'The UK’s mortgage ticking time bomb' blog discussion

Former_MSE_Helen

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's "The UK’s mortgage ticking time bomb" Blog.

Please click 'post reply' to discuss below.

Mobeer

What would be interesting would be to know how many borrowers (or what proportion) switched from repayment to interest-only to avoid repossession. I suspect the real time bomb is many many people on interest-only having no means to repay when their mortgage becomes due for repayment.

tgroom57

The banks won't lend big sums and they aren't interested in lending small sums. What are they lending ?

Percy1983

I suppose this the problem when an emergency low then becomes the 'norm'

In many respects the long its left the worse the pain so surely the answer is lets just get it over with.

smala01

This of course benefits those who refused to pay over inflated property prices, and hence continued to rent or bought a smaller house.

Those who considered historical norms and concluded that a mortgage might become unaffordable in the future, and hence continued to rent or bought a smaller house.

Those who financially planned for children or the eventuality of a redundency, and hence continued to rent or bought a smaller house.

Martin: by your tone we should have all said "what hell" over indulged in the biggest mortgage we could get and then expect the government to come and bail us out.

wymondham

Percy1983 wrote: »

In many respects the long its left the worse the pain so surely the answer is lets just get it over with.

Indeed, but the Government is trying everything possible to draw this process out (supposedly fixing things!), but making it ultimately much worse.

oldvicar

One vital piece of DIY self help is missing from Martin's list:

STOP TAKING ON MORE DEBT: If you can't easily afford a big hike in your mortgage costs, as well as the extra spending or new loan for a shiny new car/kitchen/bathroom/whatever then dont do it, don't take out another loan because you know it will end in tears. If you can easily afford both, then STOP, don't do it - instead save up from your excess income before making the purchase.

It shouldn't surprise anybody that mortgage rates will go back up at some stage, that has always been a certainty. The 'time bomb' effect is that some people have foolishly ignored the fact, and will suffer far more than they otherwise needed to by loading up on extra spending commitments and/or more debt. It's summed up nicely in Martin's blog as:

from_Martin's_Blog wrote:

Rising bills don’t simply flick back into place like elastic. The pain of increased costs out-balances the joy from when they fell. People have re-jigged their finances around new lower rates and locked into other commitments.

It used to be called profligacy.

[/end_sermon]

torbrex

What can I say but "Ah didums"

It is the low interest rates that are encouraging people to take on debt that they can't afford and if they are stupid enough not to foresee an increase in interest rates then tough.

It is time that the BoE and the government realised that low interest rates do not reduce debt, rather, they increase the actual amount of debt owed by saying that borrowing a larger sum than needed is easier than it used to be.

I took my mortgage out in 1992 when base rates were at 8% and (I think) my interest rate for that was 11%, it would seem that those days are largely forgotten. I had to think long and hard about whether to take on that debt and I had to plan ahead for other possible demands on my income such as car breakdowns, house maintenance and, as today, possible job loss.

If anything the banks should be putting their borrowing rates up by more to stop people taking on more debt than they can afford and help put a stop to the spiral of debt this country has got itself into.


(sorry for the rant/ramble)

shortchanged_2

What is amazing though is how many people think high house prices are a great thing. Of course these are the property speculators and investors.

What this country badly needs is to get out of the notion that property is an investment and see it for what is simply is, a place for people to live.

The governments need to start thinking about ways to make property much less attractive to investors be a it a hefty tax on property flipping for example and above all do not let the banks go back to the days of loose lending, ever.

wozearly

torbrex wrote: »

If anything the banks should be putting their borrowing rates up by more to stop people taking on more debt than they can afford and help put a stop to the spiral of debt this country has got itself into.

If the problem is that people take on more debt than they can afford, raising the cost of debt isn't necessarily a good solution.

It might lower the amount of debt they take on, and some people might now decide not to because the higher price is unaffordable or puts too much risk on their finances, but its analogous to raising the price of alcohol to encourage people to drink responsibly. It looks good on paper, but the reality is that people may drink slightly less (but just as irresponsibly) or will reallocate spending from other things - the main beneficiary of artificial price rises is always the seller, not the consumer or wider society.

If the aim was to restrict borrowing, mandating stricter criteria on who could borrow and how much they could borrow would be more effective. But there's not likely to be much appetite for the government to do this in the mortgage market where there's already a shortage of buyers and housebuilding because of lack of availability for finance.

That would leave the only available recourse to housebuilders and sellers being to drop their prices to what buyers can actually afford. Not necessarily a bad thing, but it would trigger problems with negative equity and the government getting blamed for pushing people whose debts were previously fine into a situation where they're now "trapped in their homes".

michaels

How may top economists or politicians predicted the credit crunch (and I am not talking predicting a property price crash), and the huge structural changes in the lending market.

You could have sensibly borrowed 80% ltv at 3% income and chosen a 5 year fix but have bought a property that has fallen in value by 13% and now rather than being able to remortgage instead be stuck on an svr 5.5% over base. I don't think anyone could have predicted that situation. So even if you had worked out that at 10% base rate with an svr at 12% you could pay the mortgage no one could have predicted that they might be facing an svr of 12% with base rates at only 6 or 7%.

Lots of people are being hit by this who have not made any of the mistakes that the property bears seem to think caused the crash and were just unlucky that they chose the prudent option of a fix rather than the more risky tracker option.