started around 2005-9. The peak is around four times the usual level. Anyone who's stuck with this discussion might find reading or at least scanning the FSA proposals interesting.

gingeralan wrote: »

I think we have got a time bomb waiting to go off, it's probably too late to do anything really now

It's definitely not too late. Some things that can be done:

1. lenders can regularly review repayment vehicle plans, perhaps every five years, and offer advice and assistance to anyone who looks to be in trouble.
2. we can observe that between now and 2027 the inflation target of 2% would normally produce 3% a year wage increases that over the 15 years to 2027 would increase pay even without promotions by 56%.

The combination of those two things means that in most cases the lenders are likely to be able to prompt those who aren't on track to increase payments to repayment vehicles or slowly switch parts to interest only using the higher incomes compared to mortgage balance.

gingeralan wrote: »

These people renting off the bank will really struggle in the next 5 years as interest rates will inevitably increase

Some will. My mortgage payments are usually less than my Council Tax payments. The payment would have to increase by ten times to start causing me any sign of trouble if I still have a job if I had nothing in my offset account. If interest rates did rise so my mortgage interest rate was 30% I'd just move money into my offset account and pay no mortgage interest at all. That risk mitigation is part of why I chose to get an offset mortgage.

There's a huge variety of interest only borrowers out there. Some are stereotypical stretched first time buyers, many aren't.