A surge in the market come jan 2014

HAMISH_MCTAVISH

SG27 wrote: »

If people can afford the repayments on a 95% mortgage there is no reason what so ever that they can't save a minimum 10% deposit. If they can't I doubt they can budget well enough to be buying a house!

Makes no difference to most even if they do save a 10% deposit.

They still won't be able to get a mortgage, as banks are rationing a very limited pool of funding at that LTV.

The total number of people able to get a mortgage at 90% or greater is only a few hundred a month, no matter how good their credit or how little they want to borrow, between all the banks combined.

It should be tens of thousands a month if we are to prevent Generation Rent from being forced to enrich their landlords for a decade or more.

Banks have been rationing mortgages for the last few years, excluding over a million potential FTB-s from the market so far.

This scheme is designed to allow banks to bypass the new capital withholding rules that have had the unintended consequence of basically shutting down lending for most FTB-s, as banks must now withhold 6 times more capital for a 95% mortgage as for a 60% mortgage, meaning they can lend 6 mortgages at 60% LTV for every 1 at 95% with the same capital.

The government will step in and guarantee that portion of lending between 95% and 80% LTV, meaning banks can lend more mortgages to more FTB-s, and the market can finally become a lot less dysfunctional than it's been for the last few years.

As it's only a guarantee, and the government only has to pay out on the tiny number of people who default, and there will be a fee for using the scheme, it's likely to end up having no cost at all to taxpayers. But a significant benefit to buyers, sellers and the wider economy.

HAMISH_MCTAVISH

[Deleted User] wrote:

As a FTB I'm mightily annoyed that this has been put in place now, creating more competition and pushing prices up right when I'm finally in a position to buy.

Understandable.

However for the million or more people who have been excluded from buying thanks to mortgage rationing, and forced into private rented instead (driving up rents to new record highs in the process), this scheme is vital.

And indeed is only partially restoring functionality to a wholly dysfunctional lending market.

House prices remain artificially low thanks to mortgage rationing, but only because mortgage rationing has excluded well over a million FTB-s from the market.

This is of course an absurd and unsustainable situation, as it has also driven house building to 100 year lows while population increases rapidly, and forced rents to record highs instead.

I want to buy now before it gets worse, rather than wait.

If you are one of the lucky few able to buy at today's artificially low prices, then you almost certainly should.

However for most people, it will actually be getting better (not worse) as this scheme enables more people to buy and will result in supply of houses increasing.

grifferz

HAMISH_MCTAVISH wrote: »

It really doesn't work that way.

I really hope you are right.

HAMISH_MCTAVISH wrote: »

The cause of price rises is simple, it's when demand for property exceeds supply of property, so rising prices must then exclude a sufficient number of people from buying that demand and supply regain equilibrium.

Of course, but when people have access to more money a certain percentage of them will push it that little bit further for property they really want, where that was not an option for them previously. Buyers are competing against each other, not only the supply.

Or are you saying that what buyers can afford to spend has no/little bearing on what houses cost?

HAMISH_MCTAVISH wrote: »

It is not a coincidence that the number of people able to buy, now that prices are lower and interest rates are also lower, is only half what it was in 2007.

But prices are not lower in London. I worry that the only thing holding prices down in many areas of London is buyers being able to afford the deposits, not the supply of properties, and I also worry that more places would go like that.

If you're saying it doesn't work like this then does that mean you feel that Help To Buy will get the market moving, increase supply and prices will drop? If it's only supply vs. demand then that would be the logical conclusion from an increased supply of properties and buyers, wouldn't it?

Just want to say that I'm not making any predictions I'd be willing to stand behind as I honestly don't know. These are just worrying thoughts I have about the scheme and I'd love to be convinced they're not realistic.

HarryBarry

HAMISH_MCTAVISH wrote: »

It really doesn't work that way.

The cause of price rises is simple, it's when demand for property exceeds supply of property, so rising prices must then exclude a sufficient number of people from buying that demand and supply regain equilibrium.

Increasing the quantity of available credit will enable more people to buy, which is a good thing.

It will likely also increase prices from today's artificially lowered levels, but this is also a good thing as higher prices will then attract more people to sell, and cause more houses to be built, so supply of houses will increase as well.

It is not a coincidence that the number of people able to buy, now that prices are lower and interest rates are also lower, is only half what it was in 2007.

How are today's prices artificially lowered? If anything its the opposite. Banks were lending stupid money in the past that they should never have done leading to massive rises, what they are doing now is what always should have been happening.

And higher house prices benefit no one (well apart from landlords and down sizers). You want to sell because the house you paid £200k for has risen to £240k...? Ok now the house that was 300k has risen to £360k - so you need 20k more, so it's less affordable.

And you are talking about mortgage rationing, you mean banks are only lending you money if you can afford it? And the reason they can't afford enough to buy a house, is because house prices are CURRENTLY ridiculously HIGH.

These FTB you talk about are not excluded by mortgage rationing, how can they lend them money if they can never pay it back? Unless you are saying they can afford it but banks are choosing not to lend - which isn't really the case at all, they were lending to people that couldn't afford it - how did that turn out again?

Prices have become artificially high using borrowed money, rising sharper than wage increases. The only reason house prices aren't lower is because of all the schemes and low interest rates. A long period of house prices not moving significantly is what will almost certainly happen.

lessonlearned

I cannot speak for the whole country but from what I have observed in our own area I can vouch that the upsurge has already begun.

Houses are selling and prices are already recovering.

HAMISH_MCTAVISH

grifferz wrote: »

when people have access to more money a certain percentage of them will push it that little bit further for property they really want, where that was not an option for them previously. Buyers are competing against each other, not only the supply.

This scheme is not designed to increase the amount of money that people can borrow, just to increase the amount of people who can borrow at all.

That will lead to increased competition, and prices will rise, but so will supply, so the number of people able to buy will increase markedly.

Which is a very good thing.

HAMISH_MCTAVISH

HarryBarry wrote: »

How are today's prices artificially lowered? If anything its the opposite. Banks were lending stupid money in the past that they should never have done leading to massive rises, what they are doing now is what always should have been happening.

The average income multiple for actual FTB-s never crossed 3.5 times income even at peak in 2007.

Yet many more could buy then, with higher prices and interest rates, than can buy now with lower prices and lower interest rates.

Mortgage rationing has prevented over a million people from buying, but it's also caused house building to fall to 100 year lows and rents to soar to record highs instead.

It has worsened the housing shortage instead of helping it.

So the next boom will now be bigger than it otherwise would have been.

And higher house prices benefit no one (well apart from landlords and down sizers). You want to sell because the house you paid £200k for has risen to £240k...? Ok now the house that was 300k has risen to £360k - so you need 20k more, so it's less affordable.

Rising house prices are good for......

-The millions of people who are in or approaching retirement, and who either plan to, or may unexpectedly need to, downsize.

-The millions more people who are in their final property now, but will find themselves in the position above at some point.

-The couple of million people who bought within the last 7 years, who may be in or close to negative equity.

-The owners of the 2 million investment properties.

-The millions of people who may need to re-mortgage as and when rates climb, and want the best possible LTV ratio to get the best rates.

-House builders, construction industry, suppliers, investors, pension funds holding mortgage securities, banks, and all housing related industries, all of their shareholders and employees, whether they own a house or not.

-The family members of anyone who will leave an inheritance, or release equity to help their kids onto the ladder when downsizing, etc.


Rising prices are bad for......

-A few hundred thousand potential FTB's at any given time...... But only until they get on the ladder, and become one of the groups above.

And as for upsizers......

It used to be commonly believed that falling prices were better for them.

However this crash has proved that to be wrong, in most cases, because the price of their FTB property has fallen by far more than the price of the 2TB properties.

So the gap between rungs on the ladder has widened, not narrowed, with falling prices.

In summary, rising prices are better by far for the vast majority of society, and falling prices only benefit a few, and then only temporarily.

And you are talking about mortgage rationing, you mean banks are only lending you money if you can afford it? And the reason they can't afford enough to buy a house, is because house prices are CURRENTLY ridiculously HIGH.

Sorry, but that's simply incorrect.

Demand for mortgages, from people who can clearly afford a mortgage, and who are paying more in rent today than they would on a mortgage even if average mortgage rates rose to 5.5% (at near the peak of the last cycle), far exceeds available supply of mortgages.

So banks use high deposits and ultra-strict criteria to ration those funds.

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.

lessonlearned

HAMISH_MCTAVISH wrote: »

Mortgage rationing has prevented over a million people from buying, but it's also caused house building to fall to 100 year lows and rents to soar to record highs instead.

It has worsened the housing shortage instead of helping it.

So the next boom will now be bigger than it otherwise would have been.

Hence why the government schemes are required.

To restore functionality to a dysfunctional mortgage market.

Great post Hamish - couldn't have put it better myself.

Although now retired my career as an EA began in 1970.

Over the years I have witnessed the cycle of housing booms and slumps and booms again several times over.

Mortgage rationing - for whatever reason - has always proved to be a disaster.

It causes a huge backlog of pent up demand. When funds start flowing again it has the same effect as a burst dam on a river.

Buyers coming swarming out of the woodwork, prices rise and before you know where you are there is another bubble. So be it, that's the way economics work.

Of course we all know that the best way out of this is to make sure that supply meets demand. We know we need more housing - but we also need a reliable and consistent flow of mortgage funding. If the banks cannot be trusted to provide this then of course the govt of the day should intervene.

Re - house building.

I have noticed a lot of comments on these threads recently castigating the construction industry for not building, sitting on land banks etc.

Most construction companies work on a speculative basis - ie they do not build to order.

Firstly - If developers cannot sell their houses because of a mortgage famine then of course they are going to mothball their projects and ride out the storm. They would be utter morons to build and have whole developments with houses built, standing idle, costing money and being targets for theft and vandalism.

Secondly It costs millions to develop a project and developers have to borrow at commercial rates to fund the build. They don't get cut price mortgages. Developers cannot afford to let the interest rack up on unsold properties.

Thirdly Banks have cut back on commercial lending to all businesses, not just private mortgages and loans. Developers have struggled to get funding.

It's not just a mortgage famine - it's a wholescale lending famine.

The banks' refusal to lend has been a fiasco, driving businesses to the wall and freezing the housing market.

This govt backed guarantee scheme may well have its flaws but it's high time govts did intervene.

Banks have to start lending again.

The govt backed guarantees will hopefully encourage the banks to start freeing up funding.

I think the amount of defaults won't be that high. People always over estimate the level of default with lending.

The so-called "liar loans" ie self-certificated mortgages which people get so cross about have, in fact, a very low default record.

Time to get this country back up on it's feet and moving again.

The housing market is a good place to start.

Get those construction jobs and ancillary trades up and running again, get the furniture and household goods selling again. Get the jobs back and people back into employment.

Time to give "Generation Rent" a helping hand.

GDVS

HAMISH_MCTAVISH wrote: »

Demand for mortgages, from people who can clearly afford a mortgage, and who are paying more in rent today than they would on a mortgage even if average mortgage rates rose to 5.5% (at near the peak of the last cycle), far exceeds available supply of mortgages.

How about the the 14% base rate we saw in the early 90s? I'd argue that if you can't afford 10% interest on your mortgage, you can't afford a mortgage.

HAMISH_MCTAVISH wrote: »

So banks use high deposits and ultra-strict criteria to ration those funds.

10% deposit is not unreasonable and having a job with clear credit history is hardly ultra-strict criteria.

GDVS

lessonlearned wrote: »

The banks' refusal to lend has been a fiasco, driving businesses to the wall and freezing the housing market.

This govt backed guarantee scheme may well have its flaws but it's high time govts did intervene.

Banks have to start lending again.

You may recall the government telling the banks to find another 25 billion in cash reserves this week, that's 25 billion that they're not allowed to lend anyone any more. Still like the government intervening? The banks can't win, the government is playing both sides of this argument by both complaining that the banks aren't lending more and simultaneously making them strengthen their capital reserves. You can't have both.