Capping mortgages

Graham_Devon

The BOE has hinted that it "could" cap mortgages at 4x income. maybe 5x income. It's a bit wooly.

Just throwing it up for debate. Will it make any difference?

Taking the national average household income of £36.3k before tax (IFS, 2013), this would mean, roughly, the optimum potential borrower could borrow £145,000.

The land registry shows that the current average house price is £169,000.

This suggests if the person on average income buys the average priced house, they will require a deposit of around 15% or £24,000.

Bearing in mind that £24,000 is nearly an entire years household income after taxes, this would seem difficult.

So how hard would such a cap hit the market, if at all? And therefore, how likely is it that the cap will actually be around 5x?

wymondham

I think it's a good start. If most people can't physically get the funds to buy a house, then this has to have a good effect on house prices ... or it may create an underclass of only those cash rich can buy and all others can't?


Still does not address the 'not enough houses' problem....

Thrugelmir

If read the monthly CML reports. Borrowing for both new and existing customers averages consistantly around the 3.2x salary mark. So lenders aren't taking undue risk.

Graham_Devon

Thrugelmir wrote: »

If read the monthly CML reports. Borrowing for both new and existing customers averages consistantly around the 3.2x salary mark. So lenders aren't taking undue risk.

If this is the case, does this suggest a lot are simply priced out?

Presumably these "priced out" will simply grow, as the amount of people already with property and equity taking on a new mortgage becomes a smaller and smaller pool of people?

purch

As a set of numbers it makes sense, and a 15% deposit requirement cannot be too onerous.

Of course, when you take into account the Kebabs, cans of Stella and numerous punts on a Betfair account they will probably end up with a mortgage offer which is for far less.

mayonnaise

I suppose this, (maybe in combination with end to HTB?) would help to squeeze out a large chunk of FTB's in favour of BTL-ers.
Whether that's a good thing or not is subjective.

Graham_Devon

purch wrote: »

As a set of numbers it makes sense, and a 15% deposit requirement cannot be too onerous.

I'm not too sure that would be the case. To save nearly a whole years salary when also facing current living expenditure would seem quite a task.

Graham_Devon

mayonnaise wrote: »

I suppose this, (maybe in combination with end to HTB?) would help to squeeze out a large chunk of FTB's in favour of BTL-ers.
Whether that's a good thing or not is subjective.

Can't seem them ending it.... reducing the cap possibly. Just can't see such a blow being delivered to the government a year before the election. HTB is one of their flagship policies. A lot of time has been spent promoting it, with even Cameron himself spending around 3 days so far walking round the country on building sites and sitting drinking tea in a new HTB home!

Certainly if they ended it due to it being problematic, I'd fell truly sorry for those who bought into it considering they could have bought into a policy promoted price increase.

ruggedtoast

Back in 2007 I honestly thought that things like this would have made some kind of difference. 7 years later with probably another 3 million people needing homes; I just dont think it will work.

There either has to be a lot less population growth or a whole lot more housebuilding. Even if both of these things came into effect tomorrow it would still take years to have any real effect on housing affordability.

Those sitting on deposits waiting for them to be worth more are going to have a very long wait indeed I am afraid.

IronWolf

I think its a good idea. In the current market I don't think it will have much impact, I cant imagine there are many loans given over 4x income. But it will stop crazy lending from returning in the long term.

HAMISH_MCTAVISH

Graham, how many times, the average income of all people is not the same thing as the average income of house buying people.

The average mortgage multiple of actual FTB-s never crossed 3.5 times income even at peak in 2007, it's lower than that today.

Capping at 5 times will have no effect.

Only building millions more houses will make any difference…..