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

RenovationMan

sterlingstash wrote: »

PS - a great example of just this risk to Santander in the 'Due for Renewal' thread. What I think the poster actually means is that the mortgage is 'Due for Repayment'!! Quite different things, but clearly easily confused in some peoples minds!

And the poster is trying to make out that poor old Santander are 'unhelpful' for saying 'I want my money back like we agreed'!!!

What did they think would happen when they reached the end of their mortgage term without actually having paid off the mortgage?

jaysb

RenovationMan wrote: »

What did they think would happen when they reached the end of their mortgage term without actually having paid off the mortgage?

i hope they didn't remortgage their own home to finance the homes in Spain. Happy days

RenovationMan

jaysb wrote: »

i hope they didn't remortgage their own home to finance the homes in Spain. Happy days

I wonder if you could MEW from a UK home, buy a property overseas for cash and just move there, leaving the UK one to be repossessed? An interesting new slant on downsizing in retirement.

gingeralan

RenovationMan wrote: »

Hold on, so looking into all aspects of your income and outgoings, debts etc, even if it is just over a 3 month period, is not enough information to make an accurate picture of someone's financial state, but just taking their (gross) salary amount and multiplying it by 3.5 is?

So one person on a £40k salary with car finance to the tune of £300pm, a £10k credit card debt, a personal loan of £15k (his house deposit) should be loaned the same as someone on £40k salary, with no debts and with £15k savings in the bank?

Honestly?

Further to this, I think they should, if we are talking a mortgage max of 140k repayment mortgage would be around 8 or 900 pounds. With a take home pay of over 2k this should be manageable. as regards your 15k loan for a deposit no lender would accept this they always want to know where your deposit has come from.

Thus would be much better than allowing the one with no debt to borrow 250k just because they have no other commitments. where the minimum payment would be around 1400 or 1500.

gingeralan

RenovationMan wrote: »

I wonder if you could MEW from a UK home, buy a property overseas for cash and just move there, leaving the UK one to be repossessed? An interesting new slant on downsizing in retirement.

But of a subject change:-P . But wouldn't you just sell your UK property rather than go through this rigmarole?

RenovationMan

gingeralan wrote: »

Further to this, I think they should, if we are talking a mortgage max of 140k repayment mortgage would be around 8 or 900 pounds. With a take home pay of over 2k this should be manageable. as regards your 15k loan for a deposit no lender would accept this they always want to know where your deposit has come from.

Thus would be much better than allowing the one with no debt to borrow 250k just because they have no other commitments. where the minimum payment would be around 1400 or 1500.

So you're now saying that while using affordability is unsound, you will use your 3x salary method to allow someone to pay virtually 50% of his £2k take home pay towards his housing needs and that it "should be manageable".

"Should be manageable" are not words that we want to hear from mortgage providers to first time buyers, post credit crunch. Surely?

Apart from paying £800pm in mortgage costs, the indebted bloke also has to find £300pm for his car finance, and say £80pm to his credit card (minimum payment) and £100pm to his £15k loan. That's £1280 per month before he even looks to pay his council tax, utilities, house insurances, redundancy protection, life assurance. Heaven help him if he wants to actually eat.

I'm sorry but I'm not convinced that just taking someone's (gross) salary and multiplying it by 3.5 is a sensible lending practice.

shortchanged_2

RenovationMan wrote: »

I'm sorry but I'm not convinced that just taking someone's (gross) salary and multiplying it by 3.5 is a sensible lending practice.

Well what happened to the UK housing market when these sort of restrictions were removed RenoMan?

Do you think the UK housing market is in a good position now?

gingeralan

RenovationMan wrote: »

So you're now saying that while using affordability is unsound, you will use your 3x salary method to allow someone to pay virtually 50% of his £2k take home pay towards his housing needs and that it "should be manageable".

"Should be manageable" are not words that we want to hear from mortgage providers to first time buyers, post credit crunch. Surely?

Apart from paying £800pm in mortgage costs, the indebted bloke also has to find £300pm for his car finance, and say £80pm to his credit card (minimum payment) and £100pm to his £15k loan. That's £1280 per month before he even looks to pay his council tax, utilities, house insurances, redundancy protection, life assurance. Heaven help him if he wants to actually eat.

I'm sorry but I'm not convinced that just taking someone's (gross) salary and multiplying it by 3.5 is a sensible lending practice.

Answer me then. What would the absolute maximum be that you think someone earning 40k could borrow? There may need to be further restrictions but what in your opinion would that figure be, and how would you come to that conclusion?

property.advert

gingeralan wrote: »

Answer me then. What would the absolute maximum be that you think someone earning 40k could borrow? There may need to be further restrictions but what in your opinion would that figure be, and how would you come to that conclusion?

There must be some agreement of a minimum living cost and some understanding of the taxation, pension and benefits system. If you need 10k to live which is 15k before tax but you attract 5k in benefits, then that is one part of the equation. Another is the net amount of your remaining salary.

£40k gives you just under £30k net. So in the argument above, you have £30k-£10k+£5k = £25k "spare".

If you have other commitments, such as kids, then this amount is reduced.

Finally you have to look at current interest rates, the rates achievable by the borrower, whether it is fixed or not and the medium term outlook.

So if rates were fixed for a minimum of 5 years, you might say they can afford to pay 2/3rds of their "spare" money or around £17k on a mortgage. On a repayment over 25 years at 4% that comes to around £260k. Go variable and you'd have to reduce that, even though the initial repayments (at this time) would be less.

RenovationMan

gingeralan wrote: »

Answer me then. What would the absolute maximum be that you think someone earning 40k could borrow? There may need to be further restrictions but what in your opinion would that figure be, and how would you come to that conclusion?

I think he should be allowed to borrow what he can afford to repay, taking into consideration his income and outgoings. Step 1 would be to look at his net salary not his gross because he's not earning £40k is he, he earns something more akin to £27k when you allow for tax and NI, even less if he contributes to a company pension.

What's interesting is that you feel that 'my idea' as you call it (it's not, it's already in use by the banks as I mentioned a few pages ago it was applied to myself in May 2010) would result in him borrowing too much, when we're actually basing our calculations on an amount that is one third of the amount you are basing your simple salary x 3.5 on. My starting point is net salary, yours is gross.