A surge in the market come jan 2014

HAMISH_MCTAVISH

GDVS wrote: »

How about the the 14% base rate we saw in the early 90s? .

It was 17% at peak.

The long term average however, over 350 years, is 4.9%.

The 3 decades of abnormally ultra-high rates from the 60's to the 90's were as statistically abnormal as the current ultra-low rates.

The norm is around 5%.

I'd argue that if you can't afford 10% interest on your mortgage, you can't afford a mortgage

Why?

You can lock in a 25 year fixed rate at 5.39% today.

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

Agree to both.

However up to 90% of applicants with a clean credit history, a job, and a 10% deposit are refused for mortgages.

Or rather, they are refused for the mortgage they applied for, but offered an inferior product at higher rates or deposit levels.

Which is how banks are rationing mortgages.

They keep bumping most applicants into higher and higher deposit brackets until enough fall out that they can ration the pool of limited funding.

Ciderarmy1987

HarryBarry wrote: »

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.

But if you had say 40K equity in a 200k house you would have a 13.35% deposit for a 300K house

But if your house increases to 240K you now have 80k in equity and therefore a 22% deposit to put down on the same house that is now worth 360K, so in fact the house is actually a lot more affordable!

HarryBarry

Hamish - I enjoy reading any opinion, but just find a lot of what you are saying isn't looking at the complete picture.

You are talking about the 2007 way as if it was a good thing. But did you miss the banking crisis ? This was off the back of banks lending to more people and rising house prices. The way things were then CLEARLY were not a good thing. More houses were being built to meet demand and prices went up uncontrollably.

Looking at your "rising house prices" who are they good for - it depends what you mean as to whether I agree. If you are talking about the rises we saw from 2000 - 2007, there is no possible way that was a good thing. If you want rising house prices in line with wage increases, yes that is fine, but we need to go through a period of stagnation to let things level out.

Yes the price rises in the 00s did benefit many individuals, considering the amount property I stand to inherit it is brilliant for me, but it doesnt stop me recognising the bigger picture and the consequences.

You talk about 2 million investment properties - this helped create the lack of supply. People inheriting their parents property ? Ok so they struggle all their life but get a good payout when their parents die. I think most prefer the thought of lower house prices and then they dont need help from parents. The rises we saw clearly werent good for banks and now the cost of housing has meant builders cant build as not enough can afford them, if prices hadnt risen so high in the first place they would be building as they know they could sell them.

I really dont understand how you can think house prices are too low, considering they got to a higher level and the whole system collapsed. You make it sound like you want prices to go back up but also want to give FTB the ability to buy - both cannot happen without major problems incurring in the future, given the prices houses are currently at.

Just to add, I am posting with the view that you dont see any problem with the massive rises previously seen, but this is because you state that you think prices are too low, whereas im coming from the way too high point of view (and tbh you dont often see someone make a case for it being too low given everything that happened).

The gov scheme in 2014 isn't designed to make house prices rise (although many fear it will), its to avoid a massive collapse. This will prop up the bottom end of the market. If it goes beyond that, major consequences (hence the warnings by a lot of people involved in the current crisis). But still, lets line the pockets of individuals while completely screwing generations of people. I take it you are one of those who has multiple properties or likes to feel rich with a nice costly house.

lessonlearned

GDVS wrote: »

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.

I do indeed.

However isn't this what you expect from governments (of all persuasion -not just our current incumbents) who have more or less come straight from university and then into politics, who have, by and large, never worked in the "real" world and who couldn't run a business if it landed in their lap......

I agree the banks are having a tough time, however they too are complicit in the sorry mess in which we have found ourselves.

HarryBarry

Ciderarmy1987 wrote: »

But if you had say 40K equity in a 200k house you would have a 13.35% deposit for a 300K house

But if your house increases to 240K you now have 80k in equity and therefore a 22% deposit to put down on the same house that is now worth 360K, so in fact the house is actually a lot more affordable!

Ok it might be better off with that scenario, having the 10% deposit rate v 20% deposit rate. But as you get more equity in there isnt much between the rates so it swings the other way and much more significantly.

But the rate things increased in the 00s were not good for up sizers. A work colleague who is older than me had around a 100% increase on his house, but then bought a massive house. He worked it all out and had prices only risen at a sensible rate he would be 10s of thousands better off at the end of his mortgage (taking into account house price + bank balance and calculating the difference in interest rates).

HAMISH_MCTAVISH

HarryBarry wrote: »

You are talking about the 2007 way as if it was a good thing. But did you miss the banking crisis ?

This was off the back of banks lending to more people and rising house prices.

I really dont understand how you can think house prices are too low, considering they got to a higher level and the whole system collapsed.

Eh?

You think the global financial crisis was caused by UK house prices and UK mortgage lending?

Seriously?

Because if so, that is just absolute nonsense.

UK mortgage lending remained, on the whole, sensible, prudent and low risk throughout.

Even in 2007.

I think you need to read this article....

Why did we have a financial crisis? And why has the recovery been so slow?

Ask any normal person these questions, they would probably blame the banks. But then world-weary "experts" - policy makers and commentators - would usually step forward, to put them straight.

"The banks made mistakes", these wise heads will say, "but really it's all our fault, for running up so much debt. We all had a binge, and now we have to pay."

It's an excellent morality tale, which chimes well with the British tendency towards self-flagellation.

There's just one problem.

It's not really true.

http://www.bbc.co.uk/news/business-17398014

Here's the reality.

-UK banks have lost 15 times more on foreign mortgages, since the crisis started, than on mortgages in the UK.

-75% of UK banks losses were on overseas lending, and most of that was commercial lending or takeovers.

-Not one single UK bank failed or needed bailing out because of defaults on UK residential mortgage lending.

-Even the Northern Rock bad bank, containing the worst of the worst of UK mortgages, has made over a billion pounds in profit in the last 2 years alone.

Northern Rock failed because it's business model was to borrow short and lend long, so when the global liquidity crisis hit and markets froze up, it was doomed. NR failed despite having an immensely profitable UK residential mortgage lending book, not because it's lending book was unprofitable.

UK mortgage lending standards, UK house prices, and UK mortgage default rates, were not to blame for bringing down the banks or for causing the financial crisis.

And anyone who posts otherwise is quite frankly ill-informed.

HAMISH_MCTAVISH

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.

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.

Absolutely spot on.

The government is finally doing it's job to restore functionality to dysfunctional lending markets.

These schemes are not "props" or "stimulus", but rather just a very small step in the right direction towards restoring a normal and functioning mortgage market.

SG27

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.

No it's no coincidence. Have tried getting a mortgage lately? Banks don't do 110% loans at 8 times your salary anymore! And you need a spotless credit report too.

And that is a good thing.

HAMISH_MCTAVISH

SG27 wrote: »

No it's no coincidence. Have tried getting a mortgage lately? Banks don't do 110% loans at 8 times your salary anymore! And you need a spotless credit report too.

And that is a good thing.

It is indeed a good thing.

Of course, banks pretty much never did 110% loans at 8 times your salary even in 2007.

As evidenced by the average advance to FTB borrowers never crossing 3.5 times income even at peak. And the average FTB deposit was 11% even in 2007.

Still, at least you don't believe in letting those pesky facts get in the way of a good story.;)

ILW

I know at least 5 people that got self cert loans of well over 5 times income 10 years ago.