95% mortgages are part of an aspirational society, 80% mortgages a social problem

Graham_Devon

Says Osbourne.

95% mortgages are not weapons of mass destruction (not sure where he got this line from!), but a regular part of a healthy economy and aspirational society.

Aspirational society?!?!

He went on to state that 80% LTV products are a "market failiure and a social problem".

So not only do 95% mortgages make an aspirational society, 80% mortgages are a social problem, and mortgages certainly aren't weapons of mass destruction.

Could the wording get any more dramatic!?

In a speech on the state of the economy, Mr Osborne criticised the current state of the mortgage market for first-time buyers and cited figures showing that LTVs remain in many cases stubbornly below the desired level, after falling 10 per cent from long-term averages.

According to Mr Osborne, house prices are one quarter lower than their peak price and are back at 2003 levels relative to earnings. However, he said only slightly more than half the number of mortgages are being approved compared to pre-crisis levels.

He said: “The median LTV for first time buyers has fallen from a long term average of 90 per cent to just 80 per cent now. This change is not something we should welcome; it is both a market failure and a social problem - imagine if you’d had to find twice as big a deposit for your first home.

He went on to say that 90 and 95 per cent LTV mortgages are “not exotic weapons of financial mass destruction”, saying instead that they are “a regular part of a healthy mortgage market and an aspirational society”.

http://www.ftadviser.com/2013/09/09/mortgages/mortgage-data/osborne-increasing-house-deposits-a-market-failure-iQVjcjdiTfRnliZM9YWn1I/article.html

chucky

Graham_Devon wrote: »

Says Osbourne.

95% mortgages are not weapons of mass destruction (not sure where he got this line from!), but a regular part of a healthy economy and aspirational society.

Aspirational society?!?!

He went on to state that 80% LTV products are a "market failiure and a social problem".

So not only do 95% mortgages make an aspirational society, 80% mortgages are a social problem, and mortgages certainly aren't weapons of mass destruction.

That's not exactly how he said it and not exactly what he said. It's how someone who doesn't understand what he said would interpret it. Don't cherry pick and miss pieces of his speach.

This is exactly what he said.

“The median LTV for first time buyers has fallen from a long term average of 90 per cent to just 80 per cent now. This change is not something we should welcome; it is both a market failure and a social problem - imagine if you’d had to find twice as big a deposit for your first home.

He went on to say that 90 and 95 per cent LTV mortgages are “not exotic weapons of financial mass destruction”, saying instead that they are “a regular part of a healthy mortgage market and an aspirational society”.

Thrugelmir

Graham_Devon wrote: »

Could the wording get any more dramatic!?

Made the headlines. So appears to have had the desired impact.

Nothing wrong with 95% mortgages per se.

Loughton_Monkey

... and the Portuguese boy said:

Antonio Horta-Osorio, the chief executive of Lloyds Banking Group, said this weekend of Help to Buy: "It is the right thing at this time. The fact it is a temporary scheme will allow it to be withdrawn and not allow a housing bubble."

Or should I have accused him of being dramatic, by suggesting that '... every banker in the world has shouted in unison; "Gideon's a hero. Bring it on. The guy's a hero" the world is now a safer place to live... a permanent end to financial problems...'

HAMISH_MCTAVISH

What he actually said, in full.....

Some have questioned whether new risks are emerging in the housing market.

This debate would benefit from a little less assertion and a little more examination of the evidence.

House prices are down a quarter from their peak in real terms, and relative to earnings they are back at 2003 levels.

Mortgage approvals are running at only a little more than half, and transactions a little more than two-thirds, of pre-crisis levels.

That is why the government’s Help to Buy scheme is a sensible, time-limited and necessary financial intervention to fix a specific financial problem: the dramatic reduction in the availability of high loan-to-value mortgages.

The median LTV for first time buyers has fallen from a long term average of 90% to just 80% now.

This change is not something we should welcome, it is both a market failure and a social problem – imagine if you’d had to find twice as big a deposit for your first home.

90% and 95% LTV mortgages are not exotic weapons of financial mass destruction – they are a regular part of a healthy mortgage market and an aspirational society.

And, importantly, Help to Buy mortgages will all be repayment mortgages, not interest only mortgages, so borrowers will rapidly build up a larger equity buffer within just a few years even in the absence of any house price growth.

Some claim that Help to Buy will boost demand but not supply, but again the evidence suggests otherwise.

Not only are the government’s planning reforms already increasing the flow of new planning permissions, but the lack of mortgage availability at higher loan to value ratios has itself been one of the biggest factors holding back the supply of new housing.

That’s why a report last week by former MPC member Charles Goodhart, now at Morgan Stanley, estimated that Help to Buy could increase housing starts by more than 30% between 2012 and 2015.

Pretty much exactly points out all the facts many of us have been noting for quite some time.

In fact, maybe I should apply for a job as his speech writer....

Graham_Devon

HAMISH_MCTAVISH wrote: »

In fact, maybe I should apply for a job as his speech writer....

I thought you had on reading it!!

If 95% mortgages are part of an aspirational society and 80% are a social problem, what's Wonga? The holy grail to prosperity!?

CLAPTON

it would seem (to quote some-one else) that the coalition are in office but not in power

Thrugelmir

Graham_Devon wrote: »

If 95% mortgages are part of an aspirational society and 80% are a social problem, what's Wonga? The holy grail to prosperity!?

What's the big deal with 95% mortgages?

How are FTB's expected to raise a 20% deposit?

chucky

Thrugelmir wrote: »

What's the big deal with 95% mortgages?

How are FTB's expected to raise a 20% deposit?

That's not the problem.

The problem is that houses are too expensive and if they were cheaper people could afford a 20% deposit.

So let me explain, if property values dropped 60% then people could afford a 20% deposit which is what Devon is saying. Unfortunately Devonimics doesn't understand that if 60% of the value of property is lost that is a hello of a lot of wealth destruction that has taken place probably putting the country back 200 years...

CLAPTON

the government owns two of our major banks and instructs the others what to lend (and provides the funding via FFL and HTB)
yet they talk as if some-one else is stopping 10% loans.....

Graham_Devon

Thrugelmir wrote: »

What's the big deal with 95% mortgages?

How are FTB's expected to raise a 20% deposit?

I'm not sure there is anything inherently wrong with 95% mortgages per se. So long as the risk is identified and catered for. Neither is that the point I was making in this thread.

However, this isn't really what we have. George was backing up the government scheme, which isn't really a 95% mortgage. That's the problem really. It's a lower LTV mortgage with a loan attached to it.

I suppose to answer the question you posed...

Theres nothing inherently wrong with 95% mortgages. That is so long as it's the lenders willing to actually offer the product. When they are not so willing and the tax payer is having to take the majority of the risk associated, then there may well be something wrong with offering such products, in whatever guise they come packaged up in.

How are FTB's supposed to save a 20% deposit? Not sure. However, does that suggest mortgages are the problem, or prices are the problem? The other point here though is that 90% mortgages have been available for some time now. So FTB's didn't have to stump up 20%.