Mortgage x salary irresponsible!

pinkteapot

We're taking our mortgage over the longest term we can (28 years, to take us to when MrTeapot is 65). We'll be overpaying as much as we can afford to from the very start.

We could certainly afford the repayments on a shorter term but doing it this way gives us some protection of a lower 'minimum' payment in case we lose our jobs and end up earning less, get ill, have kids, etc etc etc.

Although we're taking it out over 28 years, that term will start coming down the minute we get it as we'll be overpaying, so it's an irrelevant number. It's also pretty irrelevant in the majority of cases as most people don't buy their first place and stay in it for the rest of their life. Most will move, at which point they remortgage to whatever term they like.

One other thing - the majority of people will see wages increase during their working lives. Even if they sit in exactly the same job, they should get some inflationary pay rise in occasional years. No company freezes pay for 20-25 years and if they did, everyone would leave! And more realistically, people will move jobs, get promoted etc, and get increases beyond inflation.

Your mortgage doesn't go up with inflation but your wages generally should, so repayments do normally get easier over time...

I do think the point about interest rate rises in the OP is a good one. Our key facts doc for our mortgage told us how much our repayment will increase by if rates go up by 1%. That's nice. Personally I think it should have a table showing what our repayment would go up by for 1%, 2%, 3%, 4% and 5%. People should be using an online mortgage calculator to see what their repayment would be at all different rates, and working out what would be breaking point for them.

Biggest problem with HTB is the fact that a 5% deposit can easily leave you in negative equity if there's a short-term dip in the market and you're forced to sell at that time. If someone has a 20% deposit say, they should always be able to sell if the repayments get too much. They'll have lost most/all of their deposit, but they'll at least have a way out.

leveller2911

GMS wrote: »

Everything is a scam. Ironically the biggest scam has been joining forces with
others and leading people to believe that house prices will drop allowing them
to buy for peanuts. Plenty will never achieve the dream of home ownership.

The biggest scam is the taxpayer acting as guarantor for home loans. Thats the biggest scam GMS, when we have a situation where house prices are being pinned up by Goverment policy its quite shocking. Now if people want to have a 95% mortgage and the risks etc are fully disclosed to them then thats their choice. What I can stomach is that if/when people default we the taxpayers will pay,this is just plain wrong and 35yr mortgages ,where does it stop?. Wages stagnate,house prices rise and in a decade or so will we see 50yr mortgages as the norm?.

Its a funny old capitalist society we live and keep being told the benefits of it in when we now have a government subsidised housing market. Politicians don't look further than the next election and we always pay for that.

The government are playing to the audience for the 2015 election with HTB etc.If homebuyers and banks want to play a game of poker ,fine but the rest of society shouldn't have to pay for it.

I never expect house prices to fall through the floor due to demand outstripping supply . If/when developers do start building houses in volume they will drip feed them onto the market to keep prices/profit margins high so little will change.

GMS

Has anybody considered that there may be a profit to be made for the government? All they are doing is insuring the possible shortfall under HTB 2.

Repossession rates are still low despite the economic crisis of recent times. For every 1 the government pays out on there will be hundreds more they don't.

The 95% HTB mortgages are still very strictly underwritten. Successful applicants need a squeaky clean proven track record of financial management and must pass strict affordability calculations.

leveller2911

GMS wrote: »

Has anybody considered that there may be a profit to be made for the government?
All they are doing is insuring the possible shortfall under HTB 2.

Government should not be exposing the taxpayer to a risky "investement" full stop. Does the Government underwrite any business loans I may take out to run my business? no they don't so why meddle with the housing market. Their goal is simple and that is to underpin the housing market in this country because they know if there was a price correction they would lose the next election along with a steep rise in reposessions.

How many government projects are ever on budget or make a profit. Why are we insuring a possible shortfall end off, thats the job of the banks to do. Banks are private companies (RBS etc aside). There is an endless list of Government projects/inestments that have lost money or costs rises 2 fold.

Repossession rates are still low despite the economic crisis of recent times.
For every 1 the government pays out on there will be hundreds more they don't.

Why are they low GMS? could it be government policies that have reduced repo's such as QE?. Government haven't backed/susidised small business which are the engine room of the economy and fuel growth. All they have done is attempted to underpin the housing market.

The 95% HTB mortgages are still very strictly underwritten. Successful
applicants need a squeaky clean proven track record of financial management and
must pass strict affordability calculations.

Do they lend 95% on newbuilds given the newbuild premium they attract? , majority will be in negative equity as soon as they move in.

kingstreet

95% on a newbuild is only available on NewBuy and the builder and lender pay into the indemnity fund for this, in return for the Government guarantee.

I can see NewBuy, HTB - EL and HTB - MG turning a profit for the taxpayer, given that there is no political will from any party to tackle our chronic lack of housing supply.

leveller2911

kingstreet wrote: »

95% on a newbuild is only available on NewBuy and the
builder and lender pay into the indemnity fund for this, in return for the
Government guarantee.

Does the indemnity fully cover the Government guarantee?.

I can see NewBuy, HTB - EL and HTB - MG turning a profit for the taxpayer, given
that there is no political will from any party to tackle our chronic lack of
housing supply.

So Government picks and chooses who in Society it gives a helping hand to with regards to housing whilst at the same time sticks 2 fingers up at those who can't/don't wish to buy.

You say you can see the schemes turning a profit , why is it the banks thought it too risky to lend?.

Why does the Government choose to help the private housing industry but refuses to help the hundreds of thousands of small businesses around the country. What we have is a social engineering project. This isn't really a question for you KS its rhetorical .

kingstreet

Governments have always picked and chosen who they support. At least that's how it's gone in the thirty-odd years I've been politically aware.

Usually, they support the people who do, or may, vote for them.

Unfortunately, mainstream political parties are now only splittable with a playing card.

As usual, I was giving a view of the schemes based on what they are and what I think their financial impact will be for the taxpayer. I'll leave the other stuff to away from here and/or others who may wish to comment.

However, let's keep the thread on topic, as the two subjects are not directly related.

On NewBuy, the guarantee only kicks in if the funded indemnity scheme cannot meet the claims of repossession cases.

brit1234

GMS wrote: »

brit1234 will never buy a property. Even if prices were falling he would never be happy that the bottom of the market had been reached until such point as it began rising again which would then mean he had to wait for the next crash.

In the years he has waited for the perfect situation prices have risen and years of rent has enabled somebody elses property to be paid for and rise in value.

Perfect situation, well for me that's getting a mortgage no more than 4 times salary with a big deposit. Yes I am playing the waiting game but that is because I can't afford to buy like the majority of the country.

We all know that loose lending fuels these bubbles and down turns. Sorry if I say No to all these mortgage advisers recommending irresponsible lending to drum up business for their own pockets. I will buy when prices fall to 4 times salary and my big deposit. No to 35 year mortgages, no to interest only, no to shared equity/ownership, no to 5% deposits -125% mortgages, no to self cert/liar loans, no to guarantors mortgages, no to buy to let mortgages for residential use.

If we have a healthy market than house prices would not fall if interest rates went up to normal rates, QE stopped, funding for lending stopped, government schemes stopped, But we all know without all the stimulus above there would be big prices falls back to normal.

WhiteChristmas

That's a very healthy attitude you have there, Brit, but I fear you may be in for a long wait.

I wonder if history might view the 20th century as a "blip"?

Back in 1918, only about 1-in-5 homes were owner occupied. The private rented sector accounted for pretty much everything else.

As the century progressed, public sector housing replaced more than half of the private rental market and individuals bought like never before. Owner-occupation peaked in 2001 at about 70%.

But consider what was going on in the wider economy while that was going on. When the base rate dropped below 5% in 2001, it was the lowest it had been for nearly 50 years.

Home ownership in England has declined to about 65% in the last 10 years. The rental market is moving back into the private sector (it's approximately 50/50 private/public right now). The controls on lending that kept the long-term average house price trend at about 3 times average wages have been scrapped.

Anyone want to bet against our great-grandchildren looking back on a golden age when train drivers and nurses could actually buy their own homes?

leveller2911

There was a thread on here a while ago about house price falls during recessions and people were posting how we would never see prices fall by 30% but if we go back to the recession of the 90,s in the South East we saw exactly that. We also had mortgage rates of 15% , people were handing the keys back to the lenders which again those who were children then or born after didn't experience.

We almost had a financial meltdown back in 2007 so I personally won't rule anything out. The fact is many people have short memories and it will be interesting to see how the next few years pans out.