A generation are being priced in order to keep the value up of their parents assets.

shortchanged_2

wotsthat wrote: »

Things go t*ts up and there's a reposession...

One of those houses has just over £9k of equity and the other one £500k - which one is lower risk for the bank?

Well the £5 million pound property is the higher risk of course if house prices are falling.

Eellogofusciouhipoppokunu

Percy1983 wrote: »

Surely how stretched we are is based on how much we owe, not what percentage is used to get there.

I'd imagine whether someone is financially stretched is based almost exclusively on affordability. To re-use the example:

If I buy a £200k house with a £100k mortgage but the repayments on top of my other outgoings leave me with nothing at the end of the month but you buy a £100K house with an £80k mortgage and have £1k left at the end of the month then I'm clearly more financially stretched.

Salary multiples are irrelevent. LTV is largely irrelevent unless you are financially stretched. Affordability is everything.

shortchanged_2

Eellogofusciouhipoppokunu wrote: »

Salary multiples are irrelevent. LTV is largely irrelevent unless you are financially stretched. Affordability is everything.

And affordability can be controlled somewhat by income multiples.

Mr._Pricklepants

Percy1983 wrote: »

Well I do keep getting told I did the near impossible.

Anything is possible if you can find a gentle soul to bail you out, eh Percy?

wotsthat

shortchanged wrote: »

Well the £5 million pound property is the higher risk of course if house prices are falling.

What if prices rise, stagnate or fluctuate during the mortgage term? As banks don't have crystal balls I'm going to suggest that they calculate risk not only on the size of the loan but also on the debt/ asset ratio at the time of taking out the loan and the ability of the borrower to meet the payments. Crazy talk I know.

shortchanged_2

wotsthat wrote: »

What if prices rise, stagnate or fluctuate during the mortgage term? As banks don't have crystal balls I'm going to suggest that they calculate risk not only on the size of the loan but also on the debt/ asset ratio at the time of taking out the loan and the ability of the borrower to meet the payments. Crazy talk I know.

Well I'm sure you know about risk and reward wotsthat. The bigger the risk the bigger the reward.
However we all know not all investments turn out as planned.

So in answer to you previous quote, yes the more expensive property is the higher risk as it potentially has the higher gains, but is also risks the bigger losses. Ask the property investors in Eire and see what they say.

Percy1983

Mr._Pricklepants wrote: »

Anything is possible if you can find a gentle soul to bail you out, eh Percy?

I would guess so, did someobody bail our mortgage application out? :huh:

Back to affordabilty in our case the mortgage payments are approx 21% of our income (excluding extra income from my business).

Which certainly helps.

Another interesting sum on risk, yes at 10% equity I would drop into negative before somebody with 25% equity.

On the flipside if you owe less and have a better affordabilty ratio you are less likely to default.

wotsthat

shortchanged wrote: »

Well I'm sure you know about risk and reward wotsthat. The bigger the risk the bigger the reward.
However we all know not all investments turn out as planned.

So in answer to you previous quote, yes the more expensive property is the higher risk as it potentially has the higher gains, but is also risks the bigger losses. Ask the property investors in Eire and see what they say.

We're talking about two properties that at the point of repossession have £9k of equity and £500k of equity. Why doesn't the bank just sell them - the equity's there. That's way they don't have exposure to future price falls.

I'll take the house that's worth £5m (today), sell it for £5m (today) and pocket £500k. You can have the other one.

shortchanged_2

wotsthat wrote: »

We're talking about two properties that at the point of repossession have £9k of equity and £500k of equity. Why doesn't the bank just sell them - the equity's there. That's way they don't have exposure to future price falls.

I'll take the house that's worth £5m (today), sell it for £5m (today) and pocket £500k. You can have the other one.

Or you could look at it this way. If you put £5 million of your own money into the same venture you would now be £2.45million worse off if the values dropped 50%.

Yes I know wotsthat. Falls like that never happen do they.

Eellogofusciouhipoppokunu

Percy1983 wrote: »

Back to affordabilty in our case the mortgage payments are approx 21% of our income (excluding extra income from my business).

Affordabilty has practically no relationship to income multiples/percentages.

Your mortgage payments could be 21% of your income but you could have car finance, credit cards and other long-term financial commitments that negatively impact your ability to service the debt. Conversely your mortgage payments could be 42% of your income, but if you have zero debts and no other financial commitments you might easily be able to afford to service the mortgage debt.

As I said in an earlier post, salary multiples are irrelevent while affordability is everything.