"Affordability" - the new endowment?

Big_O

Um, surely A&L tell you how much your monthly repayments are? No matter how much you're borrowing? So you really ought to be able to work out yourself whether you can afford it or not?

As long as A&L don't lie or mislead, then I really don't see what the problem is.

budget_counsellor_shaz

eatmyfish wrote: »

It's nothing to do with maths, people are just greedy and when it all goes wrong they dish out a sob story about the nasty banks, or don't you feel people should act like adults and not a bunch of whining cry babies!

One of the ladies I spoke to, her husband had died and she was loaned too much money by her mortgage company, couldn't keep up the repayments and lost her house.

Another lady, her husband had been off work sick for 6 months, they were given a secured loan against her house and they are now in the process of going bankrupt.

These are real people, not everyone is irresponsible I can't believe how anyone can be so heartless and on this website too......

Some people just cannot do the sums, they are not stupid, just trusting....

Shaz

eatmyfish

budget_counsellor_shaz wrote: »

One of the ladies I spoke to, her husband had died and she was loaned too much money by her mortgage company, couldn't keep up the repayments and lost her house.

Another lady, her husband had been off work sick for 6 months, they were given a secured loan against her house and they are now in the process of going bankrupt.

These are real people, not everyone is irresponsible I can't believe how anyone can be so heartless and on this website too......

Some people just cannot do the sums, they are not stupid, just trusting....

Shaz

So it's the bank's fault her husband died? Death affects us all but it's not an excuse to borrow recklessy!The other example sounds like someone who borrowed recklessly too LOL!

dwsjarcmcd

budget_counsellor_shaz wrote: »

One of the ladies I spoke to, her husband had died and she was loaned too much money by her mortgage company, couldn't keep up the repayments and lost her house.

Another lady, her husband had been off work sick for 6 months, they were given a secured loan against her house and they are now in the process of going bankrupt.

These are real people, not everyone is irresponsible I can't believe how anyone can be so heartless and on this website too......

Some people just cannot do the sums, they are not stupid, just trusting....

Shaz

Shaz,
Both stories are tragic but this is not about affordability but more about the advice they were given at the time. In both of these situations, they could have insured themselves against these tragedies happening and not loosing their homes or being declared bankrupt.

budget_counsellor_shaz

Before I started teaching maths, I thought every single person was capable of getting a GCSE in maths, providing they put the work in, this is not the case. Some people try really hard but are unable to calculate what many people see as simple sums.

As I've been trying to say some people cannot do the sums, this doesn't make them stupid just vulnerable......

Shaz

Shaz

Running_Horse

eatmyfish wrote: »

Why? Noone is putting a gun to your head and making you take out a loan?
It's always someone elses fault isn't it?

While I tend to agree that a fool and his money are soon parted, it doesn't mean society shouldn't protect fools from themselves and others. If mortgage providers had to bear more of the brunt of bad debt, they might not lend so much to foolish people, and prices might not be spiralling out of control.

[Deleted User]

Stupid by definition is the to not have the intelligence to do something. Thus a large proportion of people are both mathematically stupid and econometrically stupid (they dont understand that interest rates can go up give the current state of affairs). So lets not suger coat the whole thing it is stupidity that causes issues. My stupidity socially means that I cant get a girlfriend for example .

Because of this I believe people should be protected from themselves.

MarkyMarkD

Meanmachine

I think that you are being unfair.

It would be a very poor method of evaluating affordability if it took the current interest rate (the 4.5% and 5.75% you quote in your OP) and used that to calculate your mortgage payments and hence your affordability.

A sensible affordability model would look at affordability based on projected future interest rates over a period of time. And those projected future interest rates have not (necessarily) increased by as much as the 4.5% to 5.75% you mention.

Lenders ought to be looking at a reasonable time horizon, not just the first couple of years (or indeed, months if it's a variable rate).

I'm sure you will notice with A&L's and other lenders' affordability calculators that the amount they will lend you is the same whatever product you choose - they do NOT use the product rate to assess affordability because that product rate isn't relevant forever.

The other thing to mention is that affordability models evolve over time. It might be that lenders learn from actual customer behaviour that some factors in the calculation are less important (or more important) than others, and accordingly change their impact on affordability.

Eatmyfish suggests that lenders may not care about bad debt because they package up the loans and sell them on. This is cobblers. For one thing, A&L has only securitised a small proportion of their lending unlike (for example) Northern Rock who have securitised loads.

But more to the point, if a lender securitises rubbish loans, it will have to pay a far higher rate to fund future securitisations when the previous ones turn out to be rubbish. It isn't a "money for old rope" scenario as eatmyfish seems to think.

It's in every lender's interest to underwrite the best possible quality loans, because then the cost of securitisation is the lowest possible in the medium to long term.

eatmyfish

MarkyMarkD wrote: »

Meanmachine

I think that you are being unfair.

It would be a very poor method of evaluating affordability if it took the current interest rate (the 4.5% and 5.75% you quote in your OP) and used that to calculate your mortgage payments and hence your affordability.

A sensible affordability model would look at affordability based on projected future interest rates over a period of time. And those projected future interest rates have not (necessarily) increased by as much as the 4.5% to 5.75% you mention.

Lenders ought to be looking at a reasonable time horizon, not just the first couple of years (or indeed, months if it's a variable rate).

I'm sure you will notice with A&L's and other lenders' affordability calculators that the amount they will lend you is the same whatever product you choose - they do NOT use the product rate to assess affordability because that product rate isn't relevant forever.

The other thing to mention is that affordability models evolve over time. It might be that lenders learn from actual customer behaviour that some factors in the calculation are less important (or more important) than others, and accordingly change their impact on affordability.

Eatmyfish suggests that lenders may not care about bad debt because they package up the loans and sell them on. This is cobblers. For one thing, A&L has only securitised a small proportion of their lending unlike (for example) Northern Rock who have securitised loads.

But more to the point, if a lender securitises rubbish loans, it will have to pay a far higher rate to fund future securitisations when the previous ones turn out to be rubbish. It isn't a "money for old rope" scenario as eatmyfish seems to think.

It's in every lender's interest to underwrite the best possible quality loans, because then the cost of securitisation is the lowest possible in the medium to long term.

Nope, because buy the time the loans start going into default they've already been sold to some other mug (usually pension funds) LOL
Look at what's happening in the bond market right now!

mr.broderick

CYBERCIDERSAVER wrote: »

1. These so called "responsible" institution like banks are all here to make money.

2. If these companies are not to blame at all, then how can they offer differing amounts to the same person? surely there is a limit? no it's all about weighing up the risk.

So when they offer you a ridiculous amount, they are gambling on you. Treating you like a horse in a race.

Also if there was a limit on the amount they could lend, (ie NOT 5 x like some lenders) then maybe that would help limit demand and therefore house prices.

Just random thoughts. Feel free to shoot them down

There are three doors. Behind one is the jackpot. Benhind the other two, the booby prize.
You choose door number 1
The game show host opens door number 2 reveal a booby prize.

The riddle. Stick with door number one or change your mind and go for door number 3?

Stick with one cause behind ONE is the jackpot....

Hope this helps you meanmachine..