Is there an exit strategy?

ILW

HAMISH_MCTAVISH wrote: »

Nonsense.

Building increased every year from 2001 to 2007, and only fell off a cliff, to 100 year lows, when lending crashed.

Still not nearly enough building during that period when money was sloshing all over the place. In many cases it is more profitable for builders and landowners to restrict building thereby making more money for less work.

Back to the old argument of land tax to discourage this behaviour.

OffGridLiving

shortchanged wrote: »

The problem is though Hamish is that we are in uncharted territory economically.

We have never had interest rates so low for so long. So we don't really know what the outcome will be when interest rates start to rise from this point.

Lenders are rightly being cautious because mortgages can look very attractive at their current level but are people really looking at the longer term picture when that mortgage eventually goes up quite significantly.

I have seen this argument a few times on here and other financial website and I must admit I'm at a loss to understand it. The vast majority of mortgages will have been taken out before the credit crunch and so these lenders will be used to much higher rates, and will currently be benefitting from lower rates to either pay down their mortgage, pay down other borrowings or increase savings. They may also just be spending their extra money, but the logic is the same. When rates do go back up, they will go back to the levels that these people were used to before they fell.

With the difficulties in getting credit, I doubt that too many will have been able to withdraw equity from their properties or take on too much additional borrowings.

A few people will have bought a house after the credit crunch and they will either have moved house and so have enough equity to get a low rate mortgage (in which case they are in the same boat as those who bought pre-credit crunch). A few people will be FTB and because of their low LTV they will already be on mortgages with high interest rates, that may not go up proportionally with the BoE rate when it rises. The banks may just make less profit from FTBs.

shortchanged_2

OffGridLiving wrote: »

I have seen this argument a few times on here and other financial website and I must admit I'm at a loss to understand it. The vast majority of mortgages will have been taken out before the credit crunch and so these lenders will be used to much higher rates, and will currently be benefitting from lower rates to either pay down their mortgage, pay down other borrowings or increase savings. They may also just be spending their extra money, but the logic is the same. When rates do go back up, they will go back to the levels that these people were used to before they fell.

With the difficulties in getting credit, I doubt that too many will have been able to withdraw equity from their properties or take on too much additional borrowings.

A few people will have bought a house after the credit crunch and they will either have moved house and so have enough equity to get a low rate mortgage (in which case they are in the same boat as those who bought pre-credit crunch). A few people will be FTB and because of their low LTV they will already be on mortgages with high interest rates, that may not go up proportionally with the BoE rate when it rises. The banks may just make less profit from FTBs.

Who are the people that most likely had the relatively large mortgages?

Yes FTB'ers. People already on the ladder were becoming equity rich as house prices rose. It basically all fell down from the bottom rung as FTB'ers were being priced out and there was greater and greater need for creative lending such as 125% mortgages 5/6+ times income mortgages and a huge increase in IO loans for FTB's.

This was never sustainable in the longer term and hence why it isn't working now.

To get FTB'ers on the ladder now we need all these create government schemes in order to allow FTB'ers into the market.

HAMISH_MCTAVISH

shortchanged wrote: »

To get FTB'ers on the ladder now we need all these create government schemes in order to allow FTB'ers into the market.

To get FTB-ers on the ladder now, we need to get lending back to historically normal, sensible and prudent levels.

Where a 5% or 10% deposit and a job will get the average FTB a mortgage.

But as the number of mortgages available at 90% LTV or more is only a few hundred a month between all the banks combined, we don't have historically normal, sensible and prudent lending now.

We have abnormally tight mortgage rationing.

Hence why the government schemes are required.

To restore functionality to a dysfunctional mortgage market.

grizzly1911

OffGridLiving wrote: »

will be used to much higher rates, and will currently be benefitting from lower rates to either pay down their mortgage, pay down other borrowings or increase savings. They may also just be spending their extra money, but the logic is the same. When rates do go back up, they will go back to the levels that these people were used to before they fell.

Or that they were on a fine balance just being able to pay, were given a reprieve when rates fell. Since then inflation in key staples like energy and food has continued a pace whilst real incomes have fallen.

In most areas values have been and continue to be flat.

When rates rise will there still be any slack in disposable incomes to meet them.?

Graham_Devon

HAMISH_MCTAVISH wrote: »

Nonsense.

Building increased every year from 2001 to 2007, and only fell off a cliff, to 100 year lows, when lending crashed.

May have increased, but not in line with the increase in population...and remember, lending exploded.

Therefore, it's been proven wrong.

Just because something increases, it doesn't mean it's "worked". Not when you look at the population increase alongside it.

You are just taking to ultimately extremely basc figures and coming to a conclusion while ignoring everything else.

OffGridLiving

shortchanged wrote: »

Who are the people that most likely had the relatively large mortgages?

Yes FTB'ers. People already on the ladder were becoming equity rich as house prices rose. It basically all fell down from the bottom rung as FTB'ers were being priced out and there was greater and greater need for creative lending such as 125% mortgages 5/6+ times income mortgages and a huge increase in IO loans for FTB's.

This was never sustainable in the longer term and hence why it isn't working now.

To get FTB'ers on the ladder now we need all these create government schemes in order to allow FTB'ers into the market.

Sorry, I'm not sure how this addresses the points I raised?

OffGridLiving

grizzly1911 wrote: »

Or that they were on a fine balance just being able to pay, were given a reprieve when rates fell. Since then inflation in key staples like energy and food has continued a pace whilst real incomes have fallen.

In most areas values have been and continue to be flat.

When rates rise will there still be any slack in disposable incomes to meet them.?

Would this be a significant number? Or would it just include that sector of society who tend to be in financial difficulties regardless of the underlying economic situation?

Graham_Devon

HAMISH_MCTAVISH wrote: »

To get FTB-ers on the ladder now, we need to get lending back to historically normal, sensible and prudent levels.

And even if you do, the majority of first time buyers simply won't be able to afford such massive monthly payments.

Look at a 140k mortgage. At 6%, that's £912 a month.

Add in council tax at say £120, and you are at £1,032 a month.

Now, to put that into perspective, that's the entire years wages of an NHS administrator after tax gone on mortgage payments and council tax ALONE.

It leaves nothing for food, transport, clothing etc.

Your view on this is they shouldn't have a mortgage or two people should take on a mortgage, which is fine, so the other person is paying for everything else. Still doesn't leave much money. Hence you won't increase FTB's by large numbers just by increasing lending.

Quite simply, the sums of money are too large for many to shell out.

You can increase ledning as much as you like, but this doesn't solve the ability to pay problem.

GhIFA

Graham_Devon wrote: »

Look at a 140k mortgage. At 6%, that's £912 a month.

Add in council tax at say £120, and you are at £1,032 a month.

Now, to put that into perspective, that's the entire years wages of an NHS administrator after tax gone on mortgage payments and council tax ALONE.

I'd be interested to know where someone on around £12,500pa would be able to borrow £140,000